AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1998
REGISTRATION NO. 333-
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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)
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<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)
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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:
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
----------------
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 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
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT (1) PRICE (1) FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value................ 11,500,000 $ 26.57 $305,555,000 $84,945
Preferred Share Purchase Rights (2) .........
Total ....................................... 11,500,000 $ 26.57 $305,555,000 $84,945
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933, as amended, and
based on the average high and low trading prices of the Common Stock on the
New York Stock Exchange, Inc. on October 30, 1998.
(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>
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1998
PROSPECTUS
, 1998
10,000,000 SHARES
YOUNG & RUBICAM INC.
COMMON STOCK
This is an offering of 10,000,000 shares of Common Stock, par value $0.01
per share, of Young & Rubicam Inc.
All of the 10,000,000 shares of Common Stock offered hereby are being sold
by the Selling Stockholders named in this Prospectus. The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders.
The last reported sale price of the Common Stock, which is listed on the
New York Stock Exchange under the symbol "YNR", on November 5, 1998, was $30.00
per share. See "Price Range of Common Stock and Dividend Policy."
INVESTING IN COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 9 TO READ ABOUT CERTAIN RISKS THAT YOU SHOULD CONSIDER BEFORE
BUYING SHARES OF THE COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PER SHARE TOTAL
----------- ------
Public offering price ......................... $ $
Underwriting discount ......................... $ $
Proceeds to the Selling Stockholders .......... $ $
The underwriters may, under certain circumstances, purchase up to an
additional 1,500,000 shares of Common Stock from certain Selling Stockholders at
the public offering price less the underwriting discount, solely to cover
over-allotments. The Company has agreed to pay expenses incurred by the Selling
Stockholders in connection with the offering, other than the underwriting
discount.
The underwriters are severally underwriting the shares being offered. The
underwriters are offering the shares when, as and if delivered to and accepted
by them, subject to various prior conditions, including their right to reject
orders in whole or in part. The underwriters expect to deliver the shares
against payment in New York, New York on , 1998.
JOINT GLOBAL COORDINATORS AND JOINT BOOK-RUNNING MANAGERS
BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE
---------------------
ING BARING FURMAN SELZ LLC
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
<PAGE>
CERTAIN INTRODUCTORY MATTERS
Unless otherwise stated, all of the information in this Prospectus assumes
that the underwriters' over-allotment option is not exercised. Unless otherwise
stated, all references to the "Company" and "Y&R" refer to Young & Rubicam Inc.,
its predecessors and its consolidated subsidiaries, including Young & Rubicam
L.P. 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.
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 1997
billings or revenues.
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, Kang & Lee, The Media
Edge and The Mead Point Group are trademarks of the Company. Other trademarks
referenced herein are trademarks of their respective legal owners.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Prospectus are forward-looking statements.
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 anticipated advertising expenditures (and the growth
thereof) in the world's advertising markets. These forward-looking statements
also include 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. In addition, we may make
forward-looking statements in future filings with the Securities and Exchange
Commission, and in written material, press releases and oral statements issued
by or on behalf of us. Forward-looking statements 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) with respect to various matters.
It is important to note that our actual results could differ materially
from those anticipated in these forward-looking statements depending on various
important factors. These important factors include (i) revenues received from
clients, including pursuant to incentive compensation arrangements entered into
by us 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 we conduct business and other trends affecting our financial condition
or results of operations, (iv) the impact of competition in the marketing and
communications industry, (v) our liquidity and financing plans and (vi) risks
associated with the Company's efforts to comply with Year 2000 requirements.
All forward-looking statements in this Prospectus are based on information
available to us on the date hereof. We do not undertake to update any
forward-looking statements that may be made by or on behalf of us, in this
Prospectus or otherwise. In addition, please note that the matters set forth
under the caption "Risk Factors" constitute cautionary statements identifying
important factors with respect to these forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
Prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in the Common Stock. You
should read the entire Prospectus carefully, especially the risks of investing
in the Common Stock discussed under "Risk Factors."
THE COMPANY
Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world. Since our founding 75 years ago, we
have evolved from a single New York-based advertising agency to a diversified
global marketing and communications company operating in 121 cities in 76
countries worldwide as of September 30, 1998. We operate through internationally
recognized market leaders including 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). Revenues in 1997 totaled approximately $1.4
billion, representing a compound annual growth rate of 12.9% from 1995 to 1997.
Through multi-disciplinary, client-focused teams, we provide clients with
global access to fully integrated marketing and communications solutions. Among
our approximately 5,500 client accounts are a number of large multinational
organizations, including AT&T, Citibank, Colgate-Palmolive, Ford and Philip
Morris. We have maintained long-standing relationships with many of our clients;
the average length of relationship with our top 20 clients exceeds 20 years.
Our mission is to be our clients' most valued business partner in building,
leveraging, protecting and managing their brands for both short-term results and
long-term growth. Consistent with our mission, we have developed an
organizational and management structure designed to meet the diverse needs of
our large global clients as well as the more specialized needs of our other
clients. Our strategy combines this organizational and management structure with
the pursuit of new business opportunities and continued investment in our
business, personnel and superior consumer knowledge.
In late 1992, we created the Key Corporate Account, or 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 our revenues
and profits, and are served on a multinational basis by two or more of our
businesses. We currently designate 41 of our client accounts as KCAs. Revenues
from the KCAs, as a group, increased by 14.6% in 1997, and accounted for
approximately 45.5% of our consolidated revenues in 1996 and approximately 46.1%
of our consolidated revenues in 1997. In order to further strengthen client
relationships and reward us for meeting or exceeding certain performance
targets, we are working with KCAs to adopt incentive compensation arrangements
that align our compensation with our performance and our clients' business
performance.
As part of our client focus, Peter A. Georgescu, our Chairman and Chief
Executive Officer, John P. McGarry, Jr., our President, Edward H. Vick, our
Chief Operating Officer, and Thomas D. Bell, Jr., an Executive Vice President of
the Company and the Chairman and Chief Executive Officer of Young & Rubicam
Advertising, all retain ongoing responsibilities for individual KCAs in addition
to their managerial roles.
3
<PAGE>
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:
o 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 $188 billion in 1997.
o 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 53% in
1997.
o 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.
o 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.
o 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
Our strategy consists of the following key components:
o INCREASE PENETRATION OF KEY CORPORATE ACCOUNTS. We believe that there
are significant opportunities to increase our share of the marketing and
communications expenditures of our KCAs by leveraging our global network to
provide integrated services. In recent years, we have successfully increased our
share of the marketing and communications expenditures of certain KCAs. KCAs
also have increased their use of multiple services offered by us over the same
period. During 1997, our 20 largest clients used the capabilities of an average
of five of our marketing and communications services.
o DEVELOP NEW CLIENT RELATIONSHIPS. We believe 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. We have
successfully used our integrated and global approach as an effective tool in
winning new business.
o LEVERAGE EXISTING GLOBAL NETWORK. With a worldwide presence in 76
countries, we believe that we are well positioned to continue to benefit from
the trend towards the globalization of client marketing and communications needs
and the consolidation of those needs with a single international service
provider.
o CAPITALIZE ON EXISTING CAPABILITIES. We intend to continue the
development of our existing capabilities into more visible and accessible client
services. For example, we created our Brand Dialogue unit in 1997 by combining
the existing interactive capabilities of Young & Rubicam Advertising and
Wunderman Cato Johnson in the United States, Latin America, Europe and
Asia/Pacific.
4
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o UTILIZE SUPERIOR CONSUMER KNOWLEDGE AND BRAND INSIGHTS. To assist our
clients in building, leveraging, protecting and managing their brands, we have
developed and are maintaining extensive knowledge of consumer brand perceptions.
For example, we have developed BrandAsset Valuator, or BAV, a proprietary
database that reflects the perceptions of over 95,000 consumers in 32 countries
on five continents. We believe that BAV is the first global consumer study that
provides an empirically derived model for how brands gain and lose their
strength over time.
o CULTIVATE CREATIVE EXCELLENCE. We intend to continue emphasizing the
importance of creative marketing and communications. We have 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. We have also performed identity and design
assignments, including the creation of corporate identities, for Lucent
Technologies, Netscape and the 2002 Salt Lake City Olympics.
o IMPROVE OPERATING EFFICIENCIES. We believe that opportunities exist to
improve operating efficiencies in order to expand margins and increase future
profitability. For example, we have implemented initiatives which have both
improved productivity and reduced compensation expense as a percentage of
consolidated revenues.
o EXPAND CAPABILITIES THROUGH ACQUISITIONS. In order to add new
capabilities, enhance our existing capabilities and expand the geographic scope
of our operations, we regularly evaluate and intend to pursue appropriate
acquisition opportunities.
Our principal executive office is located at 285 Madison Avenue, New York,
New York 10017, and our telephone number is (212) 210-3000.
5
<PAGE>
THE OFFERING
Common Stock offered..... 10,000,000 shares
Common Stock to be
outstanding after the
Offering ............... 66,383,779 shares (1)
Dividend Policy......... We expect to declare and pay a regular quarterly
cash dividend in the first half of 1999. See "Price
Range of Common Stock and Dividend Policy."
Use of Proceeds........ We will not receive any of the proceeds from the sale
of Common Stock offered hereby.
New York Stock Exchange
Symbol.................. YNR
- -----------
(1) As of the date hereof, the number of shares of Common Stock outstanding
excludes (i) an aggregate of 27,341,213 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 at a
weighted average exercise price of $7.69 per share and (ii) an aggregate of
2,598,105 shares reserved for issuance upon the exercise of outstanding
options issued to certain investors in the Company at a weighted average
exercise price of $7.67 per share. See "Management--Executive Compensation"
and "Capitalization."
RISK FACTORS
For a discussion of certain risks that you should consider before buying
shares of the Common Stock, see "Risk Factors."
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ------------------------------
1995 1996 1997 1997 1998
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenues ...................................... $1,085,494 $1,222,139 $1,382,740 $ 977,067 $1,095,720
Compensation expense, including
employee benefits (1) ........................ 672,026 730,261 836,150 600,767 659,449
General and administrative expenses (1)........ 356,523 391,617 463,936 331,353 324,783
Recapitalization-related charges (2) .......... -- 315,397 -- -- --
Other operating charges (2) ................... 31,465 17,166 11,925 -- 234,449
---------- ---------- ---------- ----------- ----------
Operating expenses ............................ 1,060,014 1,454,441 1,312,011 932,120 1,218,681
---------- ---------- ---------- ----------- ----------
Income (loss) from operations ................. 25,480 (232,302) 70,729 44,947 (122,961)
Income (loss) before extraordinary charge. 820 (238,311) (23,938) 11,905 (108,895)
Extraordinary charge for early retirement
of debt (net of tax benefit of $2,834)........ -- -- -- -- (4,433)
---------- ---------- ---------- ----------- ----------
Net income (loss) ............................. $ 820 $ (238,311) $ (23,938) $ 11,905 $ (113,328)
========== ========== ========== =========== ==========
(Loss)/earnings per share (3):
Basic:
(Loss) income before extraordinary charge $ (0.51) $ 0.25 $ (1.84)
Extraordinary charge .......................... $ -- $ -- $ (0.08)
---------- ----------- ----------
Net (loss)/income ............................. $ (0.51) $ 0.25 $ (1.92)
Diluted:
(Loss) income before extraordinary charge $ (0.51) $ 0.20 $ (1.84)
Extraordinary charge .......................... $ -- $ -- $ (0.08)
---------- ----------- ----------
Net (loss)/income ............................. $ (0.51) $ 0.20 $ (1.92)
Weighted average shares outstanding used
to compute (3):
Basic ......................................... 46,949,355 47,109,739 58,939,274
Diluted ....................................... 46,949,355 60,313,689 58,939,274
OTHER OPERATING DATA:
EBITDA (1)(4) ................................ $ 72,972 $ 147,221 $ 139,375 $ 86,421 $ 154,549
Net cash provided by operating activities 79,809 178,064 224,511 54,496 22,073
Net cash used in investing activities ........ (45,821) (76,094) (67,142) (46,917) (39,260)
Net cash used in financing activities ........ (50,025) (12,614) (98,667) (53,049) (75,444)
Capital expenditures ......................... (42,096) (51,792) (51,899) (38,930) (34,784)
International revenues as a % of total
revenues (5) ............................... 54.7% 53.3% 52.2 % 51.3 % 48.1 %
</TABLE>
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<CAPTION>
SEPTEMBER 30, 1998
(UNAUDITED)
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BALANCE SHEET DATA:
Total assets (6) ................... $1,495,213
Total debt (7) ..................... 109,142
Total stockholders' equity ......... 101,310
</TABLE>
(footnotes on following page)
7
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(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) Upon the consummation of the initial public offering of Common Stock in May
1998 (the "IPO"), 9,231,105 shares of Common Stock held in a restricted
stock trust vested and resulted in non-recurring, non-cash pre-tax
compensation charges of $234.4 million which have been reflected as other
operating charges. See Note 7 to the Company's unaudited interim
consolidated financial statements and the notes thereto included in this
Prospectus (together, the "Interim Financial Statements"). For a discussion
of Recapitalization-related and other operating charges for the years ended
December 31, 1995, 1996 and 1997, see Notes 4 and 6 to the Company's
audited consolidated financial statements and the notes thereto included in
this Prospectus (together, the "Annual Financial Statements").
(3) Basic earnings (loss) per common share has been computed by dividing net
income (loss) for the applicable period by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the dilutive effect of stock options and other stock awards
granted to employees under stock-based compensation plans. Diluted net loss
per common share for the year ended December 31, 1997 and the nine months
ended September 30, 1998 was computed in the same manner as basic net loss
per common share since the inclusion of potential common shares would be
antidilutive.
On May 15, 1998, the Company consummated the IPO. An aggregate of
19,090,000 shares of Common Stock were offered to the public, of which
6,912,730 shares were sold by the Company and 12,177,270 shares were sold
by certain selling stockholders.
At September 30, 1998, the Company had outstanding options to purchase
30,972,605 shares of Common Stock with a weighted average exercise price of
$7.41 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 for the nine months ended September 30, 1998 because the
effect would be antidilutive. See "Management -- Executive Compensation --
Management Stock Option Plan" and "--1997 ICP" and Notes 3, 15 and 21 to
the Annual Financial Statements.
Earnings per share for 1995 and 1996 cannot be computed because the
Company's capital structure prior to the recapitalization of the Company in
December 1996 consisted of both common shares and limited partnership units
in predecessor entities. See Note 4 to the Annual Financial Statements.
(4) 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 credit facilities; however, EBITDA may not be
comparable to other registrants' calculation of EBITDA or similarly titled
items. EBITDA should not be considered as an alternative to net income
(loss) as a measure of operating results in accordance with generally
accepted accounting principles or as an alternative to cash flows as a
measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
EBITDA for 1996 and 1997 is before $11,096 and $11,925, respectively, of
non-cash charges primarily related to impairment write-downs which are
included in other operating charges. EBITDA for the nine months ended
September 30, 1998 is before $234,449 of non-cash compensation charges
related to the vesting of certain restricted stock taken at the time of the
IPO. See Notes 4 and 6 to the Annual Financial Statements and Note 7 to the
Interim Financial Statements.
(5) International revenues include all revenues earned outside the United
States.
(6) Total assets as of September 30, 1998 include net deferred tax assets of
$191,188 consisting primarily of federal, state and foreign net operating
loss ("NOL") carryforwards.
(7) Total debt includes current and non-current loans and installment notes.
See Notes 13 and 14 to the Annual Financial Statements.
8
<PAGE>
RISK FACTORS
An investment in the Common Stock involves a number of risks. You should
consider carefully the following information about these risks, together with
the other information contained in this Prospectus, before buying shares of
Common Stock.
WE HAVE RECENTLY INCURRED SUBSTANTIAL NET LOSSES
We reported net losses of $238.3 million for 1996 and $23.9 million for
1997. In addition, we reported a net loss of $113.3 million for the first nine
months of 1998, including a non-cash compensation charge of $234.4 million
recorded in connection with the vesting of certain restricted stock upon
consummation of the Company's initial public offering ("IPO") in May 1998. We
expect to report a net loss for the full 1998 year resulting from this charge
and a $7.3 million charge for unamortized deferred financing costs related to a
senior secured credit facility that was replaced with an unsecured revolving
credit facility in connection with the IPO.
THE MARKETING AND COMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE
The marketing and communications industry is highly competitive, and we
expect it to remain so. Our 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. We must compete with
these 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 periodic
intervals. We compete principally on the basis of the following factors:
o creative reputation;
o knowledge of media;
o geographical coverage and diversity;
o relationships with clients;
o quality and breadth of services; and
o financial controls.
Recently, traditional advertising agencies also have been competing with
major consulting firms which have developed practices in marketing and
communications. New competitors also include 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.
When we represent a client, we do not always handle all advertising or
public relations for that client. Many large multinational companies are served
by a number of agencies within the marketing and communications industry. In
many cases, clients' policies on conflicts of interest or their 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. This conflicts policy typically
prohibits agencies from performing similar services for competing products or
companies. Our principal international competitors are holding companies for
more than one global advertising agency network. As a result, in some
situations, separate agency networks within these holding companies may be able
to perform services for competing products or for products of competing
companies. We have one global advertising agency network. Accordingly, our
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."
9
<PAGE>
WE MAY BE ADVERSELY AFFECTED BY A DOWNTURN IN THE MARKETING AND COMMUNICATIONS
INDUSTRY, WHICH IS CYCLICAL
The marketing and communications industry is cyclical and as a result it is
subject to downturns in general economic conditions and changes in client
business and marketing budgets. Our prospects, business, financial condition and
results of operations may be materially adversely affected by a downturn in
general economic conditions in one or more markets or changes in client business
and marketing budgets.
WE MAY LOSE CLIENTS DUE TO CONSOLIDATION OF ACCOUNTS WITH OTHER GLOBAL AGENCIES
We believe that large multinational companies will seek to consolidate
their accounts with one organization that can fulfill their marketing and
communications needs worldwide. We may not 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. These investments include additional offices and
personnel around the world and new and improved technology for linking these
offices and people. We are required to make significant capital expenditures for
maintenance, expansion and upgrades of the computer networks that link our
international network of employees and offices. To the extent that our
competitors may have broader geographic scope or greater financial resources to
invest in additional offices, personnel or technology, they may be better able
than us to take advantage of an opportunity for the consolidation of a global
account. In those circumstances, our prospects, business, financial condition
and results of operations could be adversely affected.
WE ARE INCREASINGLY DEPENDENT UPON, AND RECEIVE A SIGNIFICANT PERCENTAGE OF OUR
REVENUES FROM, A LIMITED NUMBER OF LARGE CLIENTS
A relatively small number of clients contribute a significant percentage of
our consolidated revenues. In 1997, our 20 largest clients contributed
approximately 40.5% of consolidated revenues, our three largest clients
contributed approximately 18.6% of consolidated revenues and our largest client,
Ford Motor Company, contributed approximately 10.0% of consolidated revenues.
Our dependence on revenues from these clients may increase in the future as we
pursue our strategy of increasing penetration of existing large clients. In
addition, clients' conflicts policies typically prohibit us from performing
similar services for competing products or companies.
These major clients, and our other clients, may not continue to use our
services to the same extent, or at all, in the future. Most of our agreements
with U.S.-based clients are cancelable on 90 days' notice, and our 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. A significant reduction
in the marketing and communications spending by, or the loss of one or more of,
our largest clients, if not replaced by new client accounts or an increase in
business from existing clients, would have a material adverse effect on our
prospects, business, financial condition and results of operations.
WE MAY LOSE EXISTING CLIENTS AND MAY NOT BE ABLE TO ATTRACT NEW CLIENTS
Our success, like the success of other marketing and communications
organizations, depends on our continuing ability to attract and retain clients.
We have approximately 5,500 client accounts worldwide. Although historically we
have maintained long-term relationships with many of our 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, in order to maintain and increase revenues, we
must obtain new assignments in areas of our business that are project-based,
such as the perception management and public relations business, and the
branding consultation and design business. As is typical in the marketing and
communications industry, we have lost or resigned client accounts and
assignments, including Blockbuster Video and International Home Foods, for a
variety of reasons, including conflicts with newly acquired clients. We may not
be successful in replacing clients or revenues when a client significantly
10
<PAGE>
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 our
prospects, business, financial condition and results of operations.
STRENGTHENING OF THE U.S. DOLLAR AGAINST OTHER MAJOR CURRENCIES COULD HAVE A
MATERIAL ADVERSE EFFECT ON US
Our financial statements are denominated in U.S. dollars. In 1997,
operations outside the United States represented approximately 52.2% of our
revenues, and in the first nine months of 1998 operations outside the United
States represented approximately 48.1% of our revenues. 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 our results of operations. With limited
exceptions, we do not actively hedge our foreign currency exposure. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
THE MARKET PRICE OF THE COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR
FUTURE SALE
Following the Offering, we will have 66,383,779 shares of Common Stock
outstanding. Of these, 31,560,110 shares will be freely transferable by persons
other than "affiliates" of the Company without restriction or further
registration under the Securities Act. The remaining 34,823,669 outstanding
shares of Common Stock will be "restricted securities" within the meaning of
Rule 144 under the Securities Act or securities issued and sold pursuant to
Regulation S under the Securities Act and subject to transfer restrictions.
Following the Offering and subject to certain 120-day lock-up agreements
described herein, 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 two investors unaffiliated with the Company will have
demand and piggyback registration rights with respect to an aggregate of
16,947,205 shares of Common Stock and shares subject to currently exercisable
options. In addition, subject to these lock-up agreements those 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.
Following the Offering, an aggregate of 36,608,935 shares of Common Stock
and shares subject to vested options held by Management Investors will be
eligible for sale in the public market without registration under the Securities
Act, subject, in certain instances, to compliance with the resale and volume
limitations and other restrictions of Rule 144 under the Securities Act. Of this
amount, 33,915,365 shares will be subject to certain 120-day lock up agreements
described herein or held in a deferral trust and not transferable prior to the
expiration of this 120-day period.
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."
WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDERS, INCLUDING MANAGEMENT
STOCKHOLDERS
A substantial percentage of our Common Stock is owned by Management
Investors and by the H&F Investors. See "Management." All Common Stock held at
any time by Management Investors is required to be deposited in a voting trust
(the "Management Voting Trust") that is controlled by seven members of Y&R's
senior management, in their capacities as voting trustees. Following the
Offering, this trust will hold voting power over approximately 46.4% of the
outstanding shares of Common Stock (assuming the exercise of all vested options
held by Management Investors). As a result, this voting trust will continue to
be able to exercise substantial control over any matters requiring the vote of
stockholders, including the election of Directors, which could delay or prevent
a change in control of the Company. Furthermore, the vote of Peter A. Georgescu
(or any other person duly elected Chief Executive Officer of Y&R with the prior
approval of the voting trust) will bind the voting trust unless he (or his
successor) is outvoted by five of the other voting trustees. As a result of the
foregoing, Peter A. Georgescu
11
<PAGE>
(or his successor) will be able to exercise a significant degree of control over
business decisions affecting Y&R. This voting trust will terminate no later than
May 15, 2000. See "Description of Capital Stock--The Management Voting Trust
Agreement." In the event that, following the termination of the voting trust,
management of the Company continues to own collectively a significant percentage
of the outstanding shares of Common Stock, management acting together would be
able to exercise a significant degree of control over business decisions
affecting Y&R.
Following the Offering, the H&F Investors will beneficially own an
aggregate of approximately 24.1% of the outstanding shares of Common Stock
(assuming the exercise of all vested options they hold). As a result of their
stock ownership, the H&F Investors will continue to be able to influence matters
requiring the vote of stockholders, including the election of Directors. In
addition, pursuant to a stockholders' agreement entered into in connection with
the IPO, the H&F Investors have the right to nominate and have elected two
members of the Company's Board of Directors (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. 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 "--We Are Subject To Certain
Anti-Takeover Effects" and "Description of Capital Stock--The Stockholders'
Agreement."
OUR COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL
Our ability to maintain our competitive position depends on retaining the
services of our 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, our success has been, and is expected to continue to be,
highly dependent upon the skills of our creative, research, media and account
personnel and practice group specialists, and their relationships with our
clients. Employees generally are not subject to employment contracts and are,
therefore, typically able to move within the industry with relative ease.
Although the agreement establishing the Management Voting Trust and certain
stock option and restricted stock agreements contain non-competition and
non-solicitation covenants, these covenants may not be effective in helping us
retain qualified personnel. We may be adversely affected by the failure to
retain qualified personnel.
If we were unable to continue to attract and retain additional key
personnel, or if we were unable to retain and motivate our existing key
personnel, our 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."
WE ARE EXPOSED TO RISKS FROM OPERATING A MULTINATIONAL BUSINESS
We conduct business in various developing countries in Asia, Latin America,
Eastern Europe and Africa, where the systems and bodies of commercial law and
trade practices are evolving. Commercial laws in such countries are often vague,
arbitrary, contradictory, inconsistently administered and retroactively applied.
Under these circumstances, it is difficult for us to determine with certainty at
all times the exact requirements of such local laws. If we consistently were
unable to remain in compliance with local laws in such developing countries, it
could have a material adverse impact on our prospects, business, results of
operations and financial condition. In addition, the global nature of our
operations poses various challenges to our management and our financial,
accounting and other systems which, if not satisfactorily met, could have a
material adverse impact on our prospects, business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
12
<PAGE>
OUR ACQUISITION STRATEGY EXPOSES US TO RISKS
Our business strategy includes increasing our share of clients' marketing
expenditures by adding to or enhancing our existing marketing and communications
capabilities, and expanding our geographic reach. We intend to implement this
strategy in part by making acquisitions. We may not be successful in identifying
appropriate acquisition candidates or consummating acquisitions on terms
satisfactory to us. In addition, we may not be successful in integrating any
newly acquired companies into our existing global network. We may use Common
Stock (which could result in dilution to purchasers of Common Stock) or may
incur indebtedness (which may be long-term), expend cash or use any combination
of Common Stock, indebtedness and cash for all or part of the consideration to
be paid in future acquisitions. While we regularly evaluate potential
acquisition opportunities, we have no present commitments, agreements or
understandings with respect to any material acquisition.
WE MAY INCUR LIABILITY TO THIRD PARTIES
From time to time, we may be, or may be joined as, a defendant in
litigation brought against our clients by third parties, including our clients'
competitors, governmental or regulatory bodies or consumers. These litigations
could include claims alleging that:
o advertising claims made with respect to our client's products or
services are false, deceptive or misleading;
o our clients' products are defective or injurious; or
o marketing and communications materials created for our clients
infringe on the proprietary rights of third parties.
If, in such circumstances, we are not insured under the terms of our
insurance policies or are not indemnified under the terms of our agreements with
clients (or this indemnification is unavailable) for these claims, then the
damages, costs, expenses or attorneys' fees arising from any of these claims
could have an adverse effect on our prospects, business, results of operations
and financial condition. In addition, our contracts with clients generally
require us to indemnify clients for claims brought by competitors or others
claiming that advertisements or other communications infringe on intellectual
property rights. Although we maintain an insurance program, including insurance
for advertising agency liability, this insurance may not be available, or if
available may not be sufficient to cover any claim, if a significant adverse
claim is made.
OUR COMPUTER SYSTEMS, AND THOSE OF OTHERS ON WHOM WE RELY, MAY NOT ACHIEVE YEAR
2000 READINESS
We are working to resolve the potential impact of the year 2000 on the
ability of our computer systems to accurately process information with dates
later than December 31, 1999, or to process date-sensitive information
accurately beyond the year 1999 (referred to as the "Year 2000" issue). We are
in the process of modifying or replacing all affected systems for compliance
with the Year 2000 issue and are also monitoring the adequacy of the processes
and progress of vendors of systems and applications that may be affected by the
Year 2000 issue. We are dependent in part on computer systems and applications
owned and operated by others, particularly with respect to such critical tasks
as accounting, billing and buying, planning and paying for media, as well as on
our own computer systems. While we believe our process is designed to be
successful, because of the complexity of the Year 2000 issue and the
interdependence of organizations using computer systems, we may not
satisfactorily complete our Year 2000 program in a timely fashion. In addition,
others with whom we interact and on whom we rely may not satisfactorily complete
their own Year 2000 programs in a timely fashion. Failure to satisfactorily
address the Year 2000 issue could have a material adverse effect on our
prospects, business, financial condition and results of operations.
The costs of our Year 2000 compliance program have not been determined but
we do not expect such costs to be material. However, we may experience cost
overruns and delays as we replace or modify systems, which could have a material
adverse effect on our prospects, business, financial condition and results of
operations. We have not yet determined the extent of contingency planning that
may be required. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
13
<PAGE>
THE MARKET PRICE OF THE COMMON STOCK WILL FLUCTUATE, AND COULD FLUCTUATE
SIGNIFICANTLY
The market price of the Common Stock will fluctuate, and could fluctuate
significantly, in response to various factors and events, including the
following:
o the liquidity of the market for the Common Stock;
o differences between the Company's actual financial or operating
results and those expected by investors and analysts;
o changes in analysts' recommendations or projections;
o changes in marketing and communications budgets of clients;
o new statutes or regulations or changes in interpretations of existing
statutes and regulations affecting the Company's business;
o changes in general economic or market conditions; and
o broad market fluctuations.
WE ARE SUBJECT TO CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of Y&R's Amended and Restated Certificate of
Incorporation (the "Charter") and Amended and Restated By-Laws (the "By-Laws"),
and of the Delaware General Corporation Law (the "DGCL"), may delay, deter or
prevent a change in control of the Company not approved by the Board. These
provisions include:
o a classified Board;
o 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;
o a requirement that special meetings of stockholders be called only by
the Chairman of the Board or the Board;
o advance notice requirements for stockholder proposals and nominations;
o limitations on the ability of stockholders to amend, alter or repeal
certain provisions of the Charter and the By-Laws;
o authorization for the Board to issue without stockholder approval
preferred stock with such terms as the Board may determine; and
o authorization for the Board to consider the interests of clients and
other customers, creditors, employees and other constituencies of the
Company and its subsidiaries and the effect upon communities in which
the Company and its subsidiaries do business, in evaluating proposed
corporate transactions.
With certain exceptions, Section 203 of the DGCL ("Section 203") imposes
certain restrictions on mergers and other business combinations between the
Company and any holder of 15% or more of the Company's Common Stock (other than
the H&F Investors and their permitted transferees, who have been exempted from
these restrictions by the Board).
In addition, the Company has adopted a stockholder rights plan (the "Rights
Plan") under which each holder of Common Stock receives rights. Under the Rights
Plan, if any person acquires beneficial ownership of 15% or more of the
outstanding shares of Common Stock (with certain exceptions, including the
Management Voting Trust), that person will become an "Acquiring Person". As a
result, holders of rights (other than the Acquiring Person and certain
transferees and related persons) will be entitled to purchase shares of Common
Stock at one-half their market price. In general, the H&F Investors and their
permitted transferees will not become an "Acquiring Person" unless they acquire
beneficial ownership of additional shares of Common Stock under certain
circumstances. While 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 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. See "Description of Capital Stock--Rights Plan."
These provisions of the Charter and the By-Laws, the DGCL and the Rights
Plan, together with the control of 46.4% of the
14
<PAGE>
outstanding shares of Common Stock by the Management Voting Trust upon
consummation of the Offering (assuming the exercise of all vested options held
by Management Investors) 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. These provisions also could make it more difficult for third
parties to remove and replace the members of the 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 Common Stock, and may also inhibit increases in the market
price of the Common Stock that could result from takeover attempts or
speculation. In addition, options issued to employees of the Company under the
1997 Incentive Compensation Plan 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."
15
<PAGE>
THE COMPANY
GENERAL
Since our founding 75 years ago by John Orr Young, an account executive,
and Raymond Rubicam, a copywriter, we have evolved from a single New York-based
advertising agency to a diversified global marketing and communications
organization. In our early years, we grew our 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, we had established a network of
approximately 40 Young & Rubicam Advertising agency offices in the United States
and 22 other countries.
In 1973, we began to expand our capabilities beyond traditional general
advertising by acquiring well-established leaders in other marketing and
communications disciplines. We began this diversification by acquiring Wunderman
Ricotta & Kline (the predecessor to Wunderman Worldwide), a direct marketing
firm, and Sudler & Hennessey, a healthcare communications specialist. In 1976,
we added the sales promotion firm, Cato Johnson Associates, which was merged
with Wunderman Worldwide in 1992 to form Wunderman Cato Johnson. We continued to
diversify by acquiring Burson-Marsteller, a public relations company, in 1979
and Landor Associates, a branding consultation and strategic design firm, in
1989. We have been successful in integrating the diverse capabilities of these
companies, which we believe enables us to better serve clients' marketing and
communications needs on a global basis.
In December 1996, Y&R consummated a recapitalization (the
"Recapitalization"), which is described more fully in Note 4 to the Annual
Financial Statements.
THE INITIAL PUBLIC OFFERING
On May 15, 1998, we consummated the IPO of an aggregate of 19,090,000
shares of Common Stock. Of the total number of shares, 6,912,730 shares were
sold by the Company and 12,177,270 shares were sold by certain selling
stockholders. Net proceeds to the Company were approximately $158.6 million,
after deducting underwriting discounts and commissions and expenses paid by the
Company in connection with the IPO. We used the net proceeds from the IPO,
together with approximately $155 million of borrowings under a new $400 million,
five-year unsecured multicurrency revolving credit facility (the "New Credit
Facility"), to repay all of the outstanding borrowings under our then-existing
$700 million senior secured credit facility (the "Prior Credit Facilities").
Upon consummation of the IPO, 9,231,105 shares of common stock ("Restricted
Stock") held in a trust (the "Restricted Stock Trust") pursuant to the Young &
Rubicam Holdings Inc. Restricted Stock Plan vested to employees and resulted in
non-recurring, non-cash, pre-tax compensation charges of $234.4 million which
have been reflected as "other operating charges" in our consolidated statement
of operations for the nine months ended September 30, 1998. As of October 30,
1998 an aggregate of 517,065 shares of such Restricted Stock remain in accounts
established for the award recipients in the Restricted Stock Trust with their
distribution subject to certain additional conditions set forth in the award
agreements. We repurchased 1,855,845 shares of Common Stock held in the
Restricted Stock Trust effective upon the consummation of the IPO.
16
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock has been listed on the New York Stock Exchange under the
symbol "YNR" since May 12, 1998. The following table sets forth the low and high
sales prices of the Common Stock for the quarters indicated as reported on the
New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
1998
Second Quarter (beginning May 12, 1998) ........... $26 1/2 $32 3/4
Third Quarter ..................................... $28 7/8 $35 7/8
Fourth Quarter (through November 5, 1998) ......... $19 3/4 $31 1/4
</TABLE>
- ----------
On November 5, 1998, the closing price of the Common Stock as reported on
the New York Stock Exchange was $30.00. As of October 30, 1998, there were
approximately 1,237 holders of record of shares of Common Stock.
Since the consummation of the Recapitalization in December 1996, we have
not declared or paid any cash or other dividends on our Common Stock (other than
a stock split paid in connection with the IPO). We expect to declare and pay a
regular quarterly cash dividend beginning in the first half of 1999. The
decision whether to apply legally available funds to the payment of dividends on
the Common Stock will be made at the discretion of the Board of Directors and
will depend upon, among other factors, our results of operations, financial
condition, capital requirements and contractual restrictions pursuant to the New
Credit Facility. The New Credit Facility contains certain financial and
operating restrictions and covenant requirements and permits the payment of cash
dividends except in the event of a continuing default under the credit
agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
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<PAGE>
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 September 30, 1998.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------
(UNAUDITED)
<S> <C>
Cash and cash equivalents .............................................................. $ 71,181
==========
Current portion of installment notes and loans payable ................................. $ 38,273
==========
Long-term debt:
Installment notes payable ............................................................. $ 400
Loans payable ......................................................................... 70,469
----------
Total long-term debt .................................................................. 70,869
----------
Stockholders' equity:
Preferred Stock:
Money Market Preferred Stock--cumulative variable dividend; liquidating value of
$115.00 per share; one-tenth of one vote per share; 50,000 shares authorized; 87
shares issued and outstanding ...................................................... --
Cumulative Participating Junior Preferred Stock--$ dividend; liquidating value of
$1.00 per share; 100 votes per share; 2,500,000 shares authorized; no shares issued
and outstanding .................................................................... --
Common Stock, $.01 par value; 250,000,000 shares authorized; 66,215,842 shares
issued and outstanding (1) ......................................................... 706
Capital surplus ....................................................................... 940,954
Accumulated deficit ................................................................... (785,552)
Cumulative translation adjustment ..................................................... (13,650)
Pension liability adjustment .......................................................... (706)
Common stock in treasury .............................................................. (40,442)
----------
Total stockholders' equity ....................................................... 101,310
----------
Total capitalization ............................................................. $ 172,179
==========
</TABLE>
- ----------
(1) Excludes 30,972,605 shares of Common Stock issuable upon exercise of
options outstanding at a weighted average exercise price of $7.41 at
September 30, 1998. Of the 10,000,000 shares of Common Stock offered
hereby, 1,005,627 shares will be issued upon the exercise of options with a
weighted average exercise price of $3.26. See "Management--Executive
Compensation."
18
<PAGE>
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 "Annual Financial Statements").
The following selected consolidated balance sheet data as of September 30,
1998 and consolidated statement of operations data for the nine months ended
September 30, 1997 and 1998 have been derived from the Company's unaudited
interim consolidated financial statements, including the consolidated balance
sheet at September 30, 1998 and the related consolidated statements of
operations and of cash flows for the nine months ended September 30, 1997 and
1998 and the notes thereto appearing elsewhere in this Prospectus (the "Interim
Financial Statements").
The selected consolidated financial data set forth below should be read in
conjunction with, and are qualified in their entirety by reference to, the
Annual Financial Statements and the Interim Financial Statements appearing
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
19
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ..................................... $ 905,770 $ 959,275 $1,085,494 $1,222,139 $1,382,740
Compensation expense, including
employee benefits (1) ....................... 583,723 594,322 672,026 730,261 836,150
General and administrative expenses (1)....... 312,083 323,087 356,523 391,617 463,936
Recapitalization-related charges (2) ......... -- -- -- 315,397 --
Other operating (income) charges (2) ......... (11,714) 4,507 31,465 17,166 11,925
--------- ----------- ---------- ---------- ----------
Operating expenses ........................... 884,092 921,916 1,060,014 1,454,441 1,312,011
--------- ----------- ---------- ---------- ----------
Income (loss) from operations ................ 21,678 37,359 25,480 (232,302) 70,729
Interest income .............................. 10,646 12,100 9,866 10,269 8,454
Interest expense ............................. (17,958) (23,027) (27,441) (28,584) (42,879)
Other income ................................. -- -- -- -- --
--------- ----------- ---------- ---------- ----------
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 and extraordinary charges ........... 4,614 15,432 820 (238,311) (23,938)
Extraordinary charge for early retirement
of debt (net of tax benefit of $2,834) ...... -- -- -- -- --
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)
========= =========== ========== ========== ==========
(Loss)/earnings per share (3):
Basic:
(Loss) income before extraordinary
charge ...................................... $ (0.51)
Extraordinary charge ......................... $ --
Net (loss)/income ............................ $ (0.51)
Diluted:
(Loss) income before extraordinary
charge ...................................... $ (0.51)
Extraordinary charge ......................... $ --
----------
Net (loss)/income ............................ $ (0.51)
Weighted average shares outstanding used
to compute (3):
Basic ........................................ 46,949,355
Diluted ...................................... 46,949,355
OTHER OPERATING DATA:
EBITDA (1)(4) ................................ $ 59,282 $ 77,662 $ 72,972 $ 147,221 $ 139,375
Net cash provided by operating activities . 15,426 43,314 79,809 178,064 224,511
Net cash used in investing activities ........ (34,226) (49,941) (45,821) (76,094) (67,142)
Net cash provided by (used in) financing
activities .................................. 41,644 (30,705) (50,025) (12,614) (98,667)
Capital expenditures ......................... (25,241) (33,196) (42,096) (51,792) (51,899)
International revenues as a % of total
revenues (5) ................................ 51.7% 53.6% 54.7% 53.3% 52.2 %
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) (6) ................ $ 100,519 $ 72,651 $ 27,827 $ (196,509) $ (106,169)
Total assets (7) ............................. 998,808 1,118,846 1,226,581 1,598,812 1,528,019
Total debt (8) ............................... 197,929 256,032 230,831 267,238 351,051
Mandatorily Redeemable Equity
Securities (9) .............................. -- -- -- 363,264 508,471
Total stockholders' equity (deficit) ......... 123,661 69,982 (55,485) (480,033) (661,714)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1997 1998
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues .................................. $ 977,067 $ 1,095,720
Compensation expense, including
employee benefits (1) .................... 600,767 659,449
General and administrative expenses (1) ... 331,353 324,783
Recapitalization-related charges (2) ...... -- --
Other operating (income) charges (2) ...... -- 234,449
------------ ------------
Operating expenses ........................ 932,120 1,218,681
------------ ------------
Income (loss) from operations ............. 44,947 (122,961)
Interest income ........................... 4,655 6,129
Interest expense .......................... (33,235) (19,144)
Other income .............................. -- 2,200
------------ ------------
Income (loss) before income taxes ......... 16,367 (133,776)
Income tax provision (benefit) ............ 7,855 (22,291)
------------ ------------
8,512 (111,485)
Equity in net income (loss) of
unconsolidated companies ................. 4,091 3,194
Minority interest in net (income) loss of
consolidated subsidiaries ................ (698) (604)
------------ ------------
Income after taxes and before accounting
changes and extraordinary charges ........ 11,905 (108,895)
Extraordinary charge for early retirement
of debt (net of tax benefit of $2,834) ... -- (4,433)
Cumulative effect of accounting changes
(net of tax benefit of $3,400) ........... -- --
------------ ------------
Net (loss) income ......................... $ 11,905 $ (113,328)
============ ============
(Loss)/earnings per share (3):
Basic:
(Loss) income before extraordinary
charge ................................... $ 0.25 $ (1.84)
Extraordinary charge ...................... $ -- $ (0.08)
Net (loss)/income ......................... $ 0.25 $ (1.92)
Diluted:
(Loss) income before extraordinary
charge ................................... $ 0.20 $ (1.84)
Extraordinary charge ...................... $ -- $ (0.08)
------------ ------------
Net (loss)/income ......................... $ 0.20 $ (1.92)
Weighted average shares outstanding used
to compute (3):
Basic ..................................... 47,109,739 58,939,274
Diluted ................................... 60,313,689 58,939,274
OTHER OPERATING DATA:
EBITDA (1)(4) ............................. $ 86,421 $ 154,549
Net cash provided by operating activities . 54,496 22,073
Net cash used in investing activities ..... (46,917) (39,260)
Net cash provided by (used in) financing
activities ............................... (53,049) (75,444)
Capital expenditures ...................... (38,930) (34,784)
International revenues as a % of total
revenues (5) ............................. 51.3% 48.1%
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit) (6) ................ $ (147,887)
Total assets (7) ............................. 1,495,213
Total debt (8) ............................... 109,142
Mandatorily Redeemable Equity
Securities (9) .............................. --
Total stockholders' equity (deficit) ......... 101,310
</TABLE>
(footnotes on following page)
20
<PAGE>
- ----------
(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) Upon the consummation of the IPO, 9,231,105 shares of Common Stock held in
a restricted stock trust vested and resulted in non-recurring, non-cash
pre-tax compensation charges of $234.4 million which have been reflected as
other operating charges. See Note 7 to the Interim Financial Statements.
For a discussion of Recapitalization-related and other operating charges
for the years ended December 31, 1995, 1996 and 1997, see Notes 4 and 6 to
the Annual Financial Statements.
(3) Basic earnings (loss) per common share has been computed by dividing net
income (loss) for the applicable period by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the dilutive effect of stock options and other stock awards
granted to employees under stock-based compensation plans. Diluted net loss
per common share for the year ended December 31, 1997 and the nine months
ended September 30, 1998 was computed in the same manner as basic net loss
per common share because the inclusion of potential common shares would be
antidilutive.
On May 15, 1998, the Company consummated the IPO. An aggregate of
19,090,000 shares of Common Stock were offered to the public, of which
6,912,730 shares were sold by the Company and 12,177,270 shares were sold
by certain selling stockholders.
At September 30, 1998, the Company had outstanding options to purchase
30,972,605 shares of Common Stock with a weighted average exercise price of
$7.41 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 for the nine months ended September 30, 1998 because the
effect would be antidilutive. See "Management--Executive
Compensation--Management Stock Option Plan" and "--1997 ICP" and Notes 3,
15 and 21 to the Annual 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 Annual Financial Statements.
(4) 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 credit facilities; however, EBITDA may not be
comparable to other registrants' calculation of EBITDA or similarly titled
items. EBITDA should not be considered as an alternative to net income
(loss) as a measure of operating results in accordance with generally
accepted accounting principles or as an alternative to cash flows as a
measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
EBITDA for 1996 and 1997 is before $11,096 and $11,925, respectively, of
non-cash charges primarily related to impairment write-downs which are
included in other operating charges. EBITDA for the nine months ended
September 30, 1998 is before $234,449 of non-cash compensation charges
related to the vesting of certain restricted stock taken at the time of the
IPO. See Notes 4 and 6 to the Annual Financial Statements and Note 7 to the
Interim Financial Statements.
(5) International revenues include all revenues earned outside the United
States.
(6) Working capital balances are significantly impacted by the seasonal media
spending patterns of advertisers, including the timing of payments made to
media and other suppliers on behalf of clients as well as the timing of
cash collections from clients to fund such expenditures. Additionally,
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. See the Consolidated Statements of Cash
Flows and Note 4 to the Annual Financial Statements.
(7) Total assets as of September 30, 1998 include net deferred tax assets of
$191,188 consisting primarily of federal, state and foreign NOL
carryforwards.
(8) Total debt includes current and non-current loans and installment notes.
See Notes 13 and 14 to the Annual Financial Statements.
(9) From the date of consummation of the Recapitalization and through the date
of consummation of the IPO, all outstanding shares of Common Stock,
exclusive of shares of Common Stock held in the Restricted Stock Trust,
were 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
Annual Financial Statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Annual
Financial Statements and the Interim 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. Our revenues were approximately
$1.4 billion in 1997, having grown at a compound annual rate of 12.9% from 1995
to 1997.
Our revenues consist principally of commissions and fees received by us
from our 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. We recognize
commission revenue primarily when media placements appear on television, on
radio or in print, and when labor and production costs are billed. We recognize
fee revenue when services are rendered.
We have also implemented incentive compensation arrangements with several
of our clients that we believe further strengthen our client relationships and
reward us for superior performance. These incentive arrangements create a range
of compensation that 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 our performance. Although incentive arrangements did not materially
impact our revenues in 1997 or the first nine months of 1998, we believe that
additional clients may request that we institute incentive compensation
arrangements in the future.
Our revenues are diversified across geographic regions, various sectors of
the economy and among many clients. In 1997, we derived approximately 47.8% of
our revenues from our U.S. operations, with approximately 34.2% coming from our
European operations and the remainder divided among our operations in Latin
America, Australia/New Zealand, Asia, Canada and Africa. In the first nine
months of 1998, we derived approximately 51.9% of our revenues from our U.S.
operations and approximately 33.9% came from our European operations. For the
years 1995, 1996 and 1997, and for the first nine months of 1998, our revenue
from any one country (other than the United States) did not exceed 10% of our
consolidated revenues. The United Kingdom, Germany, Brazil, France, Australia,
the Netherlands, Italy, Canada and Switzerland represent the largest sources of
our revenues by country (other than the United States). See Note 10 to the
Annual Financial Statements. We represent clients in various industries,
including automotive, consumer packaged goods, financial services, food and
beverage, government services and telecommunications. Our revenues are
diversified across our approximately 5,500 client accounts. Our largest client,
Ford Motor Company, accounted for approximately 10.0% of our revenues in 1997,
and our top 20 clients accounted for approximately 40.5% of our revenues in
1997.
We have two principal categories of operating expenses: compensation
expense and general and administrative expenses. Our largest expense is
compensation, which includes the salaries, bonuses and benefits of all of our
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 our founding until 1996, we were wholly owned by our
employees. As further described in Note 4 to the Annual Financial Statements, in
December 1996, we 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 allocated certain shares of Restricted Stock to
employees that vested at the time of the IPO. On May 15, 1998, we consummated
the IPO of an aggregate of 19,090,000 shares of Common Stock, of which 6,912,730
shares were sold by the
22
<PAGE>
Company and 12,177,270 shares were sold by certain selling stockholders. We used
the net proceeds to the Company, which aggregated approximately $158.6 million,
together with approximately $155 million of borrowings under the New Credit
Facility, to repay all of the outstanding borrowings under the Prior Credit
Facilities.
The vesting of 9,231,105 shares of Restricted Stock allocated to employees
gave rise to non-recurring, non-cash, pre-tax compensation charges of $234.4
million ($169.8 million net of the related tax benefit). These charges have been
reflected as "other operating charges" in our consolidated statements of
operations for the nine months ended September 30, 1998. See Note 7 to the
Interim Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the three months ended September 30,
1997 and September 30, 1998, 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>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
% OF % OF
1997 REVENUES 1998 REVENUES
------------ ------------ ------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues ..................................................... $333.4 100.0% $375.4 100.0%
Compensation expense, including employee benefits ............ 206.7 62.0% 227.2 60.5%
General and administrative expense ........................... 131.0 39.3% 106.1 28.3%
------ ------ ------ ------
Income (loss) from operations ................................ (4.3) (1.3)% 42.2 11.2%
Net (loss) income ............................................ $ (5.7) (1.7)% $ 24.3 6.5%
====== ====== ====== ======
EBITDA ....................................................... $ 10.1 3.0% $ 56.9 15.2%
====== ====== ====== ======
</TABLE>
--------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues for the third quarter of 1998 increased by $42.0 million, or
12.6%, to $375.4 million compared to the third quarter of 1997. The increase was
primarily due to new business (including business from new clients and higher
revenue from existing clients). United States revenues increased by 17.1% to
$195.8 million for the third quarter of 1998 compared to the third quarter of
1997. International revenues increased by 8.1% to $179.6 million for the third
quarter of 1998 compared to the third quarter of 1997. Excluding the effect of
the strengthening (on average) of the U.S. dollar against foreign currencies,
total revenues for the third quarter of 1998 increased by 14.0% and
international revenues increased by 10.9% compared to the third quarter of 1997.
Compensation expense increased by $20.5 million, or 9.9%, to $227.2 million
for the third quarter of 1998 compared to the third quarter of 1997. This
increase was primarily attributable to additional staffing to support business
growth and to salary increases. Excluding the effect of foreign currency
fluctuations, compensation expense increased by 11.3% compared to the third
quarter of 1997.
General and administrative expenses decreased by $25.0 million, or 19.0%,
to $106.1 million for the third quarter of 1998 compared to the third quarter of
1997. This decrease was primarily due to the inclusion in 1997 of a $25.5
million write-off of accounts receivable, costs billable to clients and other
capitalized costs with respect to the operations of Burson-Marsteller in Europe
and Asia in the third quarter of 1997. The write-offs in Europe were primarily
related to Burson-Marsteller's implementation of a new management information
system in 1997 which resulted in delayed and inaccurate billing of certain
clients and necessitated the creation of additional reserves against accounts
receivable and costs billable to clients. The write-offs in Asia were
attributable to the Company's evaluation of Burson-Marsteller's recent operating
performance in Asia and the determination that Burson-Marsteller was unlikely to
collect certain accounts receivable and costs billable to clients.
23
<PAGE>
Excluding the effect of foreign currency fluctuations and the Burson-Marsteller
write-off, general and administrative expenses increased by 1.9% compared to the
third quarter of 1997.
Income from operations was $42.2 million for the third quarter of 1998
compared to a loss from operations of $4.3 million for the third quarter of
1997, an increase of $46.5 million, primarily due to the 1997 Burson-Marsteller
write-off described above. Excluding the 1997 Burson-Marsteller write-off,
income from operations increased by $21.0 million, or 98.8%, compared to the
third quarter of 1997. Income from operations in the third quarter of 1998
included $14.7 million of depreciation and amortization. As a result, EBITDA for
the third quarter of 1998 was $56.9 million
Net interest expense decreased by $8.1 million to $2.8 million for the
third quarter of 1998 compared to the third quarter of 1997. The decline was due
to lower average borrowing levels and lower average borrowing rates during the
third quarter of 1998 compared to the third quarter of 1997.
Income tax expense was $15.9 million for the third quarter of 1998 compared
to an income tax benefit of $7.8 million for the third quarter of 1997. The
effective income tax rates were 40.4% and 51.1%, respectively, for the third
quarter of 1998 and 1997. Such decrease in the effective tax rate resulted
primarily from lower foreign taxes on the Company's foreign operations as well
as a reduction in the effective rate at which state and local taxes were
provided on domestic income.
Net income for the third quarter of 1998 was $24.3 million compared to a
net loss of $5.7 million for the third quarter of 1997. Excluding the after-tax
effect of the Burson-Marsteller write-off, net income increased by $16.7 million
compared to the third quarter of 1997.
The following table sets forth, for the nine months ended September 30,
1997 and September 30, 1998, 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>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------
% OF % OF
1997 REVENUES 1998 REVENUES
----------- ---------- ------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues .................................................. $ 977.1 100.0% $1,095.7 100.0%
Compensation expense, including employee benefits ......... 600.8 61.5% 659.4 60.2%
General and administrative expense ........................ 331.4 33.9% 324.8 29.6%
Other operating charges ................................... -- 0.0% 234.4 21.4%
-------- ------- -------- --------
Income (loss) from operations ............................. 44.9 4.6% (123.0) (11.2%)
Net income (loss) ......................................... $ 11.9 1.2% $ (113.3) (10.3%)
-------- ------- -------- --------
EBITDA .................................................... $ 86.4 8.8% $ 154.5 14.1%
======== ======= ======== ========
</TABLE>
-------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues for the nine months ended September 30, 1998 increased by $118.7
million, or 12.1%, to $1,095.7 million compared to the nine months ended
September 30, 1997. The increase was primarily due to new business (including
business from new clients and higher revenue from existing clients). United
States revenues increased by 19.3% to $568.2 million for the nine months ended
September 30, 1998 compared to the nine months ended September 30, 1997.
International revenues increased by 5.3% to $527.5 million for the nine months
ended September 30, 1998 compared to the nine months ended September 30, 1997.
Excluding the effect of the strengthening (on average) of the U.S. dollar
against foreign currencies, total revenues for the nine months ended September
30, 1998 increased by 15.1% and international revenues increased by 11.0%
compared to the nine months ended September 30, 1997.
Compensation expense increased by $58.7 million, or 9.8%, to $659.4 million
for the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997. This increase was primarily attributable to additional
staffing to support business growth and to salary increases. Excluding the
effect of foreign currency
24
<PAGE>
fluctuations, compensation expense increased by 12.7% compared to the nine
months ended September 30, 1997.
General and administrative expenses decreased by $6.6 million, or 2.0%, to
$324.8 million for the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1997. This decrease was primarily due to the
inclusion in 1997 of a $25.5 million write-off of accounts receivable, costs
billable to clients and other capitalized costs with respect to the operations
of Burson-Marsteller in Europe and Asia offset in 1998 by additional operating
expenses to support new business growth. The Burson-Marsteller write-offs in
Europe were primarily related to its implementation of a new management
information system in 1997 which resulted in delayed and inaccurate billing of
certain clients and necessitated the creation of additional reserves against
accounts receivable and costs billable to clients. The write-offs in Asia were
attributable to the Company's evaluation of Burson-Marsteller's recent operating
performance in Asia and the determination that Burson-Marsteller was unlikely to
collect certain accounts receivable and costs billable to clients. Excluding the
effect of foreign currency fluctuations and the Burson-Marsteller write-off,
general and administrative expenses increased by 9.7% compared to the nine
months ended September 30, 1997.
Effective upon the consummation of the IPO, the Company recognized other
operating charges of $234.4 million. These other operating charges consisted of
non-recurring, non-cash compensation charges resulting from the vesting of
shares of Restricted Stock allocated to employees. As a result of these charges,
the Company expects to incur a net loss for the year ending December 31, 1998.
Loss from operations was $123.0 million for the nine months ended September
30, 1998 compared to income from operations of $44.9 million for the nine months
ended September 30, 1997, a decrease of $167.9 million, primarily due to the
other operating charges described above partially offset by the effect of the
1997 Burson-Marsteller write-off. Excluding the other operating charges and the
Burson-Marsteller write-off, income from operations increased by $41.0 million,
or 58.2%, compared to the nine months ended September 30, 1997. Income from
operations in the nine months ended September 30, 1998 included $43.1 million of
depreciation and amortization and $234.4 million of other operating charges, as
described above. As a result, EBITDA for the nine months ended September 30,
1998, was $154.5 million.
Net interest expense (interest expense net of interest income) decreased by
$15.6 million to $13.0 million for the nine months ended September 30, 1998
compared to the nine months ended September 30, 1997. The decline was due to
lower average borrowing levels and lower average borrowing rates during the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997.
The Company recognized an income tax benefit of $22.3 million for the nine
months ended September 30, 1998 compared to income tax expense of $7.9 million
for the nine months ended September 30, 1997. Included in 1998 is an income tax
benefit of $64.6 million attributable to the other operating charges of $234.4
million described above and reflects the anticipated federal, state and foreign
tax effect of such other operating charges after consideration of valuation
allowance amounts for certain non-U.S. deductions. The effective income tax rate
was a benefit of 16.7% for the nine months ended September 30, 1998. Excluding
the benefit derived from the other operating charges, the effective tax rate was
42.0% for the nine months ended September 30, 1998, a decrease from the 48.0%
effective tax rate for the nine months ended September 30, 1997. Such decrease
resulted primarily from lower foreign taxes on the Company's foreign operations
as well as a reduction in the effective rate at which state and local taxes were
provided on domestic income.
The Company incurred an extraordinary charge of $4.4 million in the nine
months ended September 30, 1998, which is net of a tax benefit of approximately
$2.8 million, due to the write-off of unamortized deferred financing costs
related to the Prior Credit Facilities.
Net loss for the nine months ended September 30, 1998 was $113.3 million
compared to net income of $11.9 million for the nine months ended September 30,
1997. Excluding the after-tax effect of the other operating charges, the
Burson-Marsteller write-off and the extraordinary charge, net income increased
by $35.8 million compared to the nine months ended September 30, 1997.
25
<PAGE>
The following table sets forth, for the years ended December 31, 1995,
December 31, 1996 and December 31, 1997, 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 expense ......... 356.5 32.8% 391.6 32.0% 463.9 33.6%
Recapitalization-related charges ........... -- 0.0% 315.4 25.8% -- 0.0%
Other operating charges .................... 31.5 2.9% 17.2 1.4% 11.9 0.9%
-------- ------- -------- -------- -------- --------
Income (loss) from operations .............. 25.5 2.3% (232.3) (19.0%) 70.7 5.1%
Net income (loss) .......................... $ 0.8 0.1% $ (238.3) (19.5%) $ (23.9) (1.7%)
======== ======= ======== ======== ======== ========
EBITDA ..................................... $ 73.0 6.7% $ 147.2 12.0% $ 139.4 10.1%
======== ======= ======== ======== ======== ========
</TABLE>
------------------------------------------------------
1997 COMPARED TO 1996
Consolidated worldwide revenues for 1997 increased by 13.1% to $1,382.7
million from $1,222.1 million in 1996. Consolidated U.S. revenues for 1997
increased by 15.8% to $661.3 million from $571.1 million in 1996. Consolidated
international revenues for 1997 increased by 10.8% to $721.4 million from $651.0
million in 1996. Of the worldwide revenue increase, 13.6% was due to organic
growth (including net new business gains and higher net revenues from existing
clients) and 3.0% was due to the acquisition of majority interests in
investments previously accounted for under the equity method. Such increases
were partially offset by a 3.5% decline related to a strengthening (on average)
of the U.S. dollar against foreign currencies. New business was generated from
new client accounts such as Campbell's Soup, Citibank, Merck and United
Airlines.
Compensation expense for 1997 increased by 14.5% to $836.2 million from
$730.3 million in 1996. Compensation expense for 1997 increased as a percentage
of revenues to 60.5% from 59.8% in 1996. The growth in compensation expense was
generally in line with revenue growth and also included a $12.3 million charge
primarily for deferred compensation awards granted to senior executives in 1997.
General and administrative expenses for 1997 increased by 18.5% to $463.9
million from $391.6 million in 1996. General and administrative expenses
increased as a percentage of revenues to 33.6% in 1997 from 32.0% in 1996. The
higher rate of growth in general and administrative expenses compared to
revenues was primarily attributable to a $25.5 million write-off of accounts
receivable, costs billable to clients and other capitalized costs recorded in
1997 with respect to the operations of Burson-Marsteller in Europe and Asia. The
write-offs in Europe were primarily related to Burson-Marsteller's
implementation of a new management information system in 1997 which resulted in
delayed and inaccurate billing of certain clients and necessitated the creation
of additional reserves against accounts receivable and costs billable to
clients. The write-offs in Asia were attributable to the Company's evaluation of
Burson-Marsteller's recent operating performance in Asia and the determination
that Burson-Marsteller was unlikely to collect certain accounts receivable and
costs billable to clients. As a result of its analysis of the circumstances
which led to these write-offs, the Company has made management changes at
Burson-Marsteller in Europe and Asia and implemented additional financial
control and reporting requirements for these operations, including strengthening
controls and procedures regarding regional billing and collection practices.
In 1997, the Company had income from operations of $70.7 million compared
to a loss from operations of $232.3 million in 1996, primarily due to the
Recapitalization-related charges of $315.4 million. Income from
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operations in 1997 included $56.7 million of depreciation and amortization and
$11.9 million of other 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 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 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 Annual 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 Annual 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 $53.0 million of depreciation and 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.
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Net interest expense 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 Annual Financial Statements.
The effective income tax rate for 1996 was a benefit of 8.2%. This reflects
the tax benefit for the Recapitalization-related charges partially offset by
foreign income taxed at rates greater than the U.S. statutory rate. The
effective income tax rate for 1995 was 115.5%. The primary difference between
the statutory tax rate and Y&R's effective tax rate in 1995 resulted from
foreign income taxed at rates greater than the U.S. statutory rate. See Note 9
to the Annual 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. Quarterly and annual operating cash flows
are significantly impacted by the seasonal media spending patterns of
advertisers, including the timing of payments made to media and other suppliers
on behalf of clients as well as the timing of cash collections from clients to
fund such expenditures. The Company's practice is to bill and collect from its
clients in sufficient time to pay the amounts due the media.
SEPTEMBER 30, 1998
Cash and cash equivalents were $71.2 million at September 30, 1998 compared
to $160.3 million at December 31, 1997. Cash was used during the nine months
ended September 30, 1998 primarily to repay long-term debt, including the
prepayment of approximately $19.0 million of certain non-negotiable subordinated
payment obligations to former employee stockholders, and for capital
expenditures and Common Stock repurchases.
At September 30, 1998, the Company had $70.5 million in outstanding
indebtedness under the New Credit Facility. The Company expects to fund its
payments of principal and interest under the New Credit Facility with cash from
operations.
On May 15, 1998, the Company consummated the IPO. Net proceeds to the
Company were $158.6 million, after deducting underwriting discounts and
commissions and expenses paid by the Company in connection with the IPO. The
Company used the net proceeds from the IPO together with $155 million of
borrowings under the New Credit Facility to repay all of the outstanding
borrowings under the Prior Credit Facilities.
Capital expenditures were $34.8 million for the nine months ended September
30, 1998. The Company estimates that its capital expenditures in 1998 will be
approximately $70 million for information technology and certain leasehold
improvements.
On August 4, 1998, the Company announced that the Board had approved a plan
to repurchase up to 2,000,000 shares of Common Stock over the next two years.
Through September 30, 1998, the Company repurchased 712,800 shares of Common
Stock for an aggregate of $21.9 million. On October 13, 1998, the Company
announced that the Board had approved a new repurchase program of up to an
additional 6,000,000 shares of Common Stock over the next two years. As of
November 5, 1998, approximately 1,689,000 shares of Common Stock have been
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repurchased at an average cost of $26.63 per share. The shares may be
repurchased by the Company from time to time in the open market or in private
transactions, possibly including transactions with employees.
The Company's net deferred tax assets at September 30, 1998 were $191.2
million consisting primarily of federal, state and foreign net operating loss
carryforwards. Consequently, the Company expects a reduction in the amount of
cash taxes paid on a worldwide basis in future years. The consummation of the
IPO gave rise to a non-recurring, non-cash, pre-tax compensation charge of
$234.4 million, which resulted in additional tax benefits to the Company of
$64.6 million.
The Company expects to declare and pay a regular quarterly cash dividend
beginning in the first half of 1999. However, any determination to pay dividends
will be at the discretion of the Board and will depend upon, among other
factors, the Company's results of operations, financial condition, capital
requirements and contractual restrictions pursuant to the New Credit Facility.
The New Credit Facility contains certain financial and operating restrictions
and covenant requirements, and permits the payment of cash dividends except in
the event of a continuing default under the credit agreement.
The Company believes that cash provided by operations and funds available
under the New Credit Facility will be sufficient to meet its anticipated cash
requirements as presently contemplated.
DECEMBER 31, 1997
Cash and cash equivalents at December 31, 1997 increased by 45.5% to $160.3
million from $110.2 million at December 31, 1996. For 1997, the Company
generated operating cash flows of $224.5 million which represented a 26.1%
increase in operating cash flows versus 1996. The Company achieved an
improvement in net cash flow from operating activities due, in part, to
increased focus on cash flow management, including improvements in the timing of
billings and the relationship between the collection of accounts receivable and
the payment of obligations to media and other suppliers. Operating cash flows
and third-party borrowings were used for capital expenditures, acquisition
requirements and equity repurchases.
Investing activities in 1997 included $51.9 million for capital
expenditures and $11.3 million for acquisitions. The majority of capital
expenditures in 1997 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.
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 canceled 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 Prior
Credit Facilities. The Prior Credit Facilities consisted 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 $12.6 million in 1996 to
$98.7 million in 1997.
At December 31, 1997, the Company had approximately $330.6 million in
outstanding indebtedness under the Prior Credit Facilities. As required by the
Prior Credit Facilities, 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. As of December
31, 1997, the Company had obtained interest rate protection agreements with
respect to $275 million of indebtedness, which effectively changed the Company's
interest rate under the Prior Credit Facilities to fixed rate borrowings. The
interest rate protection agreements mature at various times through 2001.
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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.
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 working to resolve the potential impact of the year 2000 on
the ability of the Company's computer systems to accurately process information
with dates later than December 31, 1999, or to process date-sensitive
information accurately after the turn of the century (referred to as the "Year
2000" issue). The Company has completed an assessment of its computer systems
and is in the process of modifying or replacing all affected systems for
compliance with the Year 2000 issue. While the Company believes it has made
substantial progress in resolving any Year 2000 issues, the modifications and
testing necessary to fully validate readiness are still being conducted. The
Company is also monitoring the adequacy of the processes and progress of
third-party vendors of systems and applications that may be affected by the Year
2000 issue. Y&R is dependent in part 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. The Company is in the process of obtaining assurances from
such vendors that their systems are or are becoming Year 2000 compliant.
While Y&R believes its process is designed to be successful, because of the
complexity of the Year 2000 issue and the interdependence of organizations using
computer systems, it is possible that Y&R's efforts, or those of third parties
with whom Y&R interacts, will not be satisfactorily completed in a timely
fashion. Failure to satisfactorily address the Year 2000 issue could have a
material adverse effect on Y&R's prospects, business, financial condition and
results of operations.
The costs of Y&R's Year 2000 project have not yet been determined but are
not expected to be material. 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.
The Company has not yet determined the extent of contingency planning that
may be required.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
For a discussion of the impact of recently issued accounting standards, see
Note 2 to the Annual Financial Statements and Note 4 to the Interim Financial
Statements.
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BUSINESS
GENERAL
Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world. Since our founding 75 years ago, we
have evolved from a single New York-based advertising agency to a diversified
global marketing and communications company operating in 121 cities in 76
countries worldwide as of September 30, 1998. We operate through internationally
recognized market leaders including 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). Our revenues in 1997 totaled approximately $1.4 billion, having grown
at a compound annual rate of 12.9% from 1995 to 1997.
Through multi-disciplinary, client-focused teams, we provide clients with
global access to fully integrated marketing and communications solutions. Among
our approximately 5,500 client accounts are a number of large multinational
organizations, including AT&T, Citibank, Colgate-Palmolive, Ford and Philip
Morris. We have maintained long-standing relationships with many of our clients;
the average length of relationship with our top 20 clients exceeds 20 years.
Our mission is to be our clients' most valued business partner in building,
leveraging, protecting and managing their brands for both short-term results and
long-term growth. Consistent with our mission, we have developed an
organizational and management structure designed to meet the diverse needs of
our large global clients as well as the more specialized needs of our other
clients. Our strategy combines this organizational and management structure with
the pursuit of new business opportunities and continued investment in our
business, personnel and superior consumer knowledge. We further seek to fulfill
our 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, we created the Key Corporate Account, or 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 our revenues
and profits, and are served on a multinational basis by two or more of our
businesses. We currently designate 41 of our client accounts as KCAs. Revenues
from the KCAs, as a group, increased by 14.6% in 1997, and accounted for
approximately 45.5% of our consolidated revenues in 1996 and approximately 46.1%
of our consolidated revenues in 1997. In order to further strengthen client
relationships and reward us for meeting or exceeding certain performance
targets, we are working with KCAs to adopt incentive compensation arrangements
that align our compensation with our performance and our clients' business
performance.
As part of our client focus, Peter A. Georgescu, our Chairman and Chief
Executive Officer, John P. McGarry, Jr., our President, Edward H. Vick, our
Chief Operating Officer, and Thomas D. Bell, Jr., an Executive Vice President of
the Company and the Chairman and Chief Executive Officer of Young & Rubicam
Advertising, 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 $398 billion in
1997. Industry sources have predicted that worldwide advertising spending will
grow approximately 5.3% in 1998 to $419 billion.
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 database marketing
and online 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:
o 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
$188 billion in 1997. In 1998, advertising expenditures are estimated to be
approximately $200 billion. 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.
o 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 they deem it 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 53% in 1997.
o INVESTMENT IN BRAND DEVELOPMENT. In the 1980s, many advertisers focused
their marketing campaigns on promotional advertising that emphasized price
competition, often reducing
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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 emphasis on brand development has increased the demand for the 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.
o 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.
o 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
Our strategy consists of the following key components:
o INCREASE PENETRATION OF KEY CORPORATE ACCOUNTS. We believe that there are
significant opportunities to increase our share of KCA marketing and
communications expenditures by leveraging our global network to provide
integrated services to KCAs. We have successfully increased our share of the
marketing and communications expenditures of certain KCAs over the past few
years. For example, we have significantly expanded our 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 us
over the same period. During 1997, our 20 largest clients used an average of
five of our marketing and communications services.
We have implemented a team concept for certain KCAs that utilize advertising,
direct marketing and other marketing and communications services offered by us.
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, we seek to improve KCA satisfaction by
retaining independent consultants to conduct third-party audits with clients
which measure our performance on a variety of criteria. We intend to use this
objective information to identify strengths, weaknesses and opportunities within
KCA relationships.
o DEVELOP NEW CLIENT RELATIONSHIPS. We believe 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. We have successfully used our
integrated and global approach as an effective tool in winning new business. Our
win of the global Citibank account in August 1997 exemplifies the success of
this strategy. We believe that the acquisition of this new business
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was due, in part, to our ability to coordinate advertising and direct marketing
activities for Citibank around the world. We believe that Citibank consolidated
its advertising and direct marketing accounts with us in order to establish a
consistent brand identity around the world. In addition to Citibank, during the
last 24 months, we have won new business from clients including Campbell's Soup,
Sony and United Airlines, each of whom were designated as KCAs.
o LEVERAGE EXISTING GLOBAL NETWORK. With a worldwide presence in 76 countries
(including 14 countries where we are represented by non-equity affiliations with
local partners), we believe that we are well positioned to continue to benefit
from the trend towards the globalization of client marketing and communications
needs and the consolidation of those needs with a single international service
provider. For example, in late 1995, Colgate-Palmolive consolidated its global
advertising with Y&R, and in May 1998, Groupe Danone consolidated the global
advertising for its Fresh Dairy Products division with Young & Rubicam
Advertising.
o CAPITALIZE ON EXISTING CAPABILITIES. We intend to continue the development
of our existing capabilities into more visible and accessible client services.
For example, in 1997, we launched our Brand Dialogue unit to serve our 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, we
combined the existing interactive capabilities of Young & Rubicam Advertising
and Wunderman Cato Johnson in the United States, Latin America, Europe and
Asia/Pacific. We believe that Brand Dialogue represents a growth opportunity for
us, and we intend to make significant investments in new and emerging
technologies to capitalize on this opportunity.
In July 1997, we consolidated the United States media planning, buying and
placement capabilities of Young & Rubicam Advertising, Wunderman Cato Johnson
and The Media Edge (a media company we acquired in 1996) under The Media Edge
name. With this consolidation, we created a major United States media agency,
thereby enhancing our ability to negotiate effectively and secure discounts for
media purchases on behalf of our clients. In September 1998, we announced the
global launch of The Media Edge brand worldwide. We believe that The Media Edge
will provide a variety of media alternatives in various markets to existing and
future clients. We plan to continue to identify and leverage strengths and
capabilities that can provide further differentiation for us and that can evolve
into businesses that generate incremental revenues and profits.
o UTILIZE SUPERIOR CONSUMER KNOWLEDGE AND BRAND INSIGHTS. To assist our
clients in building, leveraging, protecting and managing their brands, we have
developed and are maintaining extensive knowledge of consumer brand perceptions.
In 1994, we 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. We believe that BAV, in which we have 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. We further believe 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. We plan to continue
to invest in BAV, and believe that knowledge of consumers' changing perceptions
of brands will continue to provide us with a significant competitive advantage.
o CULTIVATE CREATIVE EXCELLENCE. We intend to continue emphasizing the
importance of creative marketing and communications. Our creative leadership has
been recognized over the years through the receipt of various industry awards,
including Cannes Lions and Clio Awards for
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excellence in television and print advertising, EFFIES (awards for effective
advertising) and a number of other awards for direct marketing and design
services. We also have 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.
o IMPROVE OPERATING EFFICIENCIES. We believe that opportunities exist to
further improve operating efficiencies in order to expand margins and increase
future profitability. For example, we have implemented initiatives which have
both improved productivity and reduced compensation expense as a percentage of
consolidated revenues.
o EXPAND CAPABILITIES THROUGH ACQUISITIONS. In order to add new capabilities,
enhance our existing capabilities and expand the geographic scope of our
operations, we regularly evaluate and intend to pursue appropriate acquisition
opportunities. We believe that significant opportunities exist to expand our
businesses. Historically, in order to expand capabilities beyond traditional
advertising, we have acquired well-established leaders in other marketing and
communications disciplines. More recently, we have acquired smaller niche
agencies or companies to enhance existing capabilities or expand geographic
coverage.
OPERATIONS
The following section contains a brief description of the Company's main
service offerings.
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 1997, Young & Rubicam Advertising was ranked by industry sources as
the seventh largest advertising agency based in the United States.
Young & Rubicam Advertising has had a number of recent new business wins.
In May 1998, Group Danone awarded the advertising for its worldwide Fresh Dairy
Products division to Young & Rubicam Advertising. 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 Campbell's Soup, Colgate-Palmolive, Ericsson, Sony and United
Airlines. 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, has launched a series of programs to
benefit children throughout the United States and, separately, to assist
battered women.
Young & Rubicam Advertising operates in 86 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 1997, Dentsu ranked as the fourth largest marketing
and communications organization in the world and the largest marketing and
communications
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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 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
Cadbury-Schweppes, Ericsson, Ford and Sony, in specific markets. DY&R operates
in 23 cities in 14 countries across Asia/Pacific and the United States, where it
operates as The Lord Group.
WUNDERMAN CATO JOHNSON. Wunderman Cato Johnson ("WCJ") is one of the
world's leading behavior-driven marketing and communications companies.
Behavior-driven marketing and communications are designed to assist clients in
producing immediate sales and building brand and customer equity. WCJ addresses
its clients' marketing objectives through direct marketing, sales promotion,
television commercials and infomercials, customer loyalty programs, relationship
marketing programs, database development and management, merchandising,
entertainment and sports marketing, lead generation and new product launches.
WCJ focuses on converting "consumers" to "customers" and mass markets to
individual relationships. WCJ seeks to motivate behavior by focusing on
identifying and acquiring the most valuable customer prospects for clients,
building loyalty among its clients' most profitable customers and managing the
customer's interactions with the brand, the trade and the sales force.
WCJ provides services to KCAs such as AT&T, DuPont, Ford, Sony, 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 47 cities in 31 countries worldwide. WCJ also has major database
facilities in Europe and Latin America.
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:
o industry specialists who are experienced in specific fields;
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o practice specialists who are experienced in specific perception
management, public relations and public affairs disciplines; and
o 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 49 cities in 33
countries around the world. The Burson-Marsteller network also includes:
o Black, Kelly, Scruggs & Healey Inc., a lobbying and public affairs
firm based in Washington D.C.;
o Marsteller Advertising, which specializes in corporate,
business-to-business and issues advertising campaigns, with offices in
New York, Chicago, Pittsburgh and London; and
o The Mead Point Group, a small strategic consulting firm.
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.
Landor has gained substantial new business momentum during the last 24
months, and has been awarded corporate identity assignments for Andersen
Consulting, Delta Airlines, Lucent Technologies and the 2002 Salt Lake City
Olympics; brand identity assignments for Walt Disney; package design assignments
for Frito-Lay; and branded environment assignments for Taco Bell, Pizza Hut and
Shell. 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 the last 12 months, 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
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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 15 cities in 10 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 Coca-Cola,
Deloitte Consulting, Eli Lilly, NEC, SmithKline Beecham, Sony, the United States
Army 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 7 countries in North America, Europe
and Australia.
OTHER CAPABILITIES. Brand Dialogue specializes in digital interactive
branding and digital commerce. Brand Dialogue's primary offerings consist of:
o web advertising, including the design, creation and production of
websites, banners, home pages and comprehensive interactive campaigns;
o digital commerce applications;
o the development of corporate intranets to improve communications and
productivity within and among a defined set of users; and
o interactive marketing consulting services.
Brand Dialogue has obtained new business from both existing KCAs and other
clients, as well as new clients. During the last 12 months, Brand Dialogue won
notable and varied assignments from clients such as AT&T, Citibank, Ericsson,
Ford, Geocities, Sony 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 Company
expanded its multi-cultural marketing and communications capabilities in October
1998 with its acquisition of Kang & Lee, an agency that provides a range of
advertising programs within the Asian community in the United States. Kang & Lee
has an established relationship with AT&T.
The Chapman Agency ("Chapman") is a specialized direct marketing agency
that provides a range of services outside the United States, primarily to the
financial services industry. 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.
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 communications agencies. We believe 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 the last
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12 months, 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), Revlon and Sears.
COMPETITION
The marketing and communications industry is highly competitive, and we
expect it to remain so. Our 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. We must compete with these 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 periodic intervals. We compete principally
on the basis of the following factors:
o creative reputation;
o knowledge of media;
o quality and breadth of services;
o geographical coverage and diversity;
o relationships with clients; and
o financial controls.
Recently, traditional advertising agencies also have been competing with
major consulting firms which have developed practices in marketing and
communications. New competitors also include 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 communications industry to make significant investments. These investments
include additional offices and personnel around the world and new and improved
technology for linking these 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, we believe that clients may find it
increasingly difficult to terminate relationships with agencies that 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, we have lost or resigned client accounts
and assignments, including Blockbuster Video and International Home Foods, for a
variety of reasons, including conflicts with newly acquired clients. Although
typically we have replaced these losses with new clients and assignments, we may
not 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.
When we represent a client, we do not always handle all advertising or
public relations for that client. Many large multinational companies are served
by a number of agencies within the marketing and communications industry. In
many cases, clients' policies on conflicts of interest 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. This conflicts policy typically prohibits agencies
from performing similar services for competing products or companies. Our
principal international competitors are holding companies for more than one
global advertising agency network. As a result, in some situations, separate
agency networks within these holding companies may be able to perform services
for competing products or for products of competing companies. We have one
global advertising agency network. Accordingly, our ability to compete for new
advertising assignments and, to a lesser extent, other marketing and
communications assignments, may be limited by these conflicts policies.
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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 we and our affiliates do business. We have developed
internal review procedures to help ensure that our work product, as well as that
of our 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 we are subject to the Foreign
Corrupt Practices Act (the "FCPA"). The FCPA imposes civil and criminal fines
and penalties on companies and individuals that violate its anti-bribery and
other provisions.
EMPLOYEES
We have approximately 13,000 employees (including part-time employees)
worldwide. None of our U.S. employees are covered by collective bargaining
agreements. We believe that our relations with employees are good.
PRINCIPAL PROPERTIES
We own our headquarters office building at 285 Madison Avenue, New York,
New York. We lease other offices and space for our facilities in New York City
and elsewhere throughout the world. The following table sets forth certain
information relating to our principal properties:
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<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, Landor 340,500 1/22/06
New York, New York and WCJ
Gallus Park, Young & Rubicam Advertising, WCJ, 154,000 4/26/04
Frankfurt, Germany Burson-Marsteller and Sudler & Hennessey
825 Seventh Avenue, The Media Edge 111,832 1/31/01
New York, New York
Greater London House, Young & Rubicam Advertising, WCJ and 80,000 5/31/13
London, U.K. Sudler & Hennessey
200 Renaissance Center Young & Rubicam Advertising and WCJ 96,000 11/30/99
Detroit, Michigan
675 Avenue of the Americas, WCJ 92,500 6/30/03
New York, New York
49-59 Avenue Andre Morizet, Young & Rubicam Advertising and WCJ 65,000 3/30/08
Paris, France
One South Wacker Drive, Young & Rubicam Advertising, WCJ 63,000 11/30/99
Chicago, Illinois and Landor
100 First Plaza, Young & Rubicam Advertising, WCJ, 65,000 4/30/03
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.
7535 Irvine Center Drive Young & Rubicam Advertising and WCJ 53,794 12/14/09
Irvine, California
295 Madison Avenue Young & Rubicam Advertising 65,821 1/22/06
New York, New York
</TABLE>
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Y&R's capital expenditures for 1998 include expenditures for leasehold
improvements of facilities. When completed, these improvements are expected to
result in a configuration of owned and leased facilities that we believe will be
adequate for our current and anticipated purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
LEGAL PROCEEDINGS
We are involved from time to time in various claims and legal actions
incident to our 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 our
executive officers and Directors:
<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 ................ 57 Vice Chairman and Managing Director of the
Company
John P. McGarry, Jr. ........... 58 President of the Company
Edward H. Vick ................ 54 Chief Operating Officer of the Company and Director
Thomas D. Bell, Jr. ........... 49 Executive Vice President of the Company, Chairman
and Chief Executive Officer of Young & Rubicam
Advertising 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 .............. 64 Director
Philip U. Hammarskjold ......... 33 Director
Richard S. Bodman .............. 60 Director
Alan D. Schwartz ............... 48 Director
John F. McGillicuddy ........... 67 Director
</TABLE>
----------------------------------------------------------
The business address of each of our executive officers is 285 Madison
Avenue, New York, New York 10017. The business address of Messrs. Hellman and
Hammarskjold is One Maritime Plaza, San Francisco, California 94111. The
business address of Mr. Schwartz is 245 Park Avenue, New York, New York 10167.
The business address of Mr. Bodman is c/o AT&T Ventures, Chevy Chase Metro
Building, 2 Wisconsin Circle, Suite 610, Chevy Chase, Maryland 20815-7003. The
business address of Mr. McGillicuddy is 270 Park Avenue, 32nd Floor, New York,
New York 10017.
PETER A. GEORGESCU Mr. Georgescu has been Chairman and Chief Executive
Officer of Young & Rubicam Inc. since 1994. He has been a Director of the
Company since 1980. Mr. Georgescu's career at Y&R spans 34 years with top
management experience both in the United States and Europe. Prior to becoming
Chairman, Mr. Georgescu was President of the Company for four years. Mr.
Georgescu joined Young & Rubicam New York in 1963 as a trainee and has held
various positions in research, account management and marketing in New York,
Chicago and Amsterdam. Mr. Georgescu is a member of the Board of Directors of
Briggs and Stratton Company.
ALAN J. SHELDON Mr. Sheldon has been Vice Chairman and Managing Director of
Young & Rubicam Inc. since July 1996. Mr. Sheldon was a Director of the Company
from 1988 to February 1998. From 1994 to 1996, he was Chief Operating Officer of
Young & Rubicam Advertising. Mr. Sheldon was also Chief Financial Officer of
Young & Rubicam Europe from 1993 to 1994, after serving as Executive Vice
President and General Manager of Young & Rubicam Inc. since 1990. Mr. Sheldon
joined Y&R in 1968 in Corporate Finance and subsequently served in several
senior positions at Y&R and Young & Rubicam Advertising. Mr. Sheldon has
announced that he will retire from the Company at the end of 1998.
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
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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 a Director of the Company since February 1998. Mr. Vick
was Chairman and Chief Executive Officer of Young & Rubicam Advertising from
April 1996 to September 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.
THOMAS D. BELL, JR. Mr. Bell has been Executive Vice President of the
Company since 1995, Chairman and Chief Executive Officer of Young & Rubicam
Advertising since September 1998, and a Director of the Company since February
1998. From 1995 until September 1998, he was President and Chief Executive
Officer of Burson-Marsteller. From 1994 to 1995, Mr. Bell served as Vice
Chairman of Gulfstream Aerospace Corporation. Prior thereto, Mr. Bell was Vice
Chairman and Chief Operating Officer of Burson-Marsteller from 1991 to 1994.
Before initially joining Burson-Marsteller in 1989, Mr. Bell held senior
positions in business and government. Mr. Bell is a member of the Board of
Directors of Gulfstream Aerospace Corporation, Lincoln National Corporation and
Lincoln Life & Annuity of New York.
STEPHANIE W. ABRAMSON Ms. Abramson has been Executive Vice President and
General Counsel of the Company since 1995. Ms. Abramson was a Director of the
Company from 1995 until February 1998. From 1980 until joining Y&R in 1995, she
was a partner with Morgan, Lewis & Bockius LLP.
MICHAEL J. DOLAN Mr. Dolan has been Vice Chairman and Chief Financial
Officer and a Director of the Company since July 1996. Prior thereto, from 1991
to 1996, he was President and Chief Executive Officer of the joint venture,
Snack Ventures Europe, between PepsiCo Foods International ("PFI") and General
Mills. Mr. Dolan also served PFI as Senior Vice President, Operations. From 1987
to 1991, Mr. Dolan was with Peter Kiewet Sons, Inc. ("PKS"), a construction and
mining conglomerate. While at PKS, he served as Corporate Executive Vice
President for Continental Can Company when it was acquired and restructured by
PKS.
F. WARREN HELLMAN Mr. Hellman has been a Director of the Company since
December 1996. Mr. Hellman is Chairman of Hellman & Friedman LLC ("Hellman &
Friedman"), a private investment company he founded in 1984. Prior thereto, Mr.
Hellman was President and a Director of Lehman Brothers, as well as head of its
Investment Banking Division, and Chairman of Lehman Corporation (a closed-end
investment company). Mr. Hellman serves on the Board as a representative of the
H&F Investors. Mr. Hellman is a member of the Board of Directors of Levi Strauss
& Co., Franklin Resources, Inc., Il Fornaio (America) Corp. 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 Board as a representative of the
H&F Investors. Mr. Hammarskjold is a member of the Board of Directors of The
Covenant Group, Inc.
RICHARD S. BODMAN Mr. Bodman has been a Director of the Company since April
1998. Mr. Bodman has been Managing General Partner of AT&T Ventures, LLC ("AT&T
Ventures"), a company which manages a venture capital pool investing in early
stage businesses related to telecommunications and information technology since
May 1996. Prior to joining AT&T Ventures, from 1990 until May 1996, Mr. Bodman
was Senior Vice President for Corporate Strategy & Development and a member of
the Management Executive Committee of AT&T. Mr. Bodman is a member of the Board
of Directors of Reed Elsevier plc, Tyco International, Inc. and ISS Group.
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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.
We intend that the Board will continue to be comprised of a majority of
Directors who are independent of management.
Our Board is 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 our stockholders held in 1999, 2000
and 2001, respectively. At each annual meeting of our stockholders, successors
to the class of Directors whose term expires at that meeting will be elected to
serve for three-year terms and until their successors are elected and qualified.
Messrs. Hellman, Schwartz and Vick are Class I Directors, with terms expiring in
1999. Messrs. Dolan, Georgescu and Hammarskjold are Class II Directors, with
terms expiring in 2000. Messrs. Bell, Bodman and McGillicuddy are Class III
Directors, with terms expiring in 2001.
The H&F Investors have the right to nominate and elect two members of the
Board as 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 as long as they continue to hold in the aggregate at least 5% of the
Outstanding Shares. See "Description of Capital Stock--The Stockholders'
Agreement."
Executive officers are appointed by, and serve at the discretion of, the
Board.
COMMITTEES
Our Compensation Committee consists of Messrs. Hammarskjold, Schwartz and
Bodman, Chairman. The Compensation Committee reviews the compensation of our
officers and makes recommendations to the Board regarding such compensation and
reviews and administers our equity compensation plans.
Our Audit Committee consists of Messrs. Bodman, Schwartz and McGillicuddy,
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.
The Board may create such other committees as it may determine from time to
time.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Charter and the Bylaws contain provisions indemnifying the Directors
and executive officers of Y&R to the fullest extent permitted by law. Section
102(b)(7) of the DGCL provides that Delaware corporations may include in their
certificates of incorporation a provision eliminating or limiting the personal
liability of Directors to the corporation or its stockholders for monetary
damages for breach of their fiduciary duty including acts constituting gross
negligence, except under certain circumstances, including breach of the
Director's duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law or any transaction from
which the Director derived improper personal benefit. The Charter provides that
Y&R's Directors are not liable to it or its stockholders for monetary damages
for breach of their fiduciary duties, subject to the exceptions specified by
Delaware law.
44
<PAGE>
COMPENSATION OF DIRECTORS
The Company compensates only those members of the Board who are not
employees of the Company for their participation as Directors. During 1997, Alan
D. Schwartz and John C. McGillicuddy each received $50,000 as an annual stipend
for serving as a member of the Board and each, along with Richard S. Bodman,
will receive $50,000 in 1998. Messrs. Hellman and Hammarskjold each waived such
fee in 1997 and have indicated that they intend to waive it in the future.
Out-of-pocket expenses for attendance at meetings of the Board are reimbursed
for all members.
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").
45
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
----------------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) OPTIONS COMPENSATION (3)
- --------------------------------------------- ------ ----------- ---------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu .......................... 1997 $950,000 $598,500 -- -- $8,000
Chairman and Chief Executive Officer,
Young & Rubicam Inc.
Edward H. Vick .............................. 1997 $700,000 $272,250 $740,000 172,500 $8,199
Chief Operating Officer, Young & Rubicam
Inc.
John P. McGarry, Jr. ........................ 1997 $730,000 $297,000 -- -- $8,000
President, Young & Rubicam Inc.
Thomas D. Bell, Jr. ......................... 1997 $575,000 $168,750 -- 176,550 $8,000
Chairman and Chief Executive Officer,
Young & Rubicam Advertising
Michael J. Dolan ............................ 1997 $550,000 $198,000 $555,000 150,000 $2,190
Vice Chairman and Chief Financial Officer,
Young & Rubicam Inc.
</TABLE>
- ----------
(1) The named executive officers were awarded annual cash bonuses under the Key
Corporation Managers Bonus Plan, which bonuses were generally based on the
Company's achievement of target levels of operating profit and EBITA
(earnings before interest, taxes and amortization), each as defined in such
plan, as well as the achievement of individual objectives. The Company
intends to grant future annual cash bonuses under the 1997 Incentive
Compensation Plan (the "1997 ICP") based on substantially similar Company
and individual performance criteria.
(2) The total number and value of shares of Restricted Stock held by the named
executive officers under the Young & Rubicam Holdings Inc. Restricted Stock
Plan (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 Board,
based upon the valuation opinion of an independent investment bank, taking
into account that prior to the IPO, the Company was privately held and that
the shares were subject to contractual transfer restrictions) are as
follows: Mr. Georgescu--430,440 shares ($5,308,760); Mr. Vick--339,405
shares ($4,185,995); Mr. McGarry--155,850 shares ($1,922,150); Mr.
Bell--284,790 shares ($3,512,410); and Mr. Dolan--305,865 shares
($3,772,335). The Board accelerated the vesting of the Restricted Stock to
the date of consummation of the IPO. Accordingly, all Restricted Stock
awarded to the named executive officers vested and was distributed to the
recipients or a deferral trust, as the case may be, upon the consummation
of the IPO. Dividends on Restricted Stock are paid on the same basis as
ordinary dividends on the Common Stock and may be distributed to the
holders of such Restricted Stock. 60,000 shares and 45,000 shares of
Restricted Stock, respectively, of Messrs. Vick and Dolan were placed in a
deferral trust upon vesting thereof pursuant to the Deferred Compensation
Plan. Such deferral trust will hold the shares prior to their distribution
to Messrs. Vick and Dolan which will occur with respect to 33 1/3% of the
shares on January 15, 2001, with respect to an additional 33 1/3% of the
shares on January 15, 2002, and with respect to the remaining 33 1/3% of
the shares on January 15, 2003. Certain of the named executive officers
voluntarily elected under the Deferred Compensation Plan to have their
Restricted Stock placed in a deferral trust upon vesting thereof, and to
have such shares distributed to them from such deferral trust at specified
times in the future.
(3) "All other compensation" for 1997 consisted of the Company's contribution
of: (i) $8,000 on behalf of each of the named executive officers (other
than Mr. Dolan) as matching contributions under the Young & Rubicam
Employees' Savings Plan (a defined contribution 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).
46
<PAGE>
During 1997, stock option grants covering 11,469,150 shares in the
aggregate were awarded to 442 employees under the Young & Rubicam Holdings Inc.
Management Stock Option Plan (the "Management Stock Option Plan") and the 1997
Incentive Compensation Plan (the "1997 ICP" and, together with the Management
Stock Option Plan, the "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>
INDIVIDUAL GRANTS
------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ------------------------------ ---------------- -------------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu ........... -- -- -- -- -- --
Edward H. Vick ............... 172,500(1) 1.5% $ 12.33 12/17/07 $1,337,973 $3,390,687
John P. McGarry, Jr. ......... -- -- -- -- -- --
Thomas D. Bell, Jr. .......... 176,550(2) 1.5% $ 12.33 12/17/07 $1,369,387 $3,470,295
Michael J. Dolan ............. 150,000(1) 1.3% $ 12.33 12/17/07 $1,163,455 $2,948,424
</TABLE>
- ----------
(1) These represent non-qualified options granted under the 1997 ICP. Such
options have a ten-year term and will become exercisable with respect to 33
1/3% of the shares subject to any such option on December 31, 2000, with
respect to an additional 33 1/3% of such shares on December 31, 2001 and
with respect to the remaining 33 1/3% of such shares on December 31, 2002.
These options will become fully exercisable with respect to 100% of the
shares subject thereto upon a change in control of the Company (as defined
in the 1997 ICP) or termination of employment due to death or disability.
Upon termination of employment for any other reason, the portion of any
such option that was not exercisable at such time will expire.
(2) This represents a non-qualified option granted under the 1997 ICP. Such
option has a ten-year term and will become exercisable nine years and nine
months from the date of grant, unless Burson-Marsteller, Landor Associates,
Sudler & Hennessey and Cohn & Wolfe achieve a targeted operating profit
budget commitment for the year ending December 31, 1998, in which case it
will become exercisable with respect to 33 1/3% of the shares subject to
such option on December 31, 2000, with respect to an additional 33 1/3% of
such shares on December 31, 2001 and with respect to the remaining 33 1/3%
of such shares on December 31, 2002. This option will become fully
exercisable with respect to 100% of the shares subject thereto upon a
change in control of the Company (as defined in the 1997 ICP) or
termination of employment due to death or disability. Upon termination of
employment for any other reason, the portion of such option that was not
exercisable at such time will expire.
47
<PAGE>
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
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ ------------- ------------- ---------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Peter A. Georgescu ........... -- -- --/-- --/--
Edward H. Vick ............... -- -- 895,245(1)/172,500(2) $ 9,325,469/--
John P. McGarry, Jr. ......... 241,110 $1,386,383 --/-- --/--
Thomas D. Bell, Jr. ......... -- -- 1,165,215(1)/176,550(3) $ 12,137,656/--
Michael J. Dolan ............. -- -- 104,340(4)/306,525(5) $486,948/$730,422
</TABLE>
- ----------
(1) This represents a Rollover Option granted under the Management Stock Option
Plan (see "--Management Stock Option Plan").
(2) See footnote (1) to the preceding option grant table.
(3) See footnote (2) to the preceding option grant table.
(4) This represents a Closing Option granted under the Management Stock Option
Plan (see "--Management Stock Option Plan").
(5) This represents (i) with respect to 150,000 shares, a non-qualified option
granted under the 1997 ICP with the terms set forth in footnote (1) to the
preceding option grant table and (ii) with respect to 156,525 shares, a
Closing Option granted under the Management Stock Option Plan (see
"--Management Stock Option Plan").
----------------------------------------------------------
MANAGEMENT STOCK OPTION PLAN. At the time of the Recapitalization,
non-qualified options to purchase shares of Common Stock were granted pursuant
to the Management Stock Option Plan 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
(the "Rollover Options"). As of October 30, 1998, an aggregate of 11,518,725
Rollover Options remain outstanding.
The Rollover Options were immediately vested and exercisable upon grant.
Each Rollover Option has an exercise price of $1.92 per share of Common Stock
subject to such Rollover Option, with certain limited exceptions outside the
United States, and has a term of five years with respect to 50% of the shares
subject thereto and a term of seven years with respect to the other 50%.
Immediately following the closing of the Recapitalization, non-qualified
options to purchase shares of Common Stock were granted by the Compensation
Committee to certain key employees of Y&R pursuant to the Management Stock
Option Plan (the "Closing Options"). As of October 30, 1998, an aggregate of
6,010,605 Closing Options and additional options (which were granted since the
Recapitalization with the same terms and conditions as the Closing Options
(together with the Closing Options, the "Executive Options")) remain
outstanding.
Each Executive 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 Executive Options is $7.67 per share of
Common Stock.
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.
48
<PAGE>
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 H&F Investors and six other
investors not affiliated with the Company (together with the H&F Investors, 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.
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.
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 to the optionholder as set forth in the Management Stock
Option Plan. 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. However, no amendment may impair the rights of a holder of a
Rollover Option or Executive Option without such holder's consent. 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 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 exercise of a Rollover or Executive Option, the employee
may pay the withholding taxes or other similar charges that are incurred in
connection with such exercise (or, if the Compensation Committee consents, the
optionholder's estimated total taxes and charges incurred upon 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.
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. With respect to the
9,231,105 shares of Restricted Stock granted by the Compensation Committee to
certain members of management of Y&R pursuant to the Restricted Stock Plan, the
Board elected to accelerate the vesting to the date on which the IPO was
consummated. As of October 30, 1998, an aggregate of 517,065 shares of such
Restricted Stock remain in accounts established for the award recipients in the
Restricted Stock Trust with their distribution subject to certain additional
conditions set forth in the awards agreements. As a result, upon consummation of
the IPO, an aggregate of 8,714,040 shares of Restricted Stock in the Restricted
Stock Trust were distributed to the employees or to a deferral trust pursuant to
the Deferred Compensation Plan.
49
<PAGE>
Recipients of 1,832,235 shares of Restricted Stock granted in December 1997
were required to place such shares in a deferral trust upon vesting (subject to
the claims of the creditors of the Company in the event of its insolvency)
pursuant to the Deferred Compensation Plan. The deferral trust will hold the
shares prior to their distribution to such recipients, which will occur with
respect to one-third of the shares on January 15, 2001, with respect to an
additional one-third of the shares on January 15, 2002 and with respect to the
remaining one-third of the shares on January 15, 2003.
Upon termination of employment for any reason prior to vesting an employee
will forfeit all unvested Restricted Stock granted to him or her without
consideration on the date of such termination.
While the Management Voting Trust Agreement is in effect, all Restricted
Stock will be delivered to the Management Voting Trust and voted in accordance
with the provisions of the Management Voting Trust Agreement. After the
Management Voting Trust Agreement is no longer in effect, each employee who has
been awarded Restricted Stock will be entitled to instruct the trustee of the
Restricted Stock Trust as to the voting of the 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 will be voted by the
trustee pro rata in accordance with the vote of the Restricted Stock which has
been granted and with respect to which voting instructions have been given.
Among other powers, the Compensation Committee has the authority to
accelerate the vesting of all awards and the release of the related Restricted
Stock.
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.
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 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. 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.
The Company has adopted a new incentive compensation plan that has amended
and restated the Restricted Stock Plan with respect to all grants made
subsequent to March 31, 1998. See "--1997 ICP" below. In order to assist the
Company and its affiliates in meeting various cash compensation obligations of
the Company and its affiliates, the Company has amended the agreement governing
the Restricted Stock Trust to provide for cash distributions to be made from the
Restricted Stock Trust to pay salaries and for the benefit of participants in
various annual bonus programs as the Compensation Committee may direct. Such
amendments also permit the trustee of the Restricted Stock Trust to require the
Company to purchase unallocated shares of Common Stock held in the Restricted
Stock Trust such that proceeds from the sale are sufficient to make such salary
and bonus payments. Pursuant to such amendment, the Company repurchased
1,855,845 unallocated shares of Common Stock in the Restricted Stock Trust upon
the consummation of the IPO.
1997 ICP. In December 1997, the Company adopted the 1997 Incentive
50
<PAGE>
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.
As of October 30, 1998, an aggregate of 10,817,510 non-qualified options
granted by the Compensation Committee to certain members of management of Y&R
pursuant to the 1997 ICP remain outstanding. Such options have exercise prices
ranging from $12.33 per share to $31.00 per share. 9,394,275 of such 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 these options, options to purchase 949,050 and 176,550
shares of Common Stock, respectively, granted to employees of Burson-Marsteller
will not become exercisable until nine years and nine months from the date of
their grant, unless Burson-Marsteller or the group of Burson-Marsteller, Landor,
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 remaining outstanding options will expire if not exercised ten years
after the date of grant and generally will be fully exercisable with respect to
33 1/3% of such shares on the third, fourth and fifth anniversaries,
respectively, of the date of grant.
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 Common Stock reserved and available for
delivery to participants in connection with Awards is (i) 19,125,000, plus (ii)
the number of shares of Common Stock subject to awards under Preexisting Plans
that become available (generally due to cancellation or forfeiture) after the
effective date of the 1997 ICP; provided, however, that the total number of
shares of Common Stock with respect to which incentive stock options ("ISOs")
may be granted shall not exceed one million. Any shares of Common Stock
delivered under the 1997 ICP may consist of authorized and unissued shares or
treasury shares.
The 1997 ICP imposes individual limitations on the amount of certain Awards
in order to comply with Section 162(m) of the Internal Revenue Code (the
"Code"). Under these limitations, during any fiscal year the number of options,
SARs, shares of restricted stock, shares of deferred stock, shares of Common
Stock issued as a bonus or in lieu of other obligations, and other stock-based
Awards granted to any one participant must not exceed 200,000 shares for each
type of such Award, subject to adjustment in certain circumstances. In addition,
the maximum cash amount that may be earned as a final annual incentive award or
other annual cash Award in respect of any fiscal year by any one participant and
the maximum cash amount that may be earned as a final performance award or other
cash Award in respect of a performance period other than an annual period by any
one participant may not exceed $10 million. The Company intends for Awards
granted to "covered employees (as defined in Section 162(m)) under the 1997 ICP
to qualify as "performance-based
51
<PAGE>
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 to
Section 162(m).
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 underlying 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, subject to certain limitations in light 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 to exercise or settlement), 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 in certain cases specified in the 1997 ICP). The maximum
term of each option or SAR, the times at which each option or SAR will be
exercisable, and provisions requiring forfeiture of unexercised options or SARs
at or following termination of employment generally is fixed by the Compensation
Committee, except no option or SAR may have a term exceeding ten years. Options
may be exercised by payment of the exercise price in cash, Common Stock,
outstanding Awards, or other property (possibly including notes or obligations
to make payment on a deferred basis) having a fair market value equal to the
exercise price, as the Compensation Committee may determine from time to time.
Methods of exercise and settlement and other terms of the SARs are determined by
the Compensation Committee.
Restricted and Deferred Stock. The Compensation Committee is authorized to
grant restricted stock and deferred stock. Restricted stock is a grant of Common
Stock which may not be sold or disposed of, and which may be
52
<PAGE>
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. 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 performance conditions 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 Compensation
Committee. In the case of performance awards intended to meet the requirements
of Code Section 162(m), the business criteria used must be one of those
specified in the 1997 ICP, although for other participants the Compensation
Committee may specify any other criteria. The business criteria specified in the
1997 ICP are: (1) earnings per share; (2) increase in revenues; (3) cash flow;
(4) cash flow return on investment; (5) return on net assets, return on assets,
return on investment,
53
<PAGE>
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.
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. 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.
The Compensation Committee may cancel or rescind Awards, or require
repayment of any profits resulting from Awards, if the participant fails to
comply with certain restrictive or other covenants set forth in the 1997 ICP
and/or an Award agreement.
Acceleration of Vesting. The Compensation Committee may, in its discretion,
accelerate the exercisability, the lapsing of restrictions, or the expiration of
deferral or vesting periods of any Award, and such accelerated exercisability,
lapse, expiration and vesting shall occur automatically in the case of a "change
in control" of the Company except to the extent otherwise provided in the Award
agreement. In addition, the Compensation Committee may provide that the
performance goals relating to any performance-based award will be deemed to have
been met upon the occurrence of any "change in control."
"Change in control" is defined in the 1997 ICP to include:
(i) 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 (x) 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
54
<PAGE>
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.
Moreover, participant consent must be obtained if such action would materially
and adversely affect the rights of a participant under an outstanding Award.
Shareholder approval will not be deemed to be required under laws or
regulations, such as those relating to ISOs, that condition favorable treatment
of participants on such approval, although the Board may, in its discretion,
seek shareholder approval in any circumstance in which it deems such approval
advisable. Thus, shareholder approval will not necessarily be required for
amendments that might increase the cost of the 1997 ICP or broaden eligibility.
The Committee
55
<PAGE>
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.
DEFERRED COMPENSATION PLAN. The Deferred Compensation Plan permits certain
members of a select group of management or highly compensated employees of the
Company and its affiliates to defer receipt of specified portions of
compensation (either cash, stock or stock-based compensation) and to have such
deferred amounts treated as if invested in specified investment vehicles, all in
accordance with the terms of the Deferred Compensation Plan. Amounts deferred
under the Deferred Compensation Plan will be distributed to a participant as
soon as practicable after the date or dates (including upon the occurrence of
specified events), and in such number of installments, as may be elected by the
participant or earlier in the case of retirement, disability or a change in
control (as defined in the 1997 ICP). The Deferred Compensation Plan will be
"unfunded." However, the Compensation Committee has authorized the creation of a
trust to aid in meeting the Company's obligations under the Deferred
Compensation Plan. Such trust will be subject to the claims of the creditors of
the Company in the event of the Company's insolvency.
CAREER CASH BALANCE PLAN (THE "CCB PLAN"). The CCB Plan is a defined
benefit plan available to all employees of the Company and its participating
affiliates. Subject to certain limitations, most vested 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 12 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.
56
<PAGE>
SELECTED EXECUTIVE RETIREMENT INCOME PLAN ("SERIP"). The SERIP is a
supplemental executive retirement arrangement for selected members of senior
management under separate contracts with the Company. Subject to certain
non-competition and non-solicitation provisions, cash payments in a fixed annual
amount varying as to each individual will be made to a participant whose rights
have vested in accordance with his agreement when such participant's employment
terminates or when he reaches a specified age (typically 60), whichever occurs
later. Payments are made for the balance of the participant's life and, if fewer
than ten annual payments are made during the participant's life, his beneficiary
will receive the balance of the payments until ten annual payments are made. The
Company's obligations to participants under the SERIP are subordinate in right
of payment to its obligations to senior lenders and certain other creditors.
The estimated annual benefits payable upon retirement at normal retirement
age for the named executive officers are as follows: Mr. Georgescu--$1,050,000,
Mr. Vick--$300,000, Mr. McGarry--$200,000, Mr. Bell--none, and Mr. Dolan--none.
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.
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"). The Voting Trustees are Peter A. Georgescu, Stephanie
W. Abramson, Thomas D. Bell, Jr., Michael J. Dolan, 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.
57
<PAGE>
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 Board. After the IPO, such approval right terminated, and the H&F
Investors retained 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. Those
Recapitalization Investors have the right to require the Company to register for
resale shares of Common Stock held by the Recapitalization Investors pursuant to
certain demand registration rights, and to have shares they hold included in any
public offering of Common Stock made by the Company. See "Shares Eligible for
Future Sale."
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock and options to purchase Common Stock as of October
30, 1998, including beneficial ownership by (i) each person who is known by the
Company to own beneficially 5% or more of the outstanding shares of the Common
Stock, (ii) each of the Company's Directors and named executive officers and
(iii) all Directors and executive officers as a group. The information in the
table below has been calculated in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, and includes shares of Common Stock
held in a deferral trust pursuant to the Deferred Compensation Plan. 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 business address of the Management Voting Trust and the
Company's Directors and executive officers is c/o the Company at 285 Madison
Avenue, New York, New York 10017. The address of the H&F Investors is c/o
Hellman & Friedman LLC, One Maritime Plaza, San Francisco, California 94111. For
information on the Selling Stockholders, see "Selling Stockholders."
<TABLE>
<CAPTION>
NAME SHARES AND VESTED OPTIONS VESTED OPTIONS PERCENT
- --------------------------------------------------- --------------------------- ---------------- ----------
<S> <C> <C> <C>
Management Voting Trust (1) ....................... 41,608,935 13,538,505 52.7%
Hellman & Friedman Capital Partners III, L.P.. 19,713,722 2,311,590 29.1
H&F Orchard Partners III, L.P. .................... 1,435,629 168,270 2.2
H&F International Partners III, L.P. .............. 430,044 50,400 *
Peter A. Georgescu (2) ............................ 1,783,560 -- 2.7
Edward H. Vick (2) ............................... 1,384,710 895,245 2.1
Thomas D. Bell, Jr. (2) ........................... 1,308,908 1,165,215 2.0
John P. McGarry, Jr. (2) .......................... 1,032,353 -- 1.6
Michael J. Dolan (2) .............................. 419,625 104,340 *
Richard S. Bodman ................................. 2,000 -- *
Philip U. Hammarskjold (3) ........................ -- -- *
F. Warren Hellman (3) ............................. -- -- *
John F. McGillicuddy .............................. 13,035 -- *
Alan D. Schwartz (4) .............................. -- -- *
All directors and executive officers as a group (2) 7,277,479 2,190,885 10.6
</TABLE>
- ----------
* Less than one percent.
(1) All shares of Common Stock held by Management Investors have been deposited
into the Management Voting Trust, and the Management Voting Trust exercises
sole voting power over all such shares. See "Description of Capital
Stock--The Management Voting Trust Agreement." Beneficial ownership by the
Management Voting Trust includes an aggregate of 4,223,025 shares of Common
Stock held in a deferral trust pursuant to the Deferred Compensation Plan.
See "Management--Executive Compensation--The Restricted Stock Plan and
Trust Agreement."
(2) This amount does not include any of the 41,608,935 shares beneficially
owned by the Management Voting Trust prior to the Offering in excess of the
amount reported as beneficially owned by the stockholder, which the
stockholder may be deemed to beneficially own as a result of such
stockholder's position as a Voting Trustee of the Management Voting Trust.
The stockholder disclaims beneficial ownership of any such shares in excess
of the amount reported as beneficially owned by such stockholder.
(3) Excludes 21,579,395 shares beneficially owned by the H&F Investors prior to
the Offering. The sole general partner of the H&F Investors is H&F
Investors III ("Investors III"). The managing general partner of Investors
III is Hellman & Friedman Associates III, L.P. ("Associates III"), and the
general partners of Associates III are H&F Management III, L.L.C.
("Management III LLC") and H&F Investors III, Inc. ("H&F Inc."). The sole
shareholder of H&F Inc. is The Hellman Family Revocable Trust (the
"Trust"). Mr. Hammarskjold is a member of Management III LLC. Mr. Hellman
is a managing member of Management III LLC, a director of H&F Inc. and a
trustee of the Trust. Investors III, Associates III, Management III LLC,
H&F Inc., the Trust and Messrs. Hammarskjold and Hellman exercise, directly
or indirectly, voting and investment discretion with respect to the shares
held by the H&F Investors and could be deemed to beneficially own such
shares, but each of them disclaims such beneficial ownership except to the
extent of its or his indirect pecuniary interest in such shares.
(4) Excludes 197,720 shares held by BearTel Corp., a wholly owned subsidiary of
The Bear Stearns Companies Inc., the parent company of Bear Stearns, of
which Mr. Schwartz is an executive officer.
59
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder and
certain information regarding the beneficial ownership of the Common Stock and
options to purchase Common Stock by the Selling Stockholders as of October 30,
1998 and as adjusted to reflect the sale of 10,000,000 shares of Common Stock in
the Offering. The information in the table below has been calculated in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, and includes shares of Common Stock held in a deferral trust pursuant
to the Deferred Compensation Plan. 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.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING OFFERING
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT OFFERED OPTIONS OPTIONS PERCENT
------------ --------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Voting Trust (1) ..................
Hellman & Friedman Capital
Partners III, L.P. .........................
H&F Orchard Partners III, L.P. ...............
H&F International Partners III, L.P. .........
BearTel Corp. ................................
Stephen Aiello ...............................
Stig Albinus .................................
Patricia Anastos .............................
Jean-Marc Bara ...............................
Stephen Baum .................................
Kimberly Bealle ..............................
Ted Bell .....................................
Lincoln Bjorkman .............................
June Blocklin ................................
Rene Boender .................................
Bonnie Bohne .................................
Etienne Boisrond .............................
Tiemen Bosma .................................
Heinz Georg Brands ...........................
Craig Branigan ...............................
Juergen Braun ................................
Jane Brite ...................................
Roger Chiocci ................................
Ira Chynsky ..................................
Michael Claes ................................
Don Cogman ...................................
Janet Coombs .................................
David Coronna ................................
Jose Maria Costa .............................
Massimo Costa ................................
Mike Cozens ..................................
Donald Davis .................................
Ferdinand De Bakker ..........................
Joseph Dedeo .................................
Lawrence Deutsch .............................
Shelly Diamond ...............................
Pamela Dubose ................................
Terry Dukes ..................................
Daryl Elliot .................................
Daisy Exposito ...............................
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING OFFERING
------------------------------------ ----------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT OFFERED OPTIONS OPTIONS PERCENT
------------ --------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin Fahey ......................
Charles Farley ...................
Peter Farnell-Watson .............
Patrick Ford .....................
Richard Ford .....................
Clark Frankel ....................
Eric Fredericks ..................
Peter Frederiksen ................
Leon Gazma .......................
Enrico Gervasi ...................
Eduardo Gonzales .................
William Green ....................
David Greene .....................
Andrew Halley-Wright .............
Tom Hansen .......................
Peter Harleman ...................
Fred Hawrysh .....................
Stefan Himpe .....................
James Hood .......................
Roseanne Horn ....................
Peter Horovitz ...................
Richard Hosp .....................
Eric Garrison Hoyt ...............
Alex Hughes ......................
Jeff Hunt ........................
Gigliola Ibba ....................
Robert Igiel .....................
Barbara Jack .....................
Paal Marius Jebsen ...............
William Johnston .................
James Kaplove ....................
Mary Ellen Kenny .................
Edna Kissmann ....................
Arthur Klein .....................
Jackie Koh .......................
Nina Kowalewska ..................
Philippe Krakowsky ...............
Ingo Krauss ......................
Stephanie Kugelman ...............
Jay Kushner ......................
Marta LaRock .....................
Timothy Laing ....................
Kevin Lavan ......................
Denise Leo .......................
Renato Loes ......................
Marco Lombardi ...................
Bennett Machtiger ................
Duncan Mackinnon .................
John Maltese .....................
Anthony Manson ...................
Helmut Matthies ..................
Martin Maurice ...................
Robert McDuffey ..................
John P. McGarry, Jr. (2) .........
Steven McKenna ...................
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING OFFERING
------------------------------------ ----------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT OFFERED OPTIONS OPTIONS PERCENT
------------ --------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gordon McLean .................
Thomas McQueeney ..............
Bert Meerstadt ................
William Melzer ................
Diane Meskill-Spencer .........
Craig Middleton ...............
David Minear ..................
Fernan Montero ................
Frans Mootz ...................
John Morris ...................
Bruce Nelson ..................
Charles Newton ................
Keith Newton ..................
Lori Nicholson ................
James O'Malley ................
Steve Oroho ...................
Raymond O'Rourke ..............
Stewart Owen ..................
Vincent Parry .................
Robert S. Pastrick ............
Manuel Perez ..................
Ricardo Perez .................
Diane Perlmutter ..............
John Peters ...................
Graham Phillips ...............
Tim Pollak ....................
Michael Porter ................
William Power .................
Tom Pratt .....................
Brian Procter .................
Joerg Puphal ..................
John E. Putnam ................
Matthias Quadflieg ............
Serge Rancourt ................
Sheila Raviv ..................
Courtney Reeser ...............
Jorg Rindlisbacher ............
Jorge Rodriguez ...............
Edward Rodway .................
Ilene Rosenthal ...............
John Ross .....................
Seith Rothstein ...............
Alain Rousset .................
Michael Samet .................
John Sanders ..................
Chris Savage ..................
Matthew Schetlick .............
Angelika Schug ................
James Scielzo .................
John Scruggs ..................
Steve Seyferth ................
Keith Sharp ...................
Jessie Shaw ...................
Alan J. Sheldon (2) ...........
Richard Sinreich ..............
</TABLE>
62
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<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO BENEFICIAL OWNERSHIP AFTER
OFFERING OFFERING
------------------------------------ ----------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT OFFERED OPTIONS OPTIONS PERCENT
------------ --------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Sive .................
Peter Slone .................
Tim Smith ...................
Linda Srere .................
Christoph Stadeler ..........
Stanley Stefanski ...........
Peter Steigrad ..............
Debra Stern-Marrone .........
Kathryn Stout ...............
Lars Thalen .................
Clay Timon ..................
Wayne Traub .................
Pieter Vijn .................
Marvin Waldman ..............
Mary Walsh ..................
Charles Webre ...............
Bruno Widmer ................
Donald Williams .............
James Williams ..............
Kenneth Yagoda ..............
Mike Zeigler ................
</TABLE>
- ----------
* Less than one percent.
(1) Beneficial ownership by the Management Voting Trust prior to the Offering
includes an aggregate of 5,000,000 shares (including shares issuable upon
the exercise of options) offered hereby by Management Investors who are
Selling Stockholders, which shares are held by the Management Voting Trust.
Other than the H&F Investors and BearTel Corp., all Selling Stockholders
are Management Investors who are officers, employees or former employees of
the Company and whose shares of Common Stock are held by the Management
Voting Trust. See "Management--Executive Officers and Directors." All such
shares offered hereby will be delivered out of the Management Voting Trust
upon consummation of the Offering. All shares of Common Stock held by
Management Investors have been deposited into the Management Voting Trust,
and the Management Voting Trust exercises sole voting power over all such
shares. See "Description of Capital Stock--The Management Voting Trust
Agreement." Beneficial ownership by the Management Voting Trust includes an
aggregate 4,223,025 shares of Common Stock held in a deferral trust
pursuant to the Deferred Compensation Plan. See "Management--Executive
Compensation--The Restricted Stock Plan and Trust Agreement."
(2) This amount does not include any of the 41,608,935 shares beneficially
owned by the Management Voting Trust prior to the Offering in excess of the
amount reported as beneficially owned by the stockholder, which the
stockholder may be deemed to beneficially own as a result of such
stockholder's position as a Voting Trustee of the Management Voting Trust.
The stockholder disclaims beneficial ownership of any such shares in excess
of the amount reported as beneficially owned by such stockholder.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 250,000,000 shares of Common Stock, par
value $0.01 per share (the "Common Stock"), and 10,000,000 shares of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"). As of October 30,
1998, the Company's issued and outstanding capital stock consists of 65,378,152
shares of issued and outstanding Common Stock held by approximately 1,237
holders and 87 shares of issued and outstanding Money Market Preferred Stock,
par value $0.01 per share (the "Money Market Preferred Stock") held by one
holder. Also as of October 30, 1998, an additional 30,944,945 shares of Common
Stock are issuable upon exercise of outstanding options. All of the Company's
issued and outstanding capital stock has been fully paid.
The following description of the Company's capital stock does not purport
to be complete and is subject to and qualified in its entirety by the Charter
and the By-Laws. These provisions included as exhibits to the Registration
Statement of which this Prospectus forms a part, and by the provisions of
applicable Delaware law.
The Charter and the 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 are entitled to one vote for each share on all
matters voted on by stockholders, and the holders of such shares, together with
the holders of shares of Money Market Preferred Stock (as described herein),
possess all voting power, except as otherwise required by law or as provided in
the Charter. Holders of Common Stock who are employees of Y&R or its affiliates
are subject to the provisions of the Management Voting Trust and the Amended
Stockholders' Agreement. See "--The Management Voting Trust Agreement" and "The
Stockholders' Agreement." The holders of Common Stock do not have cumulative
voting rights. Holders of Common Stock do not have any preemptive right to
subscribe for or purchase any kind or class of securities of the Company.
Holders of Common Stock have no subscription, conversion or redemption rights,
and will not be subject to further calls or assessments. Subject to any
preferential or other rights of any outstanding series of Preferred Stock that
may be designated by the Board, the holders of Common Stock are entitled to such
dividends, if any, as may be declared from time to time by the Board. The New
Credit Facility permits the payment of cash dividends except in the event of a
continuing default under the credit agreement. See "Price Range of Common Stock
and Dividend Policy." In the event of the liquidation, dissolution or winding up
of the Company, holders of Common Stock will be entitled to receive on a pro
rata basis any assets of the Company remaining after provision for payment of
creditors and after payment of any liquidation preferences to holders of
Preferred Stock.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock.
The Board has the authority to establish and designate series of the Preferred
Stock and, except with respect to the Money Market Preferred Stock, to fix the
number of shares constituting each such series, to fix the designations and the
relative rights, preferences and limitations of the shares of each such series
and the variations in the relative rights, preferences and limitations as
between such series, and to increase and decrease the number of shares
constituting each such series. See "--Authorized But Unissued Capital Stock" and
"--Anti-Takeover Effects of Certain Provisions of the Charter, the By-Laws, the
Rights Plan and Delaware Law--Preferred Stock."
The 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 that are payable quarterly and calculated with
reference to the interest rate for the three-month London interbank deposit
market. On or after December 12, 2001, any Money Market
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Preferred Stock issued and outstanding for five years may, at the option of the
Board and subject to providing holders with notice of redemption, be redeemed by
the Company at a redemption price per share of $115.00 (together with all
accrued and unpaid dividends thereon). Redeemed Money Market Preferred Stock may
be reissued by the Board as shares of such series or as shares of any other
series of Preferred Stock. Shares of Money Market Preferred Stock are not
convertible, have a liquidation preference of $115.00 per share (together with
all accrued and unpaid dividends thereon) and have voting rights equal to
one-tenth of one vote for each share of Money Market Preferred Stock.
The Charter authorizes a series of Preferred Stock designated Cumulative
Participating Junior Preferred Stock (the "Junior Preferred Stock"), consisting
of 2,500,000 shares, in connection with the Rights Plan. 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 Offering, it will have approximately 183,616,221
shares of authorized but unissued Common Stock (including an aggregate of
27,341,213 shares reserved for issuance upon the exercise of options under the
Stock Option Plans and 2,598,105 shares reserved for issuance upon the exercise
of options issued to certain of the Recapitalization Investors) and 9,999,913
shares of authorized but unissued Preferred Stock (including the 2,500,000
shares designated as Junior Preferred Stock and 49,913 shares designated as
Money Market Preferred Stock). Delaware law does not require stockholder
approval for the issuance of authorized shares. However, the listing
requirements of the New York Stock Exchange, which apply so long as the Common
Stock is listed on such exchange, require prior stockholder approval of certain
issuances, including issuances of shares bearing voting power equal to or
exceeding 20% of the pre-issuance outstanding voting power or pre-issuance
outstanding number of shares of Common Stock. These additional shares could be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. The Company
currently does not have any plans to issue additional shares of Common Stock or
Preferred Stock other than in connection with employee compensation plans. See
"Management--Executive Compensation." One of the effects of the existence of
unissued and unreserved Common Stock and Preferred Stock may be to enable the
Board of the Company to issue shares to persons friendly to current management.
Such an issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management and
possibly deprive the stockholders of the opportunity to sell their shares of
Common Stock at prices higher than prevailing market prices. Such additional
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of the Company pursuant to the operation of the Rights Plan,
which is discussed below. See "--Anti-Takeover Effects of Certain Provisions of
the Charter, the By-Laws, the Rights Plan and Delaware Law."
THE MANAGEMENT VOTING TRUST AGREEMENT
Pursuant to the agreement establishing the Management Voting Trust (the
"Management Voting Trust Agreement"), the Management Investors and the
Restricted Stock Trust are required to deposit with the Management Voting Trust
all shares of Common Stock and all shares of Money Market Preferred Stock
acquired by them prior to the termination of the Management Voting Trust
(including Common Stock acquired upon the exercise of options, distributions
from the Restricted Stock Trust or 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 has the unqualified right and power to vote and
to execute consents with respect to all shares of Common Stock and all shares of
Money Market Preferred Stock held by the Management Voting Trust. The voting
rights of the
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Management Voting Trust are exercised by certain members of senior management of
Y&R, in their capacities as Voting Trustees. The current Voting Trustees are
Peter A. Georgescu, Stephanie W. Abramson, Thomas D. Bell, Jr., Michael J.
Dolan, John P. McGarry, Jr., Alan J. Sheldon and Edward H. Vick (each of whom is
currently a member of the senior management of Y&R). So long as Peter A.
Georgescu (or a successor Chief Executive Officer elected with the approval of
the Management Voting Trust) is a Voting Trustee, any action (i) approved in
writing or at a meeting by Peter A. Georgescu (or such successor) and any two
other Voting Trustees and (ii) any action approved over the objection of Peter
A. Georgescu (or such successor) at a meeting of the Voting Trustees by an
aggregate vote of Voting Trustees equal to not less than the total number of
Voting Trustees then in office minus two, shall constitute the action of, and
shall be binding upon, the Management Voting Trust (unless there shall be fewer
than seven Voting Trustees then in office, in which event any action under
clause (ii) shall require the vote of all the Voting Trustees other than Peter
A. Georgescu (or such successor)). The foregoing voting procedures will also
apply to the election and removal of Voting Trustees, to proposals to increase
or decrease the number of Voting Trustees and to proposals to amend the
foregoing voting procedures.
The Management Voting Trust will terminate when (i) no person (including
the Recapitalization Investors and the Management Voting Trust) is the owner of
more than 20% of the Outstanding Shares, (ii) the number of shares of Common
Stock held by the Management Voting Trust is less than 10% of the Outstanding
Shares or (iii) the Voting Trustees determine to terminate the Management Voting
Trust. Pursuant to an irrevocable unanimous written consent of the Voting
Trustees, the Management Voting Trust will terminate 24 months after the
consummation of the IPO (which occurred on May 15, 1998), assuming no earlier
termination in accordance with its terms.
The Management Voting Trust has issued and will issue voting trust
certificates ("Voting Trust Certificates") representing the shares of Common
Stock and Money Market Preferred Stock deposited with it. The Voting Trust
Certificates are subject to the transfer restrictions set forth in the Amended
Stockholders' Agreement. See "--The Stockholders' Agreement."
Y&R has agreed to assume all liability and indemnify and defend all Voting
Trustees and their successors, assigns, agents and servants from any and all
losses incurred or asserted against any Voting Trustees relating to their
administration of the Management Voting Trust, unless there is clear and
convincing evidence that such losses were proximately caused by an act or
omission that was not taken in good faith or not reasonably believed to be in
the best interest of Y&R and the Management Investors as a group. See
"Management--Limitation of Liability and Indemnification."
Under the Management Voting Trust Agreement and certain stock option and
restricted stock agreements, each of the Management Investors is subject to
certain non-competition, non-solicitation, confidentiality and notice
requirements in connection with the termination of such person's employment.
They include the following: (i) for one year after termination of employment, a
Management Investor may not work for any competitor of Y&R on the account of any
client of Y&R or any of its affiliates with whom such Management Investor had a
direct relationship or as to which such Management Investor had a significant
supervisory responsibility or otherwise was significantly involved at any time
during the two years prior to termination; (ii) for six months after termination
of employment, (a) a Management Investor with principally corporate type job
responsibilities that do not principally involve client service related
functions may not work for a principal competitor of Y&R or any of its
affiliates in any substantially similar role as that held with Y&R or any of its
affiliates during the two years prior to termination, and (b) a Management
Investor with principally client service related responsibilities may not work
for a competitor of Y&R or its affiliates on the account of any substantial
competitor (or directly for such competitor) of any client of Y&R or any of its
affiliates for whom such Management Investor had substantial responsibility
during the two years prior to termination; (iii) for one year after termination
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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 unless a shorter period is approved by the Company.
Y&R has agreed, under the Management Voting Trust Agreement, to give each
Management Investor six months' severance pay upon termination of employment for
any reason other than for cause (as defined), and each Management Investor is
required to waive any possible right to more than six months' severance pay (or
similar compensation) and any claims for damages under any employment agreement.
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 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 IPO, that stockholders' agreement was terminated as to certain parties,
and the H&F Investors, the Management Investors, the Management Voting Trust and
Y&R entered into an amended stockholders' agreement (the "Amended Stockholders'
Agreement").
RIGHT TO NOMINATE DIRECTORS. Under the Amended Stockholders' Agreement, the
H&F Investors have the right to nominate and have elected two members of the
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 Amended Stockholders' Agreement to include all shares
of Common Stock subject to vested options (not including options that would vest
on a change in control).
TRANSFER RESTRICTIONS. Under the Amended Stockholders' Agreement, the
transfer restrictions described below apply. Purported transfers in violation of
these restrictions will be null and void.
H&F Investors may not transfer shares of Common Stock, options to purchase
Common Stock or other voting capital stock, (i) prior to termination of the
Management Voting Trust (which will occur no later than the second anniversary
of the consummation of the IPO), if at least 20% of the Outstanding Shares are
then subject to the Management Voting Trust, to any party who as a result
thereof would (together with its affiliates) own a percentage of the Outstanding
Shares that is greater than the percentage then subject to the Management Voting
Trust, or (ii) after the termination of the Management Voting Trust and (A)
prior to the first anniversary of the termination, to any party who as a result
thereof would (together with its affiliates) own a percentage of the Outstanding
Shares that is greater than the greater of (1) 20% and (2) the percentage of the
Outstanding Shares subject to the Management Voting Trust upon termination
thereof (the "Termination Percentage") less 5% and (B) from and after the first
anniversary of the termination of the Management Voting Trust until December 12,
2002, to any party who as a result thereof would (together with its affiliates)
own a percentage of the Outstanding Shares that 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.
Prior to termination of the Management Voting Trust, proposed transfers of
shares of Common Stock, options to purchase Common Stock or other voting capital
stock by Management Investors (other than transfers by will or intestate
succession) to any party who as
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a result thereof (together with its affiliates) would own more than 20% of the
Outstanding Shares are subject to a right of first refusal by each of Y&R and
the H&F Investors, exercisable in that order.
CERTAIN TRANSFER RESTRICTIONS
The following transfer restrictions apply to shares of Common Stock issued
to Management Investors pursuant to Regulation S under the Securities Act, but
will not apply to shares of Common Stock sold in the Offering. Under the
By-Laws, any direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition (a "Transfer") of legal or
beneficial ownership of any stock issued and sold by the Company pursuant to
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), may be made only (i) pursuant to an effective registration statement
under the Securities Act or (ii) pursuant to a transaction that is exempt from,
or not subject to, the registration requirements of the Securities Act. Neither
the Company nor any employee or agent of the Company will record any Transfer
prohibited by the preceding sentence, and the purported transferee of such a
prohibited Transfer (the "Purported Transferee") will not be recognized as a
securityholder of the Company for any purpose whatsoever in respect of the
security or securities that are the subject of the prohibited Transfer. The
Purported Transferee will not be entitled, with respect to such securities, to
any rights of a securityholder of the Company, including without limitation, in
the case of securities that are Common Stock, the right to vote such Common
Stock or to receive dividends or distributions in respect thereof, if any. All
certificates representing securities subject to the transfer restrictions set
forth in the By-Laws will bear a legend to the effect that the securities
represented by such certificates are subject to such restrictions, unless and
until the Company determines in its sole discretion that such legend may be
removed consistent with applicable law.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of the Company has any preemptive right to
subscribe for or purchase any kind or class of securities of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
RIGHTS PLAN
The Company has adopted the Rights Plan and entered into a Rights Agreement
(the "Rights Agreement") between the Company and The Bank of New York, as Rights
Agent (the "Rights Agent"). Each outstanding share of Common Stock has attached
to it one associated Right. The terms of the Rights are set forth in the Rights
Agreement. The Charter authorizes the Board to adopt a stockholder rights plan
such as the Rights Plan.
Each Right entitles the registered holder under certain circumstances to
purchase from the Company one one-hundredth of a share of Junior Preferred Stock
at a purchase price of $87.50, subject to adjustment (the "Purchase Price"). The
Purchase Price is 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 $1 per
share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment. Each share of
Junior Preferred Stock will have 100 votes, voting together with the Common
Stock and the Money Market Preferred Stock and, in the event of certain dividend
arrearages, will also have the right, voting as a class, to elect one director.
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.
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<PAGE>
Until the close of business on the Distribution Date (as defined below),
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
Distribution Date or the Expiration Date (as defined below) will be issued with
Rights.
The term "Distribution Date" means 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 Board
prior to such time as any person becomes an Acquiring Person (as defined below))
after the date of the commencement by any person (other than any Company Entity
(as defined below)) of, or the first public announcement of the intent of any
person (other than any Company Entity) to commence (which intention to commence
remains in effect for five business days after such announcement), a tender or
exchange offer the consummation of which would result in any person becoming an
Acquiring Person.
The term "Stock Acquisition Date" means the time and day of the first
public announcement (including by the filing of a report pursuant to the
Exchange Act) by the Company or an Acquiring Person indicating that an Acquiring
Person has become such.
The term "Acquiring Person" means:
(i) any person (other than the H&F Investors and other than any Permitted
H&F 15% Transferee (as defined below)) who or which, together with all
affiliates and associates of such person, acquires beneficial
ownership (as defined in the Rights Agreement) of 15% or more of the
then outstanding shares of Common Stock (other than as a result of an
Approved Offer (as defined below));
(ii) the H&F Investors if, after the Offering, the H&F Investors, together
with all of their affiliates and associates, acquire beneficial
ownership of any additional shares of Common Stock such that following
such acquisition (A) the H&F Investors beneficially own in excess of
15% of the then outstanding shares of Common Stock and (B) if the
Management Voting Trust is then in existence, following such
acquisition the H&F Investors beneficially own a greater percentage of
the Diluted Shares Outstanding (as defined below) than the percentage
of the Diluted Shares Outstanding subject to the Management Voting
Trust at the time of such acquisition (it being understood that
neither sales by, nor termination of, the Management Voting Trust will
trigger this provision absent a subsequent acquisition of beneficial
ownership of additional shares by the H&F Investors or any of their
affiliates or associates); or
(iii)any Permitted H&F 15% Transferee if contemporaneously with or
subsequent to the transfer from the H&F Investors that resulted in
such person becoming a Permitted H&F 15% Transferee, such Permitted
H&F 15% Transferee, together with all affiliates and associates of
such Permitted H&F 15% Transferee, acquires beneficial ownership of
any additional shares.
Notwithstanding the foregoing:
(1) a person shall not become an Acquiring Person if such person, together
with all of its affiliates and associates, becomes the beneficial
owner of 15% or more (in the case of clause (i) above) of the then
outstanding shares of Common Stock as a result of a reduction in the
number of shares of Common Stock outstanding due to the repurchase of
shares of Common Stock by the Company, unless and until such time as
such person purchases or otherwise becomes (as a result of actions
taken by such person or any of its affiliates or associates) the
beneficial owner of any additional shares of Common Stock; and
(2) the term "Acquiring Person" shall not include any Company Entity; and
(3) the term "Acquiring Person" shall not include any person who or
which, together with all affiliates and
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associates of such person, becomes the beneficial owner of 15% or more
of the then outstanding shares of Common Stock (in the case of clause
(i) above) or any additional shares of Common Stock (in the case of
clauses (ii) and (iii) above) but who acquired beneficial ownership of
shares of Common Stock inadvertently, and such person promptly (and in
any event within 10 business days after being so requested by the
Company) enters into an irrevocable commitment satisfactory to the
Board promptly (and in any event within 20 business days or such
shorter period as shall be determined by the Board) to divest, and
thereafter promptly divests as required by such commitment, sufficient
shares of Common Stock so that such person, together with all of its
affiliates and associates, ceases to be a beneficial owner of 15% or
more of the then outstanding shares of Common Stock (in the case of
clause (i) above) or any additional shares of Common Stock (in the
case of clauses (ii) and (iii) above).
The term "Company Entity" means any of the Company, any wholly owned
subsidiary of the Company, any employee benefit plan or employee stock plan of
the Company or any wholly owned subsidiary of the Company, any person or entity
holding shares of Common Stock which was organized, appointed or established by
the Company or any such wholly owned subsidiary for or pursuant to the terms of
any such plan, the Management Voting Trust, the Restricted Stock Trust, the
trustees under the Management Voting Trust or the Restricted Stock Trust, any
affiliate or associate of the Management Voting Trust or the Restricted Stock
Trust or any trustee under either such trust and any group that includes the
Management Voting Trust, the Restricted Stock Trust, any trustee under either
such trust or any affiliate or associate thereof.
The term "Permitted H&F 15% Transferee" means any person who is a Permitted
H&F Transferee (as defined below) who or which, immediately after the transfer
from the H&F Investors that resulted in such person becoming a Permitted H&F
Transferee, together with all affiliates and associates of such person, is the
beneficial owner of 15% or more of the then outstanding shares of Common Stock.
The term "Permitted H&F Transferee" means any person that acquires
beneficial ownership of shares of Common Stock from the H&F Investors pursuant
to a transfer that is either not restricted under, or occurs in compliance with,
the transfer restrictions applicable to the H&F Investors set forth in the
Amended Stockholders' Agreement.
The term "Approved Offer" means a tender offer or exchange offer for all
the outstanding shares of Common Stock which is at a price and on terms
approved, prior to the acceptance for payment of shares under such tender or
exchange offer, by the Board.
The term "Diluted Shares Outstanding" as of any given time means the sum of
(a) the number of shares of Common Stock then issued and outstanding (including
all shares of Common Stock held in the Restricted Stock Trust) and (b) the
number of shares of Common Stock issuable upon exercise of the (1) HFCP Options
(as defined in the Amended Stockholders' Agreement) and the Rollover Options and
(2) all other options, warrants and rights to acquire, and the conversion of any
securities convertible into, shares of Common Stock, to the extent such rights
to acquire shares of Common Stock are then exercisable. For purposes of clause
(ii)(B) of the definition of "Acquiring Person" above, when calculating the
percentage of the Diluted Shares Outstanding owned by the H&F Investors or the
Management Voting Trust, as the case may be, the H&F Investors or the Management
Voting Trust, as the case may be, shall be deemed to own all shares of Common
Stock beneficially owned by them assuming the exercise of all of their options,
warrants and rights to acquire, and the conversion by them of any securities
convertible into, shares of Common Stock to the extent, but only to the extent,
such rights to acquire shares of Common Stock are then exercisable by them. For
purposes of calculating the percentage of Diluted Shares Outstanding owned by
the Management Voting Trust, the Management Voting Trust shall be deemed to own
all shares of Common Stock (including all shares of Common Stock required to be
deposited thereunder upon exercise of vested options) then subject to the
Management Voting Trust.
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The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Certificates
representing shares of Common Stock issued prior to the earlier of the
Distribution Date and the Expiration Date will contain a legend incorporating
the Rights Agreement by reference. Until the Distribution Date, the surrender
for transfer of any of the certificates representing shares of Common Stock
issued prior to the Distribution Date will also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate. Until
the Distribution Date, the number of Rights associated with each share of Common
Stock will be proportionately adjusted in the event of any dividend in Common
Stock on the Common Stock or subdivision, combination or reclassification of the
Common Stock. In the event that the Company purchases or acquires any shares of
Common Stock prior to the Distribution Date, any Rights associated with such
shares of Common Stock shall be deemed canceled and retired so that the Company
shall not be entitled to exercise any Rights associated with the shares of
Common Stock that are no longer outstanding. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of Common Stock as of the
close of business on the Distribution Date and such separate Rights Certificates
alone will evidence the Rights. The Rights are not exercisable until the
Distribution Date. The Rights will expire at the close of business on May 31,
2008, unless they have previously expired in connection with an Approved Offer
(as described in the Rights Agreement) or have been previously exchanged for
shares of Common Stock or have been previously redeemed by the Company as
described below (the date and time of the earliest of such events to occur, the
"Expiration Date").
Immediately upon the Stock Acquisition Date, proper provision shall be made
so that each holder of a Right will thereafter have the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a preexisting market value (as of shortly
before the Stock Acquisition Date), equal to two times the then current Purchase
Price of the Right. Notwithstanding any of the foregoing, following the
occurrence of the Stock Acquisition Date, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person and certain related parties will become null and void.
To illustrate the rights described in the preceding paragraph, at a
Purchase Price of $87.50 per Right, each Right not owned by an Acquiring Person
(or by certain related parties) following an event set forth in the preceding
paragraph would entitle its holder to purchase Common Stock (or other
consideration, as noted above) with a preexisting market value of $175.00 for
$87.50. Assuming that the Common Stock has a preexisting market value of $25.00
per share at such time, the holder of each Right would be entitled to purchase
seven shares of Common Stock for $87.50.
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business consolidation transaction,
(ii) the Company is the surviving corporation in a merger or other business
consolidation with any person and the Common Stock is changed into or exchanged
for stock or other securities of any other person or cash or any other property
(other than, in the case of any transaction described in (i) or (ii), a merger
or consolidation that would result in all of the voting securities of the
Company outstanding immediately prior thereto continuing to represent all of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation and holders of such securities
not having changed as a result of such merger or consolidation) or (iii) 50% or
more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights that previously have been voided as set forth
above) shall thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a market value equal to two times the then
current Purchase Price of the Right.
The Purchase Price payable, and the fraction of a share of Junior Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision,
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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 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 that
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person) or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to adjust the
time period governing redemption or to modify the ability (or inability) of the
Board to redeem the Rights may be made when the Rights are not redeemable.
As long as the Rights are attached to the Common Stock, the Company will
issue one Right for each share of Common Stock issued prior to the Distribution
Date so that all such shares will have attached Rights. Two million five hundred
thousand shares of Junior Preferred Stock initially have been 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 Charter, the 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 these provisions in the Charter,
the By-Laws,
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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 Charter, the By-Laws
and the Rights Agreement, which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part, and to the DGCL. Upon
consummation of the Offering, the Management Voting Trust will hold
approximately 46.4% of the outstanding shares of Common Stock (assuming the
exercise of all vested options held by Management Investors), which could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. See "Description of Capital Stock--The Management
Voting Trust Agreement."
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The Charter provides
that the number of Directors will be not less than five nor more than fifteen,
with the exact number of Directors to be determined from time to time by a
majority of the entire Board. The Directors will 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 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 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 Charter provides that, subject to the
rights of holders of any shares of Preferred Stock, any vacancy in the Board
that results from an increase in the number of Directors may be filled only by a
majority of the Directors then in office, provided that a quorum is present. The
Charter provides that any other vacancy in the Board 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 Charter provides that no action
required or permitted to be taken at any annual or special meeting of
stockholders may be taken by stockholders of the Company except at such a
meeting of stockholders. The By-Laws provide that special meetings of
stockholders may be called only by the Chairman of the Board or the 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 the meeting. The provisions of
the Charter prohibiting action by written consent without a meeting and the
provisions of the By-Laws governing the calling of and matters considered at
special meetings may have the effect of
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delaying consideration of a stockholder proposal until the next annual meeting.
These provisions also would prevent the holders of a majority of the voting
power of the outstanding shares of stock entitled to vote generally in the
election of Directors from using the written consent procedure to take
stockholder action and from taking action by written consent without giving all
the stockholders entitled to vote on a proposed action the opportunity to
participate in determining such proposed action at a meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS. The
By-Laws establish an advance notice provision with regard to the nomination,
other than by or at the direction of the Board, of candidates for election as
Directors, or the bringing before any annual meeting of any stockholder proposal
(the "Notice of Meeting Provision").
The Notice of Meeting Provision provides that, subject to any rights of
holders of any Preferred Stock, business other than that proposed by the Board
may be transacted and candidates for Director other than those selected by the
Board may be nominated at the annual meeting only if the Secretary of the
Company has received a written notice identifying such business or candidates
and providing specified additional information not less than ninety nor more
than one hundred twenty days before the first Tuesday in June (or, if the Board
has set a different date for the annual meeting, not less than ninety nor more
than one hundred twenty days before such other date or, if such other date has
not been publicly disclosed or announced at least one hundred five days in
advance, then not less than fifteen days after such public disclosure or
announcement). In addition, not more than ten days after receipt by the
sponsoring stockholder of the Secretary's written request, the sponsoring
stockholder must provide the Secretary with such additional information as the
Secretary may reasonably require.
By requiring advance notice of nominations by stockholders, the Notice of
Meeting Provision will afford the Board a meaningful opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform the stockholders about such qualifications. By
requiring advance notice of proposed business, the Notice of Meeting Proposal
Provision will provide the Board with a meaningful opportunity to inform
stockholders, prior to such meeting, of any business proposed to be conducted at
such meeting, together with any recommendation or statement of the Board's
position as to action to be taken with respect to such business, so as to enable
stockholders better to determine whether they desire to attend such a meeting or
to grant a proxy to the Board as to the disposition of any such business.
Although the 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 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 Charter classifying the Board; governing the removal of
directors; establishing the minimum and maximum number of members of the Board;
eliminating the ability of stockholders to act by written consent; authorizing
the Board to consider the interests of clients and other customers, creditors,
employees and other constituencies of the Corporation and its subsidiaries and
the effect upon communities in which the Corporation and its subsidiaries do
business, in evaluating proposed corporate transactions; establishing the
Board's authority to issue, without a vote or any other action of the
stockholders, any or all authorized shares of stock of the Corporation,
securities convertible into or exchangeable for any authorized shares of stock
of the Corporation and warrants, options or rights to purchase, subscribe for or
otherwise acquire shares of stock of the Corporation for any such consideration
and on such terms as the Board in its discretion lawfully may determine; and
authorizing that
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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 Charter provides
that the approval of the Board or the affirmative vote of the holders of 80% of
the voting power entitled to vote generally in the election of Directors, voting
together as a single class, is required to alter, amend or repeal the above
provisions of the Charter or to adopt any provision of the Charter inconsistent
with such provisions or to alter, amend or repeal certain provisions of the
By-Laws or to adopt any provision of the By-Laws inconsistent with such
provisions.
PREFERRED STOCK. Subject to the Charter and applicable law, the authority
of the Board with respect to each series of Preferred Stock, excluding the Money
Market Preferred Stock, includes but is not limited to the authority to
generally determine the following: the designation of such series, the number of
shares initially constituting such series and whether to increase or decrease
such number of shares, dividend rights and rates, terms of redemption and
redemption prices, liquidation preferences, voting rights, conversion rights,
whether a sinking fund will be provided for the redemption of the shares of such
series (and, if so, the terms and conditions thereof) and whether a purchase
fund shall be provided for the shares of such series (and, if so, the terms and
conditions thereof).
The Company believes that the availability of the Preferred Stock will
provide increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs that might arise. Having such
authorized shares available for issuance will allow the Company to issue shares
of Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by the
stockholders, unless such action is required by applicable law or the rules of
any stock exchange on which the Company's securities 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 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
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 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
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"business combination" transactions, including mergers, consolidations and sales
of 10% or more of a corporation's assets, with a Delaware corporation for three
years following the date on which such person became an interested stockholder
unless (i) the transaction that results in the person's becoming an interested
stockholder or the business combination is approved by the board of directors of
the corporation before the person becomes an interested stockholder, (ii) upon
consummation of the transaction which results in the stockholder becoming an
interested stockholder, the interested stockholder owns 85% or more of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also officers
and shares owned by certain employee stock plans, or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by holders of at least
two-thirds of the corporation's outstanding voting stock, excluding shares owned
by the interested stockholder, at a meeting of stockholders. Under Section 203,
an "interested stockholder" is generally defined as any person (and the
affiliates and associates of any such person), other than the corporation and
any direct or indirect majority-owned subsidiary, that is (a) the owner of 15%
or more of the outstanding voting stock of the corporation or (b) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder. The restrictions contained in
Section 203 do not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding voting shares, but such stockholder action generally does not become
effective for 12 months following its adoption and would not apply to persons
who were already interested stockholders at the time of the amendment. The
Charter and By-Laws do not exclude the Company from the restrictions imposed
under Section 203, but the Charter provides that in no case shall the H&F
Investors or any person who is a Permitted H&F 15% Transferee, regardless of the
total percentage of the Company's Common Stock or other voting stock owned by
the H&F Investors or such person, be deemed an interested stockholder for any
purpose under Section 203 whatsoever.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the 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
Sales of substantial amounts of Common Stock in the public market following
the Offering 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 Offering, the Company will have outstanding
66,383,779 shares of Common Stock. Of these shares, approximately (i) 31,560,110
shares will be freely tradeable by persons, other than "affiliates" of the
Company, without restriction under the Securities Act of 1933, as amended (the
"Securities Act"); (ii) 33,787,214 shares will be "restricted" securities,
within the meaning of Rule 144 under the Securities Act, and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144; and
(iii) 1,036,455 shares originally issued pursuant to Regulation S under the
Securities Act will be subject to transfer restrictions thereunder.
In general, under Rule 144 as currently in effect, 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 663,838 shares immediately after the Offering); 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, certain of the Management Investors, the Directors,
the H&F Investors and certain other stockholders of the Company, including the
Selling Stockholders, who, upon consummation of the Offering, will collectively
be the beneficial owners of an aggregate of [ ] shares of Common Stock and hold
vested options to acquire an aggregate of [ ] shares of Common Stock has agreed
not to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise),
without the prior written consent of Bear, Stearns & Co. Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation, for a period of 120 days after the
date of this Prospectus (except that (i) the Company may grant stock options or
stock awards pursuant to the Company's existing benefit or compensation plans,
(ii) the Company may issue shares of Common Stock upon the exercise of options,
warrants or Rights or the conversion of currently outstanding securities, (iii)
the H&F Investors may transfer shares of Common Stock to partners or affiliates
thereof in transactions not involving a public offering provided that each
transferee agrees in writing to be bound by the restrictions set forth in this
paragraph and (iv) the Company may issue, offer and sell shares of Common Stock
or securities convertible, exercisable or exchangeable therefor in transactions
not involving a public offering as consideration for the acquisition (pursuant
to merger or otherwise) of one or more entities provided that each recipient of
such securities
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agrees in writing to be bound by the restrictions set forth in this paragraph).
In addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and the Company's executive officers
and Directors, and certain other stockholders, including the Selling
Stockholders, have agreed not to make any demand for, or exercise any right
with respect 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 Bear, Stearns & Co. Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation. See "Underwriting."
In addition, certain of the Management Investors who are not Selling
Stockholders and who, upon consummation of the Offering, will collectively be
the beneficial owners of an aggregate of [ ] shares of Common Stock and hold
vested options to acquire an aggregate of [ ] shares of Common Stock, have
agreed with the Company 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) or (iii) 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 Common Stock, without the prior
written consent of the Company, for a period ending on a date no later than 180
days after the date of this Prospectus. For a period of 120 days after the date
of this Prospectus, the Company has agreed with the Underwriters to enforce the
Company's rights under the foregoing agreements to prohibit transfers of Common
Stock and the making of demands for registration of Common Stock.
REGISTRATION RIGHTS AGREEMENT
In connection with the Recapitalization, Y&R, the Recapitalization
Investors and the Management Voting Trust entered into a Registration Rights
Agreement in favor of the Recapitalization Investors and, to the extent
necessary to permit a Management Investor to pay taxes when such sales would not
otherwise be permitted, the Management Investors, under which registration
rights are available after the consummation of the Offering. Pursuant to the
Registration Rights Agreement, the Company has granted (i) the Recapitalization
Investors the right to require, subject to the terms and conditions set forth
therein, the Company to register shares of Common Stock held by them for sale in
accordance with their intended method of disposition thereof and (ii) the
Management Voting Trust the right to require, subject to the terms and
conditions set forth therein, the Company to register such number of shares of
Common Stock as is necessary to permit Management Investors to pay taxes as a
result of the exercise by such Management Investors of Rollover Options or
Closing Options or the vesting of Restricted Stock awarded to such Management
Investors (each a "demand registration"), provided that in the case of the
Management Voting Trust no such request may be made without the consent of the
Company. Subject to certain limitations, the Recapitalization Investors may
request up to four demand registrations and the Management Voting Trust may
request up to two demand registrations. The Company will not be required to
effect any demand registration if (i) the aggregate market value of the shares
of Common Stock proposed to be registered is less than $100 million or (ii) such
demand registration is requested by the Recapitalization Investors or the
Management Voting Trust within six months of the effective date of a prior
demand registration requested by the Recapitalization Investors or the
Management Voting Trust, respectively. The Company may postpone the filing of a
demand registration for up to 60 days in certain circumstances.
In addition, the Company has granted the Recapitalization Investors and the
Management Voting Trust (to the extent of such number of shares of Common Stock
as is necessary to permit Management Investors to pay taxes as a result of the
exercise by such Management Investors of
78
<PAGE>
Rollover Options or Closing Options or the vesting of Restricted Stock awarded
to such Management Investors) the right, subject to certain exceptions, to
participate in registrations of Common Stock initiated by the Company on its own
behalf or on behalf of any other stockholder (a "piggy-back registration"). The
Recapitalization Investors and the Management Voting Trust (on behalf of those
Management Investors that are Selling Stockholders) have exercised these
piggy-back registration rights in connection with the Offering.
The Registration Rights Agreement provides that if requested by the
managing underwriter(s) of any underwritten offering of shares of Common Stock,
the Recapitalization Investors and the Management Voting Trust will agree, on
the same terms applicable to officers and directors of the Company, not to
effect any public sale or distribution of any shares of Common Stock for a
period of up to 180 days following and 15 days prior to the date of the final
prospectus contained in the registration statement filed in connection with such
offering. See "Underwriting."
The Company is required to pay expenses incurred by it and the reasonable
fees and disbursements of one counsel to the selling stockholders under the
Registration Rights Agreement in connection with the demand and piggy-back
registrations under the Registration Rights Agreement. In connection with any
registration under the Registration Rights Agreement, the Company has agreed to
indemnify five of the Recapitalization Investors against certain liabilities,
including liabilities under the Securities Act, and to contribute to certain
payments they may be required to make. The Registration Rights Agreement will
terminate on December 12, 2011.
79
<PAGE>
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 United
States of America (including the States and the District of Columbia). The
discussion does not consider specific facts and circumstances that may be
relevant to a particular non-U.S. holder's tax position. Accordingly, each
non-U.S. holder is urged to consult its own tax advisor with respect to the U.S.
tax consequences of the ownership and disposition of Common Stock, as well as
any tax consequences that may arise under the laws of any state, municipality,
foreign country or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30 percent rate, or at a
lower rate under an applicable income tax treaty that provides for a reduced
rate of withholding. However, if the dividends are effectively connected with
the conduct by the holder of a trade or business within the United States, then
the dividends will be exempt from the withholding tax described above and
instead will be subject to U.S. federal income tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain realized on a disposition of Common Stock, provided that (a)
the gain is not effectively connected with a trade or business conducted by the
non-U.S. holder in the United States and (b) in the case of a non-U.S. holder
who is an individual and who holds the Common Stock as a capital asset, such
holder is present in the United States for less than 183 days in the taxable
year of the sale and other conditions are met.
FEDERAL ESTATE TAXES
Common Stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes (and thereby may be subject to U.S. federal estate tax),
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, 1999,
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, 1999, 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 in each case the broker has documentary evidence
80
<PAGE>
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.
81
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
November , 1998 (the "Underwriting Agreement"), the Underwriters named below
(the "Underwriters"), who are represented by Bear, Stearns & Co. Inc. ("Bear
Stearns"), Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), ING
Baring Furman Selz LLC, Goldman, Sachs & Co. and Salomon Smith Barney Inc. (the
"Representatives"), have severally agreed to purchase from the Selling
Stockholders the respective number of shares of Common Stock set forth opposite
their names below.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ------------------------------------------------------------- ------------
<S> <C>
Bear, Stearns & Co. Inc. ....................................
Donaldson, Lufkin & Jenrette Securities Corporation .........
ING Baring Furman Selz LLC ..................................
Goldman, Sachs & Co. ........................................
Salomon Smith Barney Inc ....................................
----------
Total ...................................................... 10,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, to certain other dealers
a concession not in excess of $ per share. After the initial offering of the
Common Stock, the public offering price and other selling terms may be changed
by the Representatives at any time without notice. The Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Certain of the Selling Stockholders have granted to the 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
1,500,000 additional shares of Common Stock at the initial public offering price
less underwriting discounts and commissions. The Underwriters may exercise such
option solely to cover over-allotments, if any, made in connection with the
Offering. To the extent that the Underwriters exercise such option, each
Underwriter will become obligated, subject to certain conditions, to purchase
its pro rata portion of such additional shares based on such Underwriter's
percentage underwriting commitment in the Offering 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.
82
<PAGE>
Each of the Company, certain of the Management Investors, the Directors,
the H&F Investors and certain other stockholders of the Company, including the
Selling Stockholders, who upon consummation of the Offering will collectively be
the beneficial owners of an aggregate of [ ] shares of Common Stock and hold
vested options to acquire an aggregate of [ ] shares of Common Stock, has agreed
not to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 120 days
after the date of this Prospectus without the prior written consent of Bear
Stearns and DLJ (and, in the case of Management Investors, the Company) (except
that (i) the Company may grant stock options or stock awards pursuant to the
Company's existing benefit or compensation plans, (ii) the Company may issue
shares of Common Stock upon the exercise of options, warrants or Rights or the
conversion of currently outstanding securities, (iii) the H&F Investors may
transfer shares of Common Stock to partners or affiliates thereof in
transactions not involving a public offering provided that each transferee
agrees in writing to be bound by the restrictions set forth in this paragraph
and (iv) the Company may issue, offer and sell shares of Common Stock or
securities convertible, exercisable or exchangeable therefor in transactions not
involving a public offering as consideration for the acquisition (pursuant to
merger or otherwise) of one or more entities provided that each recipient of
such securities agrees in writing to be bound by the restrictions set forth in
this paragraph). In addition, during such period, the Company has also agreed
not to file any registration statement with respect to, and each of its
executive officers, directors and certain stockholders of the Company (including
the Selling Stockholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without the prior written consent of Bear Stearns and DLJ.
In addition, certain of the Management Investors who are not Selling
Stockholders and who, upon consummation of the Offering, will collectively be
the beneficial owners of an aggregate of [ ] shares of Common Stock and hold
vested options to acquire an aggregate of [ ] shares of Common Stock, have
agreed with the Company 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) or (iii) 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 Common Stock, without the prior
written consent of the Company, for a period ending on a date no later than 180
days after the date of this Prospectus. For a period of 120 days after the date
of this Prospectus, the Company has agreed with the Underwriters to enforce the
Company's rights under the foregoing agreements to prohibit transfers of Common
Stock and the making of demands for registration of Common Stock without the
prior written consent of Bear Stearns and DLJ.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
83
<PAGE>
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 Offering 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 order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company. The Underwriters may elect to cover any such
short position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment options granted to the Underwriters. In addition,
such persons may stabilize or maintain the price of the Common Stock by bidding
for or purchasing shares of Common Stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the Offering are reclaimed if shares
previously distributed in the Offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the Common Stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions, if
commenced, may be discontinued at any time.
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 Board. BearTel
Corp., a wholly owned subsidiary of The Bear Stearns Companies Inc., the parent
company of Bear Stearns, is a Selling Stockholder in the Offering. See "Selling
Stockholders."
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 Offering 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
PricewaterhouseCoopers LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.
84
<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements, the "Registration Statement").
This Prospectus is a part of the Registration Statement and does not contain all
of the information set forth in the Registration Statement. For further
information with respect to the Company and the Common Stock, you should refer
to the Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document referred to in this Prospectus are
not necessarily complete. Where such contract or other document is an exhibit to
the Registration Statement, each such statement is qualified in all respects by
the provisions of such exhibit, to which reference is hereby made.
We are required to file annual, quarterly and current reports, proxy
statements and other information with the Commission. You may review the
Registration Statement, as well as reports and other information we have filed,
without charge at the Committee's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies may also 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.
These materials may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. For further information on
the operation of the public reference rooms, please call 1-800-SEC-0330.You may
also review these materials 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.
85
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
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
Consolidated Balance Sheets as of December 31, 1997 and September 30,
1998 (unaudited) ......................................................... F-29
Unaudited Consolidated Statements of Operations for the three months
and nine months ended September 30, 1997 and 1998 ........................ F-30
Unaudited Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1998 ........................................ F-31
Consolidated Statements of Changes in Equity (Deficit) for the year
ended December 31, 1997 and for the nine months ended September 30,
1998 (unaudited) ......................................................... F-32
Notes to Unaudited Financial Statements ................................... F-33
F-1
<PAGE>
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>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------- -------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................................................. $ 110,180 $ 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
Costs billable to clients ................................................................. 78,723 50,479
Other receivables ......................................................................... 50,302 35,218
Deferred income taxes ..................................................................... 78,732 32,832
Prepaid expenses and other assets ......................................................... 17,102 16,891
Due from employees ........................................................................ 2,340 1,098
---------- ----------
Total Current Assets ..................................................................... 1,185,032 1,087,123
---------- ----------
NONCURRENT ASSETS
Property and equipment, net ............................................................... 129,088 125,014
Deferred income taxes ..................................................................... 79,411 124,192
Goodwill, less accumulated amortization of $64,062 and $80,166 at December 31, 1996 and
1997, respectively ....................................................................... 131,511 116,637
Equity in net assets of and advances to unconsolidated companies .......................... 25,219 26,393
Due from employees ........................................................................ 705 300
Other assets .............................................................................. 47,846 48,360
---------- ----------
Total Noncurrent Assets .................................................................. 413,780 440,896
---------- ----------
Total Assets ............................................................................. $1,598,812 $1,528,019
========== ==========
CURRENT LIABILITIES
Loans payable ............................................................................. $ 36,282 $ 10,765
Accounts payable .......................................................................... 805,710 811,162
Installment notes payable--related parties ................................................ 24,874 3,231
Accrued expenses and other liabilities .................................................... 247,816 273,011
Accrued payroll and bonuses ............................................................... 252,487 65,458
Income taxes payable ...................................................................... 14,372 29,665
---------- ----------
Total Current Liabilities ................................................................ 1,381,541 1,193,292
---------- ----------
NONCURRENT LIABILITIES
Loans payable ............................................................................. 206,082 330,552
Installment notes payable--related parties ................................................ -- 6,503
Deferred compensation--related parties .................................................... 17,887 31,077
Other liabilities ......................................................................... 104,502 112,851
---------- ----------
Total Noncurrent Liabilities ............................................................. 328,471 480,983
---------- ----------
Commitments and Contingencies (Note 18)
Minority Interest .......................................................................... 5,569 6,987
---------- ----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share; authorized--250,000,000 shares at
December 31, 1996 and 1997; issued and outstanding--47,382,330 shares and
50,658,180 shares at
December 31, 1996 and December 31, 1997, respectively .................................... 363,264 508,471
---------- ----------
STOCKHOLDERS' DEFICIT
Money Market Preferred Stock--Cumulative variable dividend; liquidating value
of $115.00 per share; one-tenth of one vote per share; 50,000 shares
authorized December 31, 1996 and
1997; 87 shares issued and outstanding at December 31, 1996 and 1997 ..................... -- --
Common stock, par value $.01 per share; authorized 250,000,000 shares at December 31, 1996
and 1997; issued and outstanding--11,086,950 shares at December 31, 1996 and 1997 ........ 111 111
Capital surplus ........................................................................... 106,825 23,613
Accumulated deficit ....................................................................... (498,928) (522,866)
Cumulative translation adjustment ......................................................... (2,322) (16,577)
Pension liability adjustment .............................................................. (719) (706)
---------- ----------
(395,033) (516,425)
Common stock in treasury, at cost; 0 shares at December 31, 1996 and 1,115,160 shares at
December 31, 1997 ........................................................................ -- (8,550)
Unearned compensation--Restricted Stock ................................................... (85,000) (136,739)
---------- ----------
Total Stockholders' Deficit ............................................................. (480,033) (661,714)
---------- ----------
Total Liabilities, Mandatorily Redeemable Equity Securities and Stockholders' Deficit.. $1,598,812 $1,528,019
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
Revenues .................................................. $1,085,494 $1,222,139 $1,382,740
Compensation expense, including employee benefits ......... 672,026 730,261 836,150
General and administrative expenses ....................... 356,523 391,617 463,936
Recapitalization-related charges .......................... -- 315,397 --
Other operating charges ................................... 31,465 17,166 11,925
---------- ---------- ----------
Operating expenses ........................................ 1,060,014 1,454,441 1,312,011
---------- ---------- ----------
Income (loss) from operations ............................. 25,480 (232,302) 70,729
Interest income ........................................... 9,866 10,269 8,454
Interest expense .......................................... (27,441) (28,584) (42,879)
---------- ---------- ----------
Income (loss) before income taxes ......................... 7,905 (250,617) 36,304
Income tax provision (benefit) ............................ 9,130 (20,611) 58,290
---------- ---------- ----------
(1,225) (230,006) (21,986)
Equity in net income (loss) of unconsolidated companies. 5,197 (9,837) 342
Minority interest in net (income) loss of consolidated
subsidiaries ............................................. (3,152) 1,532 (2,294)
---------- ---------- ----------
Net income (loss) ......................................... $ 820 $ (238,311) $ (23,938)
========== ========== ==========
Basic and diluted loss per common share (Note 3) .......... $ (0.51)
==========
Weighted average shares outstanding (Note 3) .............. 46,949,355
==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
------------ -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................... $ 820 $ (238,311) $ (23,938)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Recapitalization-related charges .......................................... -- 315,397 --
Depreciation and amortization ............................................. 47,492 53,030 56,721
Other operating charges ................................................... 24,360 11,096 11,925
Deferred income tax expense ............................................... (14,866) (59,671) (384)
Equity in net (income) loss of unconsolidated companies ................... (5,197) 9,837 (342)
Dividends from unconsolidated companies ................................... 2,101 2,691 2,728
Minority interest in net income (loss) of consolidated subsidiaries ....... 3,152 (1,532) 2,294
Change in assets and liabilities, excluding effects from acquisitions,
dispositions, recapitalization and foreign exchange:
Accounts receivable ...................................................... (44,156) (209,518) 42,144
Costs billable to clients ................................................ (19,637) 7,784 25,622
Other receivables ........................................................ 5,462 (2,883) 13,930
Prepaid expenses and other assets ........................................ (1,922) 5,342 (876)
Due from employees ....................................................... (453) 3,434 1,145
Accounts payable ......................................................... 58,635 256,460 18,547
Accrued expenses and other liabilities ................................... 7,368 (7,565) 25,621
Accrued payroll and bonuses .............................................. (90) 3,192 2,179
Income taxes payable ..................................................... 2,383 4,263 19,352
Deferred compensation .................................................... 10,921 4,950 13,052
Other liabilities ........................................................ 2,188 11,225 9,457
Other .................................................................... 1,248 8,843 5,334
--------- ---------- ----------
Net cash provided by operating activities ................................ 79,809 178,064 224,511
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ......................................... (42,096) (51,792) (51,899)
Acquisitions, net of cash acquired .......................................... (5,298) (23,887) (11,281)
Investment in net assets of and advances to unconsolidated companies ........ (189) (775) (5,640)
Proceeds from notes receivable .............................................. 1,762 360 1,678
--------- ---------- ----------
Net cash used in investing activities ....................................... (45,821) (76,094) (67,142)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term ...................................... -- 319,282 226,770
Repayment of loans payable, long-term ....................................... (29,743) (252,496) (105,870)
Proceeds from loans payable, short-term, net ................................ 11,052 27,849 20,103
Deferred financing costs .................................................... -- (9,157) --
Recapitalization cash contributions ......................................... -- 242,007 --
Recapitalization payments ................................................... -- (323,920) (247,789)
Payments of non-recapitalization deferred compensation ...................... (15,243) (13,886) (961)
Proceeds (loans) due from employees, net .................................... 1,145 2,262 (157)
Common stock/LPUs issued .................................................... 9,732 4,163 10,390
Common stock/LPUs repurchased ............................................... (21,647) (8,971) (1,500)
Dividends paid on preferred and common stock ................................ (491) (696) --
(Dividends paid to) capital contributions from minority shareholders ........ (1,770) 1,652 347
Distributions to limited partners ........................................... (3,060) (703) --
--------- ---------- ----------
Net cash used in financing activities ....................................... (50,025) (12,614) (98,667)
--------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents ................ 1,148 (822) (8,619)
--------- ---------- ----------
Net (decrease) increase in cash and cash equivalents ........................ (14,889) 88,534 50,083
Cash and cash equivalents, beginning of period .............................. 36,535 21,646 110,180
--------- ---------- ----------
Cash and cash equivalents, end of period .................................... $ 21,646 $ 110,180 $ 160,263
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................................................... $ 30,161 $ 28,612 $ 39,986
========= ========== ==========
Income taxes paid ........................................................... $ 20,350 $ 20,732 $ 25,020
========= ========== ==========
NONCASH INVESTING ACTIVITY:
Common stock issued in acquisitions ......................................... $ -- $ -- $ 1,126
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
<TABLE>
<CAPTION>
LIMITED
NON-VOTING VOTING PARTNERS'
PREFERRED COMMON COMMON CONTRIBUTED
STOCK STOCK STOCK EQUITY
----------- ------------ --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ......... $ 63 $ 4,000 $ -- $ 946
----- --------- ------- ---------
Net income .......................... -- -- -- --
Dividends paid ...................... -- -- -- --
Common stock/Limited
Partnership Units issued ........... 28 -- -- 1,359
Limited Partnership Units
repurchased/capital
distributions ...................... -- -- -- (4,000)
Common Stock repurchased ............ (25) -- -- --
Capitalization of tax benefits of
options exercised .................. -- -- -- --
Equityholder loans .................. -- -- -- 4,231
----- --------- ------- ---------
BALANCE AT DECEMBER 31, 1995 ......... $ 66 $ 4,000 $ -- $ 2,536
----- --------- ------- ---------
Net loss ............................ -- -- -- --
Dividends paid ...................... -- -- -- --
Common stock/Limited
Partnership Units issued ........... 3 -- -- 4,067
Limited Partnership Units
repurchased/capital
distributions ...................... -- -- -- (2,370)
Common stock repurchased ............ (2) -- -- --
Recapitalization redemptions ........ (67) (3,900) -- (1,534)
Recapitalization issuances .......... -- -- 427 --
Recapitalization exchanges .......... -- (100) 158 (2,914)
Mandatorily Redeemable
Equity Securities .................. -- -- (474) --
Equityholder loans .................. -- -- -- 215
------- --------- ------- ---------
BALANCE AT DECEMBER 31, 1996 ......... $ -- $ -- $ 111 $ --
------- --------- ------- ---------
Net loss ............................ -- -- -- --
Common stock issued ................. -- -- -- --
Common stock repurchased ............ -- -- -- --
Unearned compensation--Restricted
Stock .............................. -- -- -- --
Common stock options
exercised .......................... -- -- 44 --
Accretion of Mandatorily
Redeemable Equity Securities ....... -- -- (44) --
------- --------- ------- ---------
BALANCE AT DECEMBER 31, 1997 ......... $ -- $ -- $ 111 $ --
======= ========= ======= =========
<CAPTION>
RETAINED AND
UNDISTRIBUTED
EARNINGS COMMON
CAPITAL (ACCUMULATED STOCK IN RESTRICTED
SURPLUS DEFICIT) TREASURY STOCK
------------- -------------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ......... $ 53,006 $ 29,616 $ 3,298 $ --
----------- ---------- -------- ----------
Net income .......................... -- 820 -- --
Dividends paid ...................... -- (491) -- --
Common stock/Limited
Partnership Units issued ........... 12,237 183 (72) --
Limited Partnership Units
repurchased/capital distributions .. -- (6,733) -- --
Common Stock repurchased ............ (10,051) (5,759) 91 --
Capitalization of tax benefits of
options exercised .................. 29 -- -- --
Equityholder loans .................. 1,882 -- -- --
----------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1995 ......... $ 57,103 $ 17,636 $ 3,317 $ --
----------- ---------- -------- ----------
Net loss ............................ -- (238,311) -- --
Dividends paid ...................... -- (696) -- --
Common stock/Limited
Partnership Units issued ........... 13,269 -- (61) --
Limited Partnership Units
repurchased/capital distributions .. -- (3,329) -- --
Common stock repurchased ............ (14,699) (8,863) 123 --
Recapitalization redemptions ........ (36,435) (265,365) (3,379) --
Recapitalization issuances .......... 326,590 -- -- (85,000)
Recapitalization exchanges .......... 122,732 -- -- --
Mandatorily Redeemable
Equity Securities .................. (362,790) -- -- --
Equityholder loans .................. 1,055 -- -- --
----------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1996 ......... $ 106,825 $ (498,928) $ -- $ (85,000)
----------- ---------- -------- ----------
Net loss ............................ -- (23,938) -- --
Common stock issued ................. 1,501 -- -- --
Common stock repurchased ............ -- -- (8,550) --
Unearned compensation--Restricted
Stock .............................. 51,739 -- -- (51,739)
Common stock options
exercised .......................... 8,711 -- -- --
Accretion of Mandatorily
Redeemable Equity Securities ....... (145,163) -- -- --
----------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1997 ......... $ 23,613 $ (522,866) $ (8,550) $ (136,739)
=========== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
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.
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 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
F-7
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
F-8
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
same prominence as other income statement information. SFAS 130 is effective for
financial statements for periods beginning after December 15, 1997.
Reclassification of financial statements for earlier periods presented for
comparative purposes is required upon adoption.
In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", ("SFAS 131") was issued. SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in annual
financial statements and in interim financial reports issued to shareholders.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits", ("SFAS 132") was issued. SFAS 132 revises
disclosures about pensions and other postretirement benefit plans. SFAS 132 is
effective for financial statements for periods beginning after December 15,
1997. Restatement of disclosures for earlier periods provided for comparative
purposes is required upon adoption.
The Company anticipates that the adoption of SFAS 130, SFAS 131 and SFAS
132 will not have a significant effect on its 1998 financial statements.
NOTE 3--NET LOSS PER COMMON SHARE:
The Company computes earnings (loss) per share in accordance with SFAS No.
128, "Earnings Per Share".
Basic net loss per share was computed by dividing net loss by the
weighted-average number of common shares outstanding during the period. In
computing basic net loss per share, the Company's 11,086,950 shares of
restricted stock were excluded from the weighted average number of common shares
outstanding as such shares vest upon the six-month anniversary of an initial
public offering or the six-month anniversary thereof, a condition which was not
satisfied at December 31, 1997. Diluted net loss per share for the period was
computed in the same manner as basic net loss per share since the Company
experienced a net loss for the period and therefore including potential common
shares would be antidilutive.
There are 31,013,205 common stock options that could potentially dilute
basic earnings (loss) per share in the future that were excluded from the
computation of diluted net loss per share because the effect would be
antidilutive. In addition, there exists 11,086,950 shares of Restricted Stock,
which would also be potentially dilutive upon the occurrence of the Company's
contemplated initial public offering which is further described in Note 21.
Earnings per share for the years ended December 31, 1996 and 1995 cannot be
computed because the Company's capital structure prior to the 1996
Recapitalization consisted of both common shares and Limited Partnership Units
in Predecessor entities (see Note 4).
NOTE 4--RECAPITALIZATION:
On December 12, 1996, a recapitalization (the "Recapitalization") was
effected of Young & Rubicam Inc., a New York corporation (the "Predecessor
Company") whereby (a) the Predecessor Company, Young & Rubicam Holdings Inc.
("Holdings"), or subsidiaries of the Predecessor Company (i) acquired 2,058,678
of the 2,458,102 outstanding shares of Predecessor Company common stock for an
amount equal to $115 per share less the principal and accrued interest of any
outstanding loans relating to such shares (which loans were thereby repaid),
(ii) acquired 760,232 of the 1,869,682 outstanding Limited Partnership Units of
the LP ("LPUs") together with any related subordinated promissory notes of the
Predecessor Company for an amount equal to $115 per LPU less the principal and
accrued interest of any outstanding loans relating to such LPUs (which loans
F-9
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
15,815,985 shares of Holdings common stock and 16,823,565 options on common
stock of Holdings ("Rollover Options"); (b) Hellman & Friedman Capital Partners
III, L.P. ("HFCP") and certain other investors contributed $242 million in cash
to Holdings in exchange for 31,566,345 shares of Holdings common stock at a
price of $7.67 per share ($115 per share prior to the stock dividend which is
further described in Note 20) and 2,598,105 options to purchase additional
shares of Holdings common stock at $7.67 per share ($115 per share prior to the
stock dividend which is further described in Note 20)(the "HFCP Options"--see
Note 17), and (c) Senior Secured Credit Facilities of $700 million (the "Credit
Facilities") were arranged (see Note 14).
Common stock, LPUs, Nonrollover Options on common stock and LPUs and GPUs
held by non U.S.-based equity holders were acquired or canceled prior to
December 31, 1996. Payment for previously tendered Nonrollover options and GPUs
of $161.7 million (included as a component of accrued payroll and bonuses at
December 31, 1996) held by U.S. based equity holders occurred on March 18, 1997.
Following the closing of the Recapitalization, Holdings was merged with and
into the Predecessor Company. As a result of the merger, the 1,391 outstanding
shares of Predecessor Company preferred stock were each converted into the right
to receive par value $50 in cash. On December 31, 1996, the Predecessor Company
then merged into Young & Rubicam Inc., a Delaware corporation (the "Company").
Under the Stockholders' Agreement, the Management Investors are required to
deposit all Company common stock currently held or acquired in the future into a
voting trust (the "Management Voting Trust") under which all rights to vote such
shares are assigned to certain members of the Company's senior management as
voting trustees. In the event that HFCP holds greater than 49% of Company common
stock, HFCP is required to transfer those shares in excess of 49% to a separate
voting trust (the "HFCP Voting Trust") with the Chief Executive Officer of the
Company as voting trustee, provided that the Company is not in default under
certain terms of the Credit Facilities.
As the equity holders of the Predecessor Company retained control of the
Company, the transaction has been reported as a recapitalization. The financial
statements reflect the financial position, results of operations and cash flows
of the Company and the Predecessor Company on a continuous basis. The excess of
the Predecessor common stock and LPUs repurchase transaction amount over the
stated amount of the Predecessor common stock and LPUs repurchased has been
reported as a distribution to equity holders and charged to limited partners'
contributed equity, capital surplus and accumulated deficit.
As a result of the Recapitalization, the Company recorded charges of $315.4
million, primarily related to compensation. A summary of the significant
Recapitalization and related charges include the following:
(1) The cancellation of 1,244,647 GPUs outstanding for cash
consideration of $115 per unit. Compensation expense of $83.1 million
represents the difference between the cash consideration paid to GPU
holders and the amount of previously accrued compensation under the
original terms of the GPU plan.
F-10
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) The cancellation of 929,084 Nonrollover Options for cash
consideration. The cash consideration and the associated compensation
expense of $66.6 million represents the difference between the transaction
price of $115 and the $40.2 million aggregate exercise price of the
Nonrollover Options.
(3) Cancellation of the remaining outstanding options and award of
Rollover Options to acquire 16,823,565 shares of Company common stock at an
exercise price of $1.92 ($28.75 per share prior to the stock split which is
further described in Note 20) per share, with certain limited exceptions
outside of the U.S. As a result of the change in the terms of the former
stock option plan, which resulted in a new measurement date, the Company
recognized compensation expense of $96.7 million representing the
difference between the transaction price per Rollover Option of $7.67 ($115
per share prior to the stock split which is further described in Note 20)
and the aggregate exercise price of the Rollover Options.
(4) Professional fees and other charges amounted to approximately $69
million.
NOTE 5--EQUITY IN NET ASSETS OF UNCONSOLIDATED COMPANIES:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------- ------------------------- ------------------------
EQUITY IN EQUITY IN
OWNERSHIP EQUITY IN EQUITY IN EQUITY IN NET INCOME EQUITY IN NET INCOME
AFFILIATE INTEREST NET ASSETS NET INCOME NET ASSETS (LOSS) NET 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 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>
F-11
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 6--ACQUISITIONS, DISPOSITIONS AND OTHER OPERATING CHARGES:
In 1995, the Predecessor Company increased its ownership interests in
advertising agencies in Holland (from 49% to 70%) and Spain (from 49% to 77%),
as well as a public relations firm in Belgium (from 40% to 85%). In addition,
the Predecessor Company acquired the remaining 40% interest in an advertising
agency in the Czech Republic, the remaining 25% interest in an agency in
Hungary, the remaining 20% interest in a direct marketing operation in South
Africa and the remaining 10% interest in an advertising agency, also in South
Africa. The purchase price of these investments was $5.4 million. Other regional
investment activity took place in Latin America in 1995, with increased
ownership interests in advertising agencies in Guatemala (from 25% to 40%) and
Uruguay (from 20% to 35%).
In 1995, the D,Y&R Partnerships also acquired a 40% interest in an
advertising agency in India (Y&R's effective ownership is 20%). The cost of this
investment to Y&R was $2.2 million.
A wholly owned public relations subsidiary in Canada was merged in 1995
with another Canadian public relations firm. The Company has a 22% interest in
the merged operation.
In 1995, the Predecessor Company approved a productivity improvement plan
which resulted in the elimination of 500 positions throughout its worldwide
operations. The Predecessor Company recorded a charge in 1995 of $24.4 million
to cover the expected severance, benefits and social law costs which were paid
during 1996 relating to this staff reduction.
Also in 1995, losses of $7.1 million were recorded primarily to cancel a
long-term agreement with a service provider as well as to dispose of certain
non-strategic European agencies. The aforementioned charges are included in
other operating charges in the accompanying Consolidated Statement of
Operations.
In 1996, the Predecessor Company acquired substantially all of the assets
of one advertising agency and one media buying agency in the United States and
acquired the remaining 28% equity interest in an advertising agency in
Switzerland. In addition, the Predecessor Company increased its ownership
interests in three advertising agencies in Europe. Other regional activity took
place in Korea where the Company acquired a 25% equity interest in a public
relations agency. The purchase price of these investments was $26.8 million.
In 1996, a $17.2 million charge was recorded for asset impairment
writedowns principally related to certain operations in Europe and Latin
America.
In 1997, the Company acquired the remaining 60% equity interest in an
advertising agency in France and a 51% equity interest in an advertising agency
in Brazil. In addition, the Company increased its ownership interests in one
advertising agency in Latin America and one agency in Europe. The Company also
acquired substantially all of the assets of one public relations agency and
acquired a 70% equity interest in a German public relations agency and the
remaining 49% equity interest in a Japanese public relations agency. The
purchase price of these investments was $14.7 million.
Effective January 1, 1997, the Company acquired an additional 37.5% equity
interest in the former Australian and New Zealand joint ventures with Dentsu. In
consideration for this additional equity interest, the Company contributed to
Dentsu, 12.5% of its equity interest in its advertising and direct marketing
agencies in Australia and New Zealand.
In 1997, an $11.9 million charge was recorded for asset impairment
writedowns principally related to certain operations in the U.S., Africa, Latin
America and Europe.
F-12
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 78,414 77,804
or life of lease
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.
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>
F-13
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
The reconciliation of the United States statutory rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---------- ------------- ----------
<S> <C> <C> <C>
PERCENT OF INCOME (LOSS) BEFORE TAXES
United States statutory rate ............................................ 35.0% (35.0)% 35.0%
Federal tax savings attributable to limited partnership structure ....... (27.6) -- --
State and local income taxes, net of federal tax effect ................. ( 7.1) ( 4.5) 17.1
Foreign income taxed greater than the United States statutory
rate .................................................................. 64.2 15.2 107.2
Change in valuation allowance and related components .................... 11.5 5.9 (13.1)
Amortization of goodwill ................................................ 14.3 2.1 8.5
Travel, entertainment and other non-deductible expenses ................. 19.7 8.4 6.2
Other, net .............................................................. 5.5 ( 0.3) ( 0.3)
----- ----- -----
Consolidated effective rate ............................................. 115.5% ( 8.2)% 160.6%
===== ===== =====
</TABLE>
The Company's share of the undistributed earnings of foreign subsidiaries
not included in its consolidated Federal income tax return that could be subject
to additional income taxes if remitted, was approximately $49.5 million at
December 31, 1997. No provision has been recorded for the U.S. or foreign taxes
that could result from the remittance of such undistributed earnings since the
earnings are permanently reinvested outside the U.S. and it is not practicable
to estimate the amount of such taxes. Withholding taxes of approximately $6.4
million would be payable upon remittance of all previously unremitted earnings
at December 31, 1997.
F-14
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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.
F-15
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
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
F-16
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
------------------------------------ ------------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
------------ ---------- ------------ ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service costs for benefits earned
during the period ....................... $ 2,774 $ 717 $ 3,491 $ 2,834 $ 674 $ 3,508
Interest costs on projected benefit
obligation .............................. 8,074 946 9,020 8,488 893 9,381
Actual return on plan assets ............. (15,960) -- (15,960) (11,070) -- (11,070)
Net amortization and deferral ............ 9,390 182 9,572 5,668 188 5,856
---------- ------ ---------- ---------- ------ ----------
Net periodic pension cost of the plans. $ 4,278 $1,845 $ 6,123 $ 5,920 $1,755 $ 7,675
========== ====== ========== ========== ====== ==========
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1997
------------------------------------
U.S. NON-U.S. TOTAL
------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs for benefits earned
during the period ....................... $ 2,671 $ 550 $ 3,221
Interest costs on projected benefit
obligation .............................. 8,804 789 9,593
Actual return on plan assets ............. (15,558) -- (15,558)
Net amortization and deferral ............ 6,862 150 7,012
---------- ------ ----------
Net periodic pension cost of the plans. $ 2,779 $1,489 $ 4,268
========== ====== ==========
</TABLE>
The funded status of the defined benefit plans is summarized as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------
1996 1997
------------------------------------ ------------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
----------- ------------ ----------- ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligation including vested benefits
of $119,093 and $134,491 at December 31,
1996 and 1997, respectively ................. $111,921 $ 10,350 $ 122,271 $126,975 $ 9,557 $ 136,532
-------- --------- --------- -------- --------- ---------
Projected benefit obligation ................. 114,710 12,198 126,908 130,036 10,753 140,789
Plan assets at fair value, primarily fixed
income and equity securities ................ 114,264 -- 114,264 129,421 -- 129,421
-------- --------- --------- -------- --------- ---------
Projected benefit obligation in excess of plan
assets ...................................... (446) (12,198) (12,644) (615) (10,753) (11,368)
Unrecognized net transition (asset)
obligation .................................. (225) 644 419 (164) 471 307
Unrecognized prior service benefit ........... (2,953) -- (2,953) (2,542) -- (2,542)
Unrecognized net loss ........................ 12,811 1,813 14,624 16,352 1,260 17,612
Additional liability ......................... -- (719) (719) -- (706) (706)
-------- --------- --------- -------- --------- ---------
(Accrued) prepaid pension costs for defined
benefit plans ............................... $ 9,187 $ (10,460) $ (1,273) $ 13,031 $ (9,728) $ 3,303
======== ========= ========= ======== ========= =========
</TABLE>
<PAGE>
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>
F-17
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 expensed currently. At December 31,
1996 and 1997, included in other non-current liabilities were deferred
compensation liabilities of $17.9 million and $31.1 million, respectively.
NOTE 13--INSTALLMENT PAYMENT OBLIGATIONS:
Prior to 1997, the Company issued installment notes payable to former
equityholders of the Predecessor Company which arose out of the repurchase of
Common Stock and LPUs upon termination of employment. Installment notes were
paid in five annual installments, the first of which was payable 90 days
following termination of employment. In connection with the Recapitalization,
all foreign installment notes outstanding at December 12, 1996 were assumed and
repaid. The remaining current installment notes of $24.9 million at December 31,
1996 were repaid in the first quarter of 1997.
Effective in 1997 and pursuant to the Stockholders' Agreement, the Company
may, at its election, pay for shares purchased from Management Investors
pursuant to a call or put at the applicable call price or the applicable put
price in up to four equal installments. The first such installment is payable in
cash upon the applicable payment date (generally the June 30 or December 31
closest in time following termination of employment) and the remaining
installments are evidenced by a non-negotiable obligation from the Company to
the Management Investor. At December 31, 1997, current and non-current
installment notes of $3.2 million and $6.5 million, respectively, were payable
to former Management Investors.
Interest accrues and is payable annually with each installment payment at a
rate equal to the applicable federal rate in effect as published by the Internal
Revenue Service, compounded semi-annually. For 1997, the interest rate ranged
from 5.68% to 6.14%.
F-18
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 Company's obligations under the Credit Facilities are
secured by a security interest in certain domestic assets, including its
headquarters building in New York, all of the capital stock of the direct and
indirect domestic subsidiaries of the Company and 66.7% of the capital stock of
the Company's first-tier non-U.S. subsidiaries. The Company pays a commitment
fee ranging from 0.20% to 0.50% on the unused portion of the total Credit
Facilities. The Credit Facilities include several credit sensitive pricing
options (LIBOR, Base Rate Loans, Fronted Loans and Swing Line Loans), letter of
credit issuances and a $175 million multi-currency subfacility. The applicable
interest rate was 6.915% and 6.875% at December 31, 1996 and 1997, respectively.
The Credit Facilities contain various covenants which contain interest,
fixed charge, and debt coverage ratios, the maintenance of minimum net worth and
limitations on the amount of debt, liens, asset sales, dividends and
acquisitions. Deferred financing costs of $9.2 million were capitalized and are
being amortized over the six and one-half year term of the Credit Facilities.
The Company is required to enter into interest rate protection agreements
with respect to $100 million of the initial drawdown and $100 million of the
second drawdown.
In December 1996, the Company entered into a two year $50 million notional
principal amount interest rate floored-swap, and pays, on a quarterly basis,
fixed interest equal to 6.00% and receives interest based on floating
three-month LIBOR. If LIBOR is less than 5.00%, the Company receives the
difference between 5.00% and the three-month LIBOR. This agreement expires
December 29, 1998.
In January 1997, the Company entered into a one year $50 million notional
principal amount interest rate cap. The interest rate cap resulted in the
Company receiving quarterly, the difference between the amount that three-month
LIBOR exceeded the cap rate of 6.25%. This agreement expired January 27, 1998.
F-19
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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
F-20
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
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>
NON-VOTING LIMITED
PREFERRED VOTING COMMON COMMON PARTNERSHIP COMMON STOCK
STOCK STOCK STOCK UNITS IN TREASURY
----------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE 12/31/94 .......... 1,252 -- 16,000,000 2,465,729 13,190,263
----- -- ---------- --------- ----------
Issued ................... 563 -- -- 43,000 (289,970)
Repurchased .............. (491) -- -- (476,719) 365,779
----- -- ---------- --------- ----------
BALANCE 12/31/95 .......... 1,324 -- 16,000,000 2,032,010 13,266,072
----- -- ---------- --------- ----------
Issued ................... 67 -- -- 83,993 (215,907)
Repurchased .............. -- -- -- (246,321) 491,733
Recapitalization ......... (1,391) 58,469,280 (16,000,000) (1,869,682) (13,541,898)
------ ---------- ----------- ---------- -----------
BALANCE 12/31/96 .......... -- 58,469,280 -- -- --
------ ---------- ----------- ---------- -----------
Issued ................... -- 4,391,010 -- -- --
Repurchased .............. -- (1,115,160) -- -- 1,115,160
------ ---------- ----------- ---------- -----------
BALANCE 12/31/97 .......... -- 61,745,130 -- -- 1,115,160
====== ========== =========== ========== ===========
</TABLE>
The preferred stock of the Predecessor Company was owned by members of the
Predecessor Company's Board of Directors. The Predecessor Company had the right
to reacquire the preferred stock when the holder ceased to be a member of the
Board of Directors.
On December 12, 1996, all outstanding Predecessor Company equity was
purchased for cash or exchanged for Company common stock pursuant to the
Recapitalization. In addition, all outstanding Predecessor Company options were
canceled for cash consideration or the award of Company options and all
outstanding GPUs were canceled for cash consideration (see Note 4). In addition,
all treasury shares were retired.
In connection with the consummation of the Recapitalization in December
1996, the Company created a class of preferred stock designated as Money Market
Preferred Stock (the "Money Market Preferred"). The Money Market Preferred
carries a variable rate dividend and is redeemable at the
F-21
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company's election for $115.00 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. 87 shares of Money Market Preferred were issued and
outstanding at December 31, 1996 and 1997.
In connection with the Recapitalization, the Company also issued 11,086,950
shares of common stock ("Restricted Shares") to a trust ("Restricted Stock
Trust"). All Restricted Shares held in the Restricted Stock Trust are deposited
in the Management Voting Trust. Any employee awarded Restricted Shares under the
plan will become vested in the Restricted Shares on the earlier of (i) a change
of control event (as defined); (ii) the consummation of an initial public
offering or the six month anniversary following an initial public offering if,
in connection with the offering, the holders are unable to sell such Restricted
Shares; and (iii) upon any other event as determined by the Compensation
Committee of the Board of Directors with the written consent of the HFCP
Investors, if prior to an initial public offering, and the Management Voting
Trust. The Company has recorded unearned compensation of $85 million and $136.7
million, representing the fair value of the Restricted Shares at December 31,
1996 and 1997, respectively. Compensation expense will be recognized when
vesting becomes probable and will be equal to the fair value of the common stock
at the time that the Restricted Shares become vested. At December 31, 1996 and
1997, a total of 11,086,950 shares were outstanding and held in the Restricted
Stock Trust.
NOTE 16--MANDATORILY REDEEMABLE EQUITY SECURITIES:
Concurrent with the Recapitalization, the Company entered into a
Stockholders' agreement which includes both put rights and calls on the
Company's common stock. The Company has the right to purchase shares and the
stockholder has the right to cause the Company to purchase such shares at
certain times and subject to certain conditions. The put provision becomes
enforceable upon termination of employment for Management Investors if the
Company has not previously exercised its call right and upon the six-year
anniversary of the Recapitalization for HFCP. The carrying value of the
mandatorily redeemable equity securities held by the Management Investors is
equivalent to the redemption value of $7.67 and $12.33 at December 31, 1996 and
1997, respectively. The carrying value of the Mandatorily Redeemable Equity
Securities for common shares held by HFCP is being accreted to redemption value
over the six year period from the date of the Recapitalization. Accordingly, the
carrying value of Mandatorily Redeemable Equity Securities held by HFCP was
$7.67 and $8.47 at December 31, 1996 and 1997, respectively.
The accretion from carrying value to redemption value for the respective
periods is reflected as a charge to capital surplus. Both the calls and puts
terminate upon the earlier to occur of an initial public offering or such time
as the Common Stock is listed for trading on a national securities exchange.
NOTE 17--OPTIONS:
Under the Company's 1992 Stock Option Plan, options to purchase an
aggregate of 8,000,000 shares of common stock, at a price not less than the
prior year-end book value, as defined, could be granted to key employees. The
Predecessor Company also had an LPU Option Plan with substantially the same
terms as the common stock option plan. In accordance with the Recapitalization
(as discussed below), all prior option plans were terminated.
In connection with the Recapitalization, the shareholders approved a stock
option plan (the "Stock Option Plan") which allowed the Board of Directors to
grant to employees of the Company options to purchase up to 33,173,565 shares of
Company common stock. The Stock Option Plan governs both the Rollover Options
and certain other executive options (the "Executive Options").
At the closing of the Recapitalization (see Note 4), the Board of Directors
granted the Rollover Options which were immediately vested and exercisable. Each
Rollover Option has an exercise price
F-22
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of $1.92 per share, with certain limited exceptions outside of the U.S. Of the
Rollover Options, 50% have a term of five years and the remaining 50% have a
term of seven years. In connection with the issuance of the Rollover Options,
the Company recognized compensation expense of $96.7 million (see Note 4).
At the closing of the Recapitalization, the Board of Directors granted to
employees 5,200,590 options to purchase shares of Company common stock at $7.67
per share (the "Closing Options"). The Closing Options vest as follows: 40% on
the grant date, 30% on the third anniversary of the grant date and 30% on the
fifth anniversary of the grant date.
Pursuant to the Stock Option Plan, the Board of Directors had the right to
grant additional options (the "Additional Options") to purchase up to 2,974,410
shares of Company common stock plus any shares that became available through the
cancellation of unexercised Executive Options. Through December 31, 1997,
Additional Options to purchase 1,891,200 shares of Company common stock had been
granted, each at $7.67 per share. As a result, during 1997 the Company
recognized a compensation charge of $1.3 million representing the difference
between the estimated fair market value of Company common stock and the exercise
price of $7.67 on date of grant in accordance with the applicable vesting
provisions of the Additional Options.
Additionally, at the closing of the Recapitalization, the Company issued
options to HFCP (see Note 4) to purchase 2,598,105 shares of Company common
stock at $7.67 per share which were exercisable immediately and expire on the
seventh anniversary of the closing. The HFCP Options are not governed under the
Stock Option Plan.
In December 1997, the Company adopted the Young & Rubicam Inc. 1997
Incentive Compensation Plan (the "Incentive Compensation Plan" or "ICP"). The
ICP superseded the Stock Option Plan and amended and restated the Restricted
Stock Plan (the Stock Option Plan and the Restricted Stock Plan (prior to such
amendment and restatement) (the "Preexisting Plans"), although all awards
granted prior to the adoption of the ICP, and any grants of Restricted Stock
made after such adoption but on or prior to March 31, 1998, will remain
outstanding in accordance with their terms and will be subject to the terms of
the Preexisting Plans.
The ICP provides for grants of stock options, stock appreciation rights
("SARS"), Restricted Stock, deferred stock, other stock-related awards, and
performance or annual incentive awards that may be settled in cash, stock or
other property ("Awards"). Under the ICP, the total number of shares of Company
common stock reserved and available for delivery to participants in connection
with Awards is 19,125,000, plus the number of shares of Company common stock
subject to awards under the Preexisting Plans that become available (generally
due to cancellation or forfeiture) after the effective date of the ICP;
provided, however that the total number of shares of Company common stock with
respect to which incentive stock options ("ISO") may be granted shall not exceed
15,000,000. Any shares of Company common stock delivered under the ICP may
consist of authorized and unissued shares or treasury shares.
The Board of Directors is authorized to grant stock options, including both
incentive stock options, non-qualified stock options, and SARS entitling the
participant to receive the excess of the fair market value of a share of common
stock on the date of exercise over the grant price of the SAR. The exercise
price per share subject to an option and the grant price of a SAR is determined
by the Board of Directors, but must not be less than the fair market value of a
share of common stock on the date of grant. The maximum term of each option or
SAR, the times at which each option or SAR will be exercisable, and provisions
requiring forfeiture of unexercised options or SARS at or following termination
of employment generally is fixed by the Board of Directors, except no option or
SAR may have a term exceeding ten years.
The Board of Directors may, at its discretion, accelerate the
exercisability, the lapsing of restrictions, or the expiration of deferral or
vesting periods of any award, and such accelerated exercisability, lapse,
expiration and vesting shall occur automatically in the case of a "change in
F-23
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
control" of the Company except to the extent otherwise provided in the award
agreement. In addition, the Board of Directors may provide that the performance
goals relating to any performance-based awards will be deemed to have been met
upon the occurrence of any change in control.
In December 1997, the Company granted options to employees to purchase an
aggregate of 9,577,950 shares of Company common stock at $12.33 per share, the
fair market value of such common stock as of the date of grant. Each such option
will expire if not exercised ten years after the date of grant and will be fully
exercisable on the fifth anniversary of the date of grant if the recipient
remains an employee of the Company or an affiliate as of such date; provided,
however, that in the event that the Company completes an initial public offering
of its common stock prior to December 31, 1999, the exercisability of 33 1/3% of
the shares subject to any such option will accelerate to December 31, 2000, if
the recipient remains an employee of the Company or an affiliate as of December
31, 2000, and an additional 33 1/3% of the shares subject to any such option
will accelerate to December 31, 2001, if the recipient remains an employee of
the Company or an affiliate as of December 31, 2001. Of the 9,577,950 options
granted in December 1997, options to purchase 1,152,150 shares of common stock
will not become exercisable until nine years and nine months from the date of
grant, unless certain 1998 operating targets are met, in which case the vesting
schedule described above will apply.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company applies APB Opinion No. 25, and related interpretations in accounting
for its plans. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under its plans
consistent with the methodology prescribed by SFAS 123, the Company's SFAS 123
net loss would be increased by $1.3 million and $9.4 million for 1995 and 1996
and the net loss and net loss per common share would be increased by $6.3
million and $.13, respectively, for 1997.
These SFAS 123 pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years. The fair value for these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following assumptions for the
period ended December 31, 1995, 1996 and 1997, respectively:
ADDITIONAL OPTIONS
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Expected term ................ 2-10 years 5-10 years 10 years
Risk-free rate ............... 5.41%-7.22% 5.92%-6.61% 5.59%-7.12%
Dividend yield ............... 0% 0% 0%
Expected volatility .......... 0% 0% 0%
</TABLE>
The weighted-average fair value and weighted average exercise price of
options granted prior to the Recapitalization for which the exercise price
equals the fair value of Company common stock on the grant date was $11.23 and
$44.65 in 1995, respectively, and $13.28 and $47.14, in 1996, respectively. The
weighted-average fair value and weighted-average exercise price of options
granted on and subsequent to the Recapitalization for which the exercise price
equals the fair value of Company common stock on the grant date was $3.69 and
$7.67 in 1996, respectively, and $5.28 and $12.33 in 1997, respectively.
The weighted-average fair value and weighted-average exercise price of
options granted for which the exercise price was less than the fair value of
Company common stock on the grant date
F-24
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
was $6.30 and $1.97 in 1996, respectively and $6.76 and $7.67 in 1997,
respectively. There were no option issuances prior to the Recapitalization for
which the exercise price was less than the estimated fair value of Company
common stock on the date of grant.
The Black-Scholes option valuation model was developed for use in
estimating the weighted-average fair value of traded options which have no
vesting restrictions and are fully transferable. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
Transactions involving options are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
--------------- ---------------
<S> <C> <C>
JANUARY 1, 1995 ......................... 1,633,110 $ 40.51
Granted ................................ 1,197,722 44.72
Exercised .............................. (144,400) 34.26
Cancellations .......................... (260,324) 40.17
--------- -------
DECEMBER 31, 1995 ....................... 2,426,108 42.99
--------- -------
Granted ................................ 284,773 47.14
Exercised .............................. (252,278) 41.94
Cancellations .......................... (167,940) 42.83
Recapitalization cancellations ......... (2,290,663) 43.64
Recapitalization grants ................ 24,622,260 3.76
---------- -------
DECEMBER 31, 1996 ....................... 24,622,260 3.76
---------- -------
Granted ................................ 11,469,150 11.56
Exercised .............................. (4,250,790) 2.19
Cancellations .......................... (827,415) 4.50
---------- -------
DECEMBER 31, 1997 ....................... 31,013,205 6.84
========== =======
</TABLE>
The following information is as of December 31, 1997:
<TABLE>
<S> <C> <C> <C>
Number outstanding .................................. 12,312,690 9,122,565 9,577,950
---------- --------- ---------
Weighted-average contractual life, in years ......... 6 10 10
Weighted-average exercise price ..................... $ 1.92 $ 7.67 $ 12.33
------------ ----------- -----------
Number exercisable .................................. 12,312,690 4,930,305 0
------------ ----------- -----------
Weighted-average exercise price ..................... $ 1.92 $ 7.67 $ 12.33
------------ ----------- -----------
</TABLE>
The following information is as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------------------ ------------------------------
<S> <C> <C> <C>
Range of Exercise Prices ............................. $ 35.85-$44.65 $ 1.92 $ 7.67
-------------- ----------- ----------
Number outstanding ................................... 2,426,108 16,823,565 7,798,695
-------------- ----------- ----------
Weighted-average contractual life, in years .......... 5 6 10
Weighted-average exercise price ...................... $ 42.96 $ 1.92 $ 7.67
-------------- ----------- ----------
Number exercisable ................................... 544,004 16,823,565 4,678,335
-------------- ----------- ----------
Weighted-average exercise price ...................... $ 40.92 $ 1.92 $ 7.67
-------------- ----------- ----------
</TABLE>
F-25
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. The Company's practice is to
attempt to minimize such potential liabilities through insurance coverage and/or
indemnification provisions in its agreements with clients and others.
Recently, the Company was named as a defendant in an action brought by a
county government against tobacco products manufacturers (including a current
and a former client of the Company) and others alleging that, because the
Company performed advertising and other professional services for such clients,
the Company is liable for damages for health and other claims. While this action
is in its early stages and the allegations against the Company have not been
made with specificity, the Company believes it has meritorious defenses to the
claims and intends to contest them vigorously.
The Company is named as party in litigation matters which arise in the
ordinary course of its business, including claims by former employees for money
damages and other relief based upon the circumstances or consequences of their
separation from employment. The Company believes that it has meritorious
defenses to these claims, and is contesting such claims vigorously. In addition,
the Company is covered by insurance with respect to some of such claims.
Accordingly, the Company does not expect such matters to have a material adverse
effect on its consolidated financial position, results of operations or cash
flows.
Net rental expense was $62.4 million, $62.9 million, and $74.4 million in
1995, 1996 and 1997, respectively. Future minimum rental commitments as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998 .......................... $ 62,863
1999 .......................... 54,525
2000 .......................... 42,924
2001 .......................... 40,162
2002 .......................... 39,119
Thereafter .................... 108,437
</TABLE>
Certain leases contain renewal options calling for increased rentals.
Others contain certain escalation clauses relating to taxes and other operating
expenses.
At December 31, 1996, the Company had outstanding guarantees of $18.6
million in support of credit lines of unconsolidated companies. At December 31,
1997, the Company had outstanding guarantees of $7.6 million in support of
credit lines of unconsolidated companies.
The Company and its corporate affiliates conduct business in various
developing countries in Asia, Africa, Latin America and Eastern Europe, where
the systems and bodies of commercial law and trade practices arising thereunder
are in a continuing state of evolution. Commercial laws in such countries are
often vague, arbitrary, contradictory, inconsistently administered and
retroactively applied. Under such circumstances, it is difficult for the Company
to determine with certainty at all times the exact requirements of such local
laws. Nevertheless, the Company believes that any difficulty in compliance with
local laws in such developing countries will not have a materially adverse
impact on the consolidated financial position, results of operations or cash
flows of the Company.
F-26
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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>
COMPANY COMPANY
BUYS SELLS
--------- --------
(IN THOUSANDS)
<S> <C> <C>
1996
Canadian Dollar ................. $ -- $8,399
Italian Lira .................... 4,524 --
Swiss Franc ..................... 5,934 --
Japanese Yen .................... 6,199 --
------- ------
$16,657 $8,399
======= ======
</TABLE>
<TABLE>
<CAPTION>
COMPANY COMPANY
BUYS SELLS
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
1997
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.
F-27
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 20--SUBSEQUENT EVENT--COMMON STOCK DIVIDEND
On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares of common stock payable for each share of common stock outstanding on the
effective date of the Company's planned initial public offering (see Note 21).
Common stock and accumulated deficit reflected in the historical balance sheets
at December 31, 1996 and 1997 have been restated to reflect the common stock
dividend. The number of common shares the Company is authorized to issue was
also increased from 10 million to 250 million and the number of authorized
preferred shares, none of which have been issued, was increased from 50,000 to
10 million.
All references in the consolidated financial statements to shares, share
prices, per share data, including stock option and stock option plan
information, for periods after the 1996 Recapitalization are reflected on a post
dividend basis. All references in the historical financial statements to common
shares and Limited Partnership Units in Predecessor entities including option
and option plan information are reflected on a pre-dividend basis.
NOTE 21--PUBLIC OFFERING AND RELATED TRANSACTIONS SUBSEQUENT TO THE DATE OF THE
INDEPENDENT ACCOUNTANTS REPORT (UNAUDITED)
PUBLIC OFFERING: On May 15, 1998, the Company closed its initial public
offering of common stock (the "Offering"). An aggregate of 19,090,000 shares
(including 2,490,000 shares subject to the underwriters' overallotment option)
of the Company's common stock was offered to the public, of which 6,912,730
shares were sold by the Company and 12,177,270 shares were sold by certain
selling stockholders. Net proceeds to the Company were $158.6 million, after
deducting underwriting discounts and commissions and expenses paid by the
Company in connection with the Offering. The Company did not receive any of the
net proceeds from the sale of common stock by the selling stockholders. The
Company used the net proceeds from the Offering together with $155 million of
borrowings under a new credit facility (see below) to repay all of the
outstanding borrowings under its then existing $700 million senior secured
credit facility.
NEW DEBT FACILITY: On May 15, 1998, the Company entered into a $400
million, five-year unsecured multicurrency revolving credit facility (the "New
Credit Facility") which replaced its then existing $700 million senior secured
credit facility. The New Credit Facility contains certain financial and
operating restrictions and covenant requirements, including a maximum leverage
ratio and a minimum interest coverage requirement. The Company is required to
pay a facility fee tied to the leverage ratio ranging from 0.125% to 0.2% per
annum. Under the terms of the New Credit Facility, interest charged on loans
ranges from base rate to Eurodollar and Eurocurrency rate plus applicable
margins tied to the leverage ratio ranging from 0.275% to 0.3%. On May 15, 1998,
the Company used the net proceeds from the Offering together with $155 million
of borrowings under the New Credit Facility to repay all outstanding borrowings
under its then existing $700 million senior secured credit facility.
Approximately $7.3 million of unamortized deferred financing costs related to
the replaced credit facility were charged to expense and were reflected as an
extraordinary charge, net of an applicable tax benefit of approximately $2.8
million, in the Company's consolidated statements of operations for the nine
months ended September 30, 1998.
RESTRICTED STOCK: Upon the consummation of the Offering, 9,231,105 shares
of common stock ("Restricted Stock") held in a restricted stock trust vested and
resulted in non-recurring, non-cash, pre-tax compensation charges of $234.4
million which were reflected as "other operating charges" in the Company's
consolidated statements of operations for the nine months ended September 30,
1998. The Company redeemed the remaining 1,855,845 shares of Restricted Stock
held in the restricted stock trust upon the consummation of the Offering.
F-28
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................................................... $ 160,263 $ 71,181
Accounts receivable, net of allowance for doubtful accounts of $14,125 and $15,509 at
December 31, 1997 and ,September 30, 1998 respectively ..................................... 790,342 780,230
Costs billable to clients, net .............................................................. 50,479 80,479
Other receivables ........................................................................... 35,218 38,568
Deferred income taxes ....................................................................... 32,832 26,434
Prepaid expenses and other assets ........................................................... 17,989 30,657
---------- ----------
Total Current Assets ....................................................................... 1,087,123 1,027,549
---------- ----------
NONCURRENT ASSETS
Property and equipment, net ................................................................. 125,014 123,092
Deferred income taxes ....................................................................... 124,192 164,754
Goodwill, less accumulated amortization of $80,166 and $85,269 at December 31, 1997 and
September 30, 1998, respectively ........................................................... 116,637 111,065
Equity in net assets of and advances to unconsolidated companies ............................ 26,393 30,741
Other assets ................................................................................ 48,660 38,012
---------- ----------
Total Noncurrent Assets .................................................................... 440,896 467,664
---------- ----------
Total Assets ............................................................................... $1,528,019 $1,495,213
========== ==========
CURRENT LIABILITIES
Loans payable ............................................................................... $ 10,765 $ 37,822
Accounts payable ............................................................................ 811,162 834,592
Installment notes payable ................................................................... 3,231 451
Accrued expenses and other liabilities ...................................................... 273,011 238,022
Accrued payroll and bonuses ................................................................. 65,458 61,601
Income taxes payable ........................................................................ 29,665 2,948
---------- ----------
Total Current Liabilities .................................................................. 1,193,292 1,175,436
---------- ----------
NONCURRENT LIABILITIES
Loans payable ............................................................................... 330,552 70,469
Installment notes payable ................................................................... 6,503 400
Deferred compensation ....................................................................... 31,077 32,542
Other liabilities ........................................................................... 112,851 109,299
---------- ----------
Total Noncurrent Liabilities ............................................................... 480,983 212,710
---------- ----------
Commitments and Contingencies
Minority Interest ........................................................................... 6,987 5,757
---------- ----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share; authorized - 250,000,000 shares; issued
and outstanding 50,658,180 shares and - 0 shares at December 31, 1997 and
September 30, 1998, respectively ........................................................... 508,471 --
---------- ----------
STOCKHOLDERS' EQUITY/(DEFICIT)
Preferred stock:
Money Market Preferred Stock - Cumulative variable dividend; liquidating value of $115.00
per share; one-tenth of one vote per share; authorized 50,000 shares; 87 shares issued and
outstanding ............................................................................... - --
---------- ----------
Cumulative Participating Junior Preferred Stock - $ dividend; liquidating value of $1.00 per
share; 100 votes per share; authorized 2,500,000 shares; no shares issued and outstanding . -- --
---------- ----------
Common stock, par value $.01 per share; authorized - 250,000,000 shares; issued
and outstanding - 11,086,950 and 66,215,842 shares at December 31, 1997 and September 30,
1998, respectively (excluding 1,115,160 and 4,393,848 common shares in treasury) ........... 111 706
Capital surplus ............................................................................. 23,613 940,954
Accumulated deficit ......................................................................... (522,866) (785,552)
Cumulative translation adjustment ........................................................... (16,577) (13,650)
Pension liability adjustment ................................................................ (706) (706)
Common stock in treasury, at cost ........................................................... (8,550) (40,442)
Unearned compensation - restricted stock .................................................... (136,739) -
---------- ----------
Total Stockholders' Equity/(Deficit) ....................................................... (661,714) 101,310
---------- ----------
Total Liabilities, Mandatorily Redeemable Equity Securities and Stockholders'
Equity/(Deficit) .......................................................................... $1,528,019 $1,495,213
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues ............................................. $ 333,387 $ 375,419 $ 977,067 $ 1,095,720
Compensation expense, including employee benefits. 206,676 227,184 600,767 659,449
General and administrative expenses .................. 131,013 106,057 331,353 324,783
Other operating charges .............................. -- -- -- 234,449
----------- ----------- ----------- -----------
Operating expenses ................................... 337,689 333,241 932,120 1,218,681
----------- ----------- ----------- -----------
Income (loss) from operations ........................ (4,302) 42,178 44,947 (122,961)
Interest expense, net ................................ (10,950) (2,843) (28,580) (13,015)
Other income ......................................... -- -- -- 2,200
----------- ----------- ----------- -----------
Income (loss) before income taxes .................... (15,252) 39,335 16,367 (133,776)
Income tax expense (benefit) ......................... (7,796) 15,914 7,855 (22,291)
----------- ----------- ----------- -----------
(7,456) 23,421 8,512 (111,485)
Equity in net income of unconsolidated companies...... 1,621 1,567 4,091 3,194
----------- ----------- ----------- -----------
Minority interest in net (income) loss of consolidated
subsidiaries ........................................ 135 (682) (698) (604)
----------- ----------- ----------- -----------
Income (loss) before extraordinary charge ............ (5,700) 24,306 11,905 (108,895)
Extraordinary charge for early retirement of debt,
net of tax benefit of $2,834......................... -- -- -- (4,433)
----------- ----------- ----------- -----------
Net income (loss) .................................... $ (5,700) $ 24,306 $ 11,905 $ (113,328)
=========== =========== =========== ===========
Earnings (loss) per share:
Basic:
Income (loss) before extraordinary charge ............ $ (0.12) $ 0.36 $ 0.25 $ (1.84)
=========== =========== =========== ===========
Extraordinary charge ................................. $ -- $ -- $ -- $ (0.08)
=========== =========== =========== ===========
Net income (loss) .................................... $ (0.12) $ 0.36 $ 0.25 $ (1.92)
=========== =========== =========== ===========
Diluted:
Income (loss) before extraordinary charge ............ $ (0.12) $ 0.29 $ 0.20 $ (1.84)
=========== =========== =========== ===========
Extraordinary charge ................................. $ -- $ -- $ -- $ (0.08)
=========== =========== =========== ===========
Net income (loss) .................................... $ (0.12) $ 0.29 $ 0.20 $ (1.92)
=========== =========== =========== ===========
Weighted average shares used to compute:
Basic ................................................ 46,566,357 66,608,726 47,109,739 58,939,274
=========== =========== =========== ===========
Diluted .............................................. 46,566,357 82,764,754 60,313,689 58,939,274
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1998
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ......................................................... $ 11,905 $ (113,328)
Adjustments to reconcile net (loss) income to net cash used by operating
activities:
Depreciation and amortization ............................................. 41,474 43,061
Other operating charges ................................................... -- 234,449
Extraordinary charge, net ................................................. -- 4,433
Deferred income tax benefit ............................................... -- (34,589)
Equity in net income of unconsolidated companies .......................... (4,091) (3,194)
Dividends from unconsolidated companies ................................... 2,220 1,427
Minority interest in net income of consolidated subsidiaries .............. 698 604
Change in assets and liabilities, excluding effects from acquisitions,
dispositions, recapitalization and foreign exchange:
Accounts receivable, net .................................................. 135,539 15,450
Costs billable to clients, net ............................................ (31,447) (27,933)
Other receivables ......................................................... (2,167) (3,247)
Prepaid expenses and other assets ......................................... (7,651) (12,218)
Accounts payable .......................................................... (50,958) (7,934)
Accrued expenses and other liabilities .................................... (30,284) (49,244)
Accrued payroll and bonuses ............................................... (12,900) (5,901)
Income taxes payable ...................................................... (8,887) (23,996)
Deferred compensation ..................................................... 4,295 3,209
Other ..................................................................... 6,750 1,024
---------- ----------
Net cash provided by operating activities .................................... 54,496 22,073
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ....................................... (38,930) (34,784)
Acquisitions, net of cash acquired ........................................ (5,337) (499)
Investment in net assets of and advances to unconsolidated companies ...... (3,297) (4,316)
Proceeds from notes receivable ............................................ 647 339
---------- ----------
Net cash used in investing activities ........................................ (46,917) (39,260)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term .................................... 236,361 224,795
Repayment of loans payable, long-term ..................................... (53,679) (484,816)
Proceeds from loans payable, short-term, net .............................. 14,855 65,468
Proceeds from issuance of common stock in initial public offering, net .... -- 158,637
Deferred financing costs .................................................. -- (667)
Recapitalization payments ................................................. (247,259) --
Payments of non-recapitalization deferred compensation .................... (508) (3,985)
Common stock repurchased .................................................. (1,500) (31,892)
Common stock issued and other ............................................. 99 7,431
Payment of installment notes, net ......................................... -- (8,883)
Dividends paid to minority shareholders ................................... (1,418) (1,532)
---------- ----------
Net cash used in financing activities ........................................ (53,049) (75,444)
---------- ----------
Effect of exchange rate changes on cash and cash equivalents ................. (7,002) 3,549
---------- ----------
Net decrease in cash and cash equivalents .................................... (52,472) (89,082)
Cash and cash equivalents, beginning of period ............................... 110,180 160,263
---------- ----------
Cash and cash equivalents, end of period ..................................... $ 57,708 $ 71,181
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................................................. $ 28,563 $ 24,660
========== ==========
Income taxes paid ......................................................... $ 15,624 $ 30,760
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY/(DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
VOTING COMMON
COMMON CAPITAL ACCUMULATED STOCK IN RESTRICTED
STOCK SURPLUS DEFICIT TREASURY STOCK
---------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 ................ $111 $ 106,825 $ (498,928) $ -- $ (85,000)
Net loss ................................. -- -- (23,938) -- --
Common stock issued ...................... -- 1,501 -- -- --
Common stock repurchased ................. -- -- -- (8,550) --
Unearned compensation-Restricted Stock -- 51,739 -- -- (51,739)
Common stock options exercised/
repurchased ............................ 44 8,711 -- -- --
Accretion of mandatorily redeemable
equity securities ...................... (44) (145,163) -- -- --
----- ---------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1997 .............. $111 $ 23,613 $ (522,866) $ (8,550) $ (136,739)
Net loss ................................. -- -- (113,328) -- --
Issuance of Restricted Stock ............. -- 94,039 -- -- 136,739
Common stock issued and other ............ 19 7,412 -- -- --
Common stock repurchased ................. -- -- -- (31,892) --
Issuance of common stock in initial public
offering, net of expenses .............. 69 158,568 -- -- --
Accretion of mandatorily redeemable
equity securities ...................... (3) (137,942) (149,358) -- --
Conversion of mandatorily redeemable
equity securities ...................... 510 795,264 -- -- --
------ ---------- ---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1998 (UNAUDITED). $706 $ 940,954 $ (785,552) $ (40,442) $ --
====== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Young &
Rubicam Inc. (the "Company") have been prepared pursuant to the rules of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Registration Statements. In the
opinion of management, the accompanying financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results for the periods presented.
The results of operations for the interim periods presented are not
necessarily indicative of the results expected for the full year.
NOTE 2--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 for the reporting
period. Actual results could differ from those estimates.
NOTE 3--EARNINGS (LOSS) PER SHARE
The Company computes earnings (loss) per share in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average shares of common stock outstanding during each period. Diluted
earnings per share reflects the dilutive effect of stock options and other stock
awards granted to employees under stock-based compensation plans. Shares used in
computing basic and diluted earnings (loss) per share were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Basic - weighted average shares ........... 46,566,357 66,608,726 47,109,739 58,939,274
Effect of dilutive securities ............. -- 16,156,028 13,203,950 --
---------- ---------- ---------- ----------
Diluted - weighted average shares ......... 46,566,357 82,764,754 60,313,689 58,939,274
========== ========== ========== ==========
</TABLE>
As of September 30, 1998, there were approximately 30.9 million common
stock options outstanding that could potentially dilute basic earnings (loss)
per share in the future that were excluded from the computation of diluted loss
per share for the nine months ended September 30, 1998 because the effect would
be antidilutive.
NOTE 4--RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. The Company
anticipates that the adoption of SFAS No. 133 will not have a significant effect
on the financial condition of the Company.
F-33
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5--COMPREHENSIVE INCOME (LOSS)
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires presentation of information on comprehensive income (loss) and
its components in the financial statements. For the Company, comprehensive
income (loss) includes net income (loss), foreign currency translation
adjustments and minimum pension liability adjustments. Total comprehensive
income (loss) and its components for interim periods ended September 30, 1997
and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -----------------------------
1997 1998 1997 1998
------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
Net income (loss) ................................ $ (5,700) $24,306 $ 11,905 $ (113,328)
Foreign currency translation adjustment, net of
tax ............................................. (2,394) 5,036 (11,047) 2,927
Pension liability adjustment, net of tax ......... -- -- -- --
-------- ------- --------- ----------
Total comprehensive income (loss) ................ $ (8,094) $29,342 $ 858 $ (110,401)
======== ======= ========= ==========
</TABLE>
NOTE 6--COMMON STOCK DIVIDEND
On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares of common stock payable for each share of common stock outstanding, which
dividend became effective and was paid on May 11, 1998, the effective date of
the Registration Statement filed on Form S-1 for the Company's initial public
offering of common stock (the "Offering"). The Company's historical financial
statements have been presented to give retroactive effect to such common stock
dividend. In addition, the number of shares of common stock the Company is
authorized to issue was increased from 10,000,000 to 250,000,000 and the number
of authorized preferred shares was increased from 50,000 to 10,000,000. Of the
authorized preferred shares, 50,000 shares have been designated as Money Market
Preferred Stock and 2,500,000 shares have been designated as Cumulative
Participating Junior Preferred Stock.
NOTE 7--PUBLIC OFFERING
On May 15, 1998, the Company closed the Offering. An aggregate of
19,090,000 shares (including 2,490,000 shares subject to the underwriters'
overallotment option) of the Company's common stock was offered to the public,
of which 6,912,730 shares were sold by the Company and 12,177,270 shares were
sold by certain selling stockholders. Net proceeds to the Company were $158.6
million, after deducting underwriting discounts and commissions and expenses
paid by the Company in connection with the Offering. The Company did not receive
any of the net proceeds from the sale of common stock by the selling
stockholders. The Company used the net proceeds from the Offering together with
$155 million of borrowings under a new credit facility (see Note 8) to repay all
of the outstanding borrowings under its then existing $700 million senior
secured credit facility.
Upon the consummation of the Offering, 9,231,105 shares of common stock
("Restricted Stock") held in a restricted stock trust vested and resulted in
non-recurring, non-cash, pre-tax compensation charges of $234.4 million which
have been reflected as "other operating charges" in the Company's consolidated
statement of operations for the nine months ended September 30, 1998. The
Company redeemed the remaining 1,855,845 shares of Restricted Stock held in the
restricted stock trust upon the consummation of the Offering.
NOTE 8--NEW DEBT FACILITY
On May 15, 1998, the Company entered into a $400 million, five-year
unsecured multicurrency revolving credit facility (the "New Credit Facility")
which replaced its then existing $700 million senior secured credit facility.
The New Credit Facility contains certain financial and operating
F-34
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
restrictions and covenant requirements, including a maximum leverage ratio and a
minimum interest coverage requirement. The Company is required to pay a facility
fee tied to the leverage ratio ranging from 0.125% to 0.2% per annum. Under the
terms of the New Credit Facility, interest charged on loans ranges from base
rate to Eurodollar and Eurocurrency rate plus applicable margins tied to the
leverage ratio ranging from 0.275% to 0.3%. On May 15, 1998, the Company used
the net proceeds from the Offering together with $155 million of borrowings
under the New Credit Facility to repay all outstanding borrowings under its then
existing $700 million senior secured credit facility. Approximately $7.3 million
of unamortized deferred financing costs related to the replaced credit facility
were charged to expense and have been reflected as an extraordinary charge, net
of an applicable tax benefit of approximately $2.8 million, in the Company's
consolidated statement of operations for the nine months ended September 30,
1998.
F-35
<PAGE>
======================================= =======================================
No dealer, salesperson or other
person is authorized to give any
information or to represent anything
not contained in this Prospectus. You
must not rely on any unauthorized 10,000,000 SHARES
information or representations. This
Prospectus is an offer to sell or a
solicitation on an offer to buy only
the shares offered hereby, but only
under circumstances and in
jurisdictions where it is lawful to do
so. The information contained in this YOUNG & RUBICAM INC.
Prospectus is current only as of its
date.
-----------------------------------
TABLE OF CONTENTS
COMMON STOCK
PAGE
----
Certain Introductory Matters ..... 2
Prospectus Summary ............... 3
Risk Factors ..................... 9
The Company ...................... 16
Use of Proceeds .................. 17 -----------------------------------
Price Range of Common Stock and PROSPECTUS
Dividend Policy ............... 17 -----------------------------------
Capitalization ................... 18
Selected Consolidated Financial
Data .......................... 19
Management's Discussion and
Analysis of Financial BEAR, STEARNS & CO. INC.
Condition and Results of
Operations .................... 22
Business ......................... 31 DONALDSON, LUFKIN & JENRETTE
Management ....................... 42
Certain Transactions ............. 58
Principal Stockholders ........... 59 ING BARING FURMAN SELZ LLC
Selling Stockholders ............. 60
Description of Capital Stock ..... 64
Shares Eligible for Future Sale .. 77 GOLDMAN, SACHS & CO.
Certain U.S. Tax Consequences
to Non-United States Holders .. 80
Underwriting ..................... 82 SALOMON SMITH BARNEY
Legal Matters .................... 84
Experts .......................... 84
Available Information ............ 85
Index to Consolidated Financial
Statements..................... F-1 , 1998
======================================= =======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Common Stock being registered, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ................. $84,945
National Association of Securities Dealers, Inc. filing fee ......... 30,500
Legal fees and expenses ............................................. *
Accounting fees and expenses ........................................ *
Printing and engraving expenses ..................................... *
Registrar and transfer agent's fee .................................. *
Miscellaneous ....................................................... *
Total ............................................................. $ *
</TABLE>
- ----------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of Young & Rubicam Inc.'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
II-1
<PAGE>
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Company the expenses incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the General Corporation Law of the State of Delaware requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Company may, by action of the Board of Directors, provide
indemnification to employees and agents of the Company with the same scope and
effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this
Section is not paid in full by the Company within thirty days after a written
claim has been received by the Company, the claimant may at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Company) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Company to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Company. Neither the failure of the Company (including
its Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware
provides as follows:
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to
II-2
<PAGE>
believe the person's conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which the person reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
II-3
<PAGE>
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under this
section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have respect to such constituent corporation if
its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "servicing at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expense proved by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Section 5 of the Management Voting Trust Agreement provides substantially
as follows:
The Company hereby agrees to assume liability for and does hereby
indemnify, protect, save and hold harmless the Voting Trustees and their
successors, assigns, agents and servants to the full extent lawful from and
against any and all liabilities, obligations, losses, damages, penalties, taxes,
claims, actions, suits, costs, expenses or disbursements (including legal fees
and expenses) of any kind and nature whatsoever ("Losses") that may be imposed,
incurred by or asserted against the Voting Trustees or any of them individually
in any way relating to or arising under the Management Voting Trust Agreement or
the enforcement of any of the terms thereof or in any way relating to or arising
out of the administration of the trusts created thereby or the action or
inaction of the Management Voting Trust thereunder, unless the Company shall
sustain the burden of proving by clear and convincing evidence that such Losses
were proximately caused by an act or omission on the part of such Voting Trustee
or Voting Trustees that was not taken in good faith or that was not reasonably
believed to be in or not opposed to the best interests of the Company and the
Management Investors as a group. The Company shall advance to any Voting Trustee
all reasonable expenses in connection with litigation arising under the
Management Voting Trust Agreement or the enforcement of any of the terms thereof
or in any way relating to or arising out of the administration of the trusts
created thereby or the action or inaction of the Management Voting Trust
thereunder, including, but not limited to, expenses in connection with
litigation in which such Voting Trustee purports to seek to enforce any portion
of the Management Voting Trust Agreement. A Voting Trustee shall be required to
execute an undertaking agreeing to repay the Company the amount so advanced in
the event it is
II-4
<PAGE>
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 Board or of the 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 Board. The 1997 ICP provides that no
member of the Compensation Committee or any officer or employee of the
Registrant 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, and
shall, to the extent permitted by law, be fully indemnified and protected by the
Registrant with respect to any such action or determination.
Young & Rubicam Inc. 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 Young & Rubicam Inc. in
certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1996, in connection with the Recapitalization, Y&R (i) issued
and sold 30,228,195 shares of Common Stock to the Recapitalization Investors and
one entity affiliated with an independent member of the Board for cash
consideration of $231,749,495, (ii) issued and sold 17,154,135 shares of Common
Stock to 182 employees in exchange for a combination of cash, notes, shares of
common stock, $.25 par value, of Young & Rubicam Inc., a New York corporation,
and limited partnership units of Young & Rubicam L.P., a Delaware limited
partnership, (iii) granted 16,823,565 Rollover Options to its employees in
consideration of the surrender for cancellation of all or a portion of their
outstanding employee options, and (iv) granted 5,200,590 Executive Options to
its employees without consideration pursuant to the Management Stock Option
Plan.
In August 1997, two members of management of the Company purchased an
aggregate of 12,900 shares of Common Stock for an aggregate purchase price of
$98,900. In October 1997, four members of management of the Company purchased an
aggregate of 36,000 shares of Common Stock for an aggregate purchase price of
$276,000. In November 1997, the Company purchased additional equity interests in
two of its Argentine subsidiaries using an aggregate of 91,320 shares of Common
Stock as part of the consideration therefor.
During 1997, management investors whose employment with the Company was
terminated exercised Rollover Options to purchase an aggregate of 463,065 shares
of Common Stock at $1.92 per share, or an aggregate of $887,541. All of such
shares of Common Stock were repurchased by the Company pursuant to the call
provisions of the Stockholders Agreement at a price equal to $7.67 per share.
In December 1997, the Company issued and sold 4,250,790 shares of Common
Stock to its employees for an aggregate amount of $9,314,483 pursuant to the
exercise of Rollover Options and Executive Options. In March 1998, the Company
issued and sold 135,885 shares of Common Stock to its employees for an aggregate
amount of $864,196 pursuant to the exercise of Rollover Options and Executive
Options.
II-5
<PAGE>
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
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference from Exhibit 4.4 to the Registration Statement
on Form S-8 (File No. 333-57605) filed by the Company).
3.2 Amended and Restated Bylaws of Registrant (incorporated by reference from
Exhibit 4.5 to the Registration Statement on Form S-8 (File No. 333-57605)
filed by the Company).
4.1 Specimen Certificate of Common Stock of Registrant (incorporated by
reference from Exhibit 4.1 to the Registration Statement on Form S-1 (File
No. 333-46929) filed by the Company).
4.2 Rights Agreement, dated as of May 1, 1998 (incorporated by reference from
Exhibit 4.9 to the Registration Statement on Form S-8 (File No. 333-57605)
filed by the Company).
4.3 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, 1998
(incorporated by reference from Exhibit 9.1 to the Registration Statement
on Form S-1 (File No. 333-46929) filed by the Company).
9.2 Young & Rubicam Inc. Restricted Stock Trust Agreement, dated as of
December 12, 1996 (incorporated by reference from Exhibit 9.2 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.1 Stockholders' Agreement, dated as of May 8, 1998 (incorporated by
reference from Exhibit 4.8 to the Registration Statement on Form S-8 (File
No. 333-57605) filed by the Company).
10.2 Contribution Agreement dated October 30, 1996 (incorporated by reference
from Exhibit 10.3 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.3 Young & Rubicam Holdings Inc. Restricted Stock Plan (incorporated by
reference from Exhibit 10.4 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.4 Young & Rubicam Holdings Inc. Management Stock Option Plan (incorporated
by reference from Exhibit 10.5 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.5 Young & Rubicam Inc. 1997 Incentive Compensation Plan (incorporated by
reference from Exhibit 10.6 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.6 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
December 19, 1997, with Peter Georgescu (incorporated by reference from
Exhibit 10.7 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
II-6
<PAGE>
10.7 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
January 1, 1995, with Peter Georgescu (incorporated by reference from
Exhibit 10.8 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.8 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
January 1, 1986, with Peter Georgescu (incorporated by reference from
Exhibit 10.9 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.9 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
December 19, 1997, with John McGarry (incorporated by reference from
Exhibit 10.10 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.10 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
January 1, 1986, with John McGarry (incorporated by reference from Exhibit
10.11 to the Registration Statement on Form S-1 (File No. 333-46929) filed
by the Company).
10.11 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
December 31, 1994, with John McGarry (incorporated by reference from
Exhibit 10.12 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.12 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
December 19, 1997, with Edward Vick (incorporated by reference from
Exhibit 10.13 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.13 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
January 1, 1995, with Edward Vick (incorporated by reference from Exhibit
10.14 to the Registration Statement on Form S-1 (File No. 333-46929) filed
by the Company).
10.14 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
December 19, 1997, with Alan J. Sheldon (incorporated by reference from
Exhibit 10.15 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.15 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
January 1, 1995, with Alan J. Sheldon (incorporated by reference from
Exhibit 10.16 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.16 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of
January 1, 1988, with Alan J. Sheldon (incorporated by reference from
Exhibit 10.17 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.17 Registration Rights Agreement, dated as of December 12, 1996 (incorporated
by reference from Exhibit 10.18 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.18 Letter Agreement dated as of October 16, 1997 by and between Young &
Rubicam Inc. and Michael J. Dolan (incorporated by reference from Exhibit
10.19 to the Registration Statement on Form S-1 (File No. 333-46929) filed
by the Company).
10.19 Letter Agreement dated June 28, 1996 by and between Young & Rubicam Inc.
and Michael J. Dolan (incorporated by reference from Exhibit 10.20 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.20 Lease agreement for 230 Park Avenue South (incorporated by reference from
Exhibit 10.21 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.21 H&F Option Agreement, dated as of December 12, 1996, among Young & Rubicam
Holdings Inc., a New York corporation ("Holdings"), Young & Rubicam Inc.,
a New York corporation, Young & Rubicam Inc., a Delaware corporation and a
wholly-owned subsidiary of Holdings, and Hellman & Friedman Capital
Partners III, L.P. (incorporated by reference from Exhibit 10.22 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
II-7
<PAGE>
10.22 H&F Option Agreement, dated as of December 12, 1996, among Young & Rubicam
Holdings Inc., a New York corporation ("Holdings"), Young & Rubicam Inc.,
a New York corporation, Young & Rubicam Inc., a Delaware corporation and a
wholly-owned subsidiary of Holdings, and H&F Orchard Partners III, L.P.
(incorporated by reference from Exhibit 10.23 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.23 Form of Young & Rubicam Inc. Key Corporation Managers Bonus Plan
(incorporated by reference from Exhibit 10.24 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.24 Amendment No. 1 to Restricted Stock Trust Agreement dated as of March 13,
1998 (incorporated by reference from Exhibit 10.25 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.25 Young & Rubicam Inc. Deferred Compensation Plan (incorporated by reference
from Exhibit 10.26 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.26 Young & Rubicam Inc. Grantor Trust Agreement (incorporated by reference
from Exhibit 10.27 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.27 Amendment to Young & Rubicam Inc. 1997 Incentive Compensation Plan
(incorporated by reference from Exhibit 10.28 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.28 Credit Agreement for the New Credit Facility.
21.1 List of Subsidiaries (incorporated by reference from Exhibit 21.1 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
23.1 Consent of PricewaterhouseCoopers 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).
- ----------
* To be filed by amendment.
(b) Financial Statement Schedules
II-8
<PAGE>
Schedule II -- Valuation and Qualifying Accounts and Reserves
YOUNG AND RUBICAM INC. AND SUBSIDIARY COMPANIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------------
BALANCE AT CHARGED TO COSTS CHARGED TO BALANCE
DESCRIPTION BEGINNING AND EXPENSES OTHER ACCOUNTS DEDUCTIONS AT END
- ------------------------------------------ ------------ ------------------ ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1994
Allowance for Doubtful Accounts ......... $ 7,844 $ 4,947 -- $ 4,507 $ 8,284
------- -------- -- ------- -------
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
------- -------- -- ------- -------
VALUATION ALLOWANCE
Year ended December 31, 1994
SFAS 109 Valuation Allowance ............ $15,221 $ (1,746) -- -- $13,475
------- -------- -- ------- -------
Year ended December 31, 1995
SFAS 109 Valuation Allowance ............ $13,475 $ 912 -- -- $14,387
------- -------- -- ------- -------
Year ended December 31, 1996
SFAS 109 Valuation Allowance ............ $14,387 $ 14,667 $4,483 -- $33,537
------- -------- ------ ------- -------
</TABLE>
II-9
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(b) (1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-10
<PAGE>
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 November 6, 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 Kevin Lavan 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- --------------------------------- -----------------
<S> <C> <C>
/s/ Peter A. Georgescu Chairman of the Board and Chief November 6, 1998
- ------------------------- Executive Officer (principal
Peter A. Georgescu executive officer)
/s/ Michael J. Dolan Vice Chairman, Chief Financial November 6, 1998
- ------------------------- Officer and Director (principal
Michael J. Dolan financial officer)
/s/ John A. Wozniak Vice President, Controller November 6, 1998
- ------------------------- (principal accounting officer)
John A. Wozniak
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------------------- -----------------
<S> <C> <C>
/s/ Edward H. Vick Chief Operating Officer and Director November 6, 1998
- ------------------------------
Edward H. Vick
/s/ Thomas D. Bell, Jr. Executive Vice President and Director November 6, 1998
- ------------------------------
Thomas D. Bell, Jr.
/s/ F. Warren Hellman Director November 6, 1998
- ------------------------------
F. Warren Hellman
/s/ Richard S. Bodman Director November 6, 1998
- ------------------------------
Richard S. Bodman
/s/ Philip U. Hammarskjold Director November 6, 1998
- ------------------------------
Philip U. Hammarskjold
/s/ Alan D. Schwartz Director November 6, 1998
- ------------------------------
Alan D. Schwartz
/s/ John F. McGillicuddy Director November 6, 1998
- ------------------------------
John F. McGillicuddy
</TABLE>
II-12
EXHIBIT 4.3
EXECUTION COPY
CERTIFICATE OF DESIGNATIONS
of
CUMULATIVE PARTICIPATING JUNIOR PREFERRED STOCK
of
YOUNG & RUBICAM INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Young & Rubicam Inc., a corporation organized and existing under the
Delaware General Corporation Law (hereinafter called the "Corporation"), hereby
certifies that the following resolution was duly adopted by the Board of
Directors of the Corporation as required by Section 151 of the Delaware General
Corporation Law on April 16, 1998:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation (hereinafter called the "Board of Directors" or the "Board")
in accordance with the provisions of the Amended and Restated Certificate of
Incorporation of the Corporation, the Board of Directors hereby creates a series
of Preference Stock, par value of $0.01 per share, of the Corporation and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, and limitations thereof as follows:
Cumulative Participating Junior Preferred Stock
Section 1. Designation and Amount. The shares of such series shall be
designated as "Cumulative Participating Junior Preferred Stock" (the "Junior
Preferred Stock") and the number of shares initially constituting the Junior
Preferred Stock shall be 2,500,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no such
decrease shall reduce the number of authorized shares of Junior Preferred Stock
to a number less than the number of shares of Junior Preferred Stock then
outstanding plus the number of shares of Junior Preferred Stock then reserved
for issuance upon the exercise of any outstanding options, rights or warrants or
upon the exercise of any conversion or exchange privilege contained in any
outstanding securities issued by the Corporation. The Corporation's stated
capital with respect to each issued and outstanding share of Junior Preferred
Stock shall be $1.00.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of
Preference stock ranking senior to the Junior Preferred stock with respect to
dividends, including the Corporation's Money Market Preferred Stock, the holders
of shares of Junior Preferred Stock, in preference to the holders of shares of
Common Stock, par value $0.01 per share (the "Common
<PAGE>
Stock"), of the Corporation, and in preference to the holders of shares of any
other class of capital stock of the Corporation ranking junior to the Junior
Preferred Stock with respect to dividends, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first days of January,
April, July and October in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Junior Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 and (b) subject to the provision for
adjustment hereinafter set forth, one hundred (100) times the aggregate per
share amount of all cash dividends, and one hundred (100) times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Junior Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock (other
than any and all dividends declared on the outstanding Shares of Common Stock
payable in Common Stock, if the declaration of such dividends occurs prior to
the date on which the Common Stock is registered under the Exchange Act,
regardless of when such dividends are payable or are paid (a "Stock Split")), or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise), then in each such case the
amount to which holders of shares of Junior Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare, out of funds legally available therefor,
a dividend or distribution on the Junior Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in shares of
Common Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $1.00 per share on the Junior Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares of Junior Preferred Stock is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Junior Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Junior Preferred Stock in an
2
<PAGE>
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Junior Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be not more than fifty (50) calendar days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. In addition to any other voting rights required
by applicable law, the holders of shares of Junior Preferred Stock shall have
the following voting rights:
(A) Each share of Junior Preferred Stock shall entitle the holder thereof
to one hundred (100) votes (subject to adjustment as set forth below) on all
matters submitted to a vote of the stockholders of the Corporation (including,
without limitation, the election of directors). In the event the Corporation
shall at any time declare any dividend on the Common Stock payable in shares of
Common Stock (other than the Stock Split), or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise), then in each such case the number of votes per
share to which holders of shares of Junior Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in the Amended and Restated
Certificate of Incorporation, in any other Certificate of Designations creating
a series of Preference Stock or any similar stock or by law, the holders of
shares of Junior Preferred Stock, the holders of shares of Common Stock and the
holders of any other capital stock of the Corporation having general voting
rights shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) (i) If at any time dividends on any Junior Preferred Stock in an amount
equal to the full accrued dividends for six (6) or more quarterly dividend
periods, whether or not consecutive, shall not have been paid or declared and a
sum sufficient for the payment thereof irrevocably set aside in trust for the
holders of all of such shares, the Board of Directors of the Corporation shall
promptly take all necessary actions to increase the authorized number of
directors of the Corporation by one (1) and the holders of the shares of the
Junior Preferred Stock then outstanding shall be entitled (by series, voting as
a single class) to elect one (1) person as a director to the Board of Directors
of the Corporation (such right to elect one (1) director being hereinafter
sometimes referred to as the "special voting rights"), each outstanding share
having such right being entitled for such purpose to one vote; provided,
however, that at such time as the arrearage in payment of dividends which gave
rise to the exercise of the special voting rights has been cured with regard to
the Junior Preferred Stock by waiver or payment of all accrued dividends, the
right of the holders of such shares so to vote as provided in this paragraph
(C)(i) of this Section 3 shall cease (subject to renewal from time to time upon
the same terms and conditions) and the term of office of the person who is at
that time a director elected by such holders shall terminate and the number of
directors of the Corporation shall be automatically reduced by one (1).
3
<PAGE>
(ii) At any time after the special voting rights shall have become vested
in the holders of the shares of the Junior Preferred Stock as provided in
paragraph (C)(i) of this Section 3, the Secretary of the Corporation, as
promptly as possible but in any event within twenty (20) calendar days after
receipt of the written request of the holders of not less than ten percent (10%)
of the shares of the Junior Preferred Stock then outstanding, addressed to the
Corporation at its principal office, shall call a special meeting of the holders
of the shares of the Junior Preferred Stock for the purpose of electing such
additional director, such meeting to be held at any place as provided by the
By-Laws of the Corporation for meetings of the Corporation's stockholders, and
upon not less than ten (10) nor more than sixty (60) calendar days' notice. If
such meeting shall not be so called within sixty (60) calendar days after
receipt of the request by the Secretary of the Corporation, then the holders of
not less than ten percent (10%) of the shares of the Junior Preferred Stock then
outstanding may, by written notice to the Secretary of the Corporation,
designate any person to call such meeting, and the person so designated may call
such meeting, at any such place as provided above and upon not less than ten
(10) nor more than sixty (60) calendar days' notice and for that purpose shall
have access to the stockholder record books of the Corporation. No such special
meeting of the holders of the shares of the Junior Preferred Stock and no
adjournment thereof shall be held on a date later than thirty (30) calendar days
before the annual meeting of stockholders of the Corporation. At any meeting so
called or at any annual meeting held at any time when the special voting rights
are in effect, the holders of a majority of the shares of the Junior Preferred
Stock then outstanding, present in person or by proxy, shall be sufficient to
constitute a quorum for the election of such additional director, and such
additional director, together with any and all other directors who are then
members of the Board of Directors, shall constitute the duly elected directors
of the Corporation.
(iii) With respect to a vacancy arising in the directorship referred to in
paragraph (C)(i) of this Section 3 at any time when the special voting rights
are in effect pursuant to paragraph (C)(i) of this Section 3, upon the written
request of the holders of not less than ten percent (10%) of the shares of the
Junior Preferred Stock then outstanding, addressed to the Corporation at its
principal office, the Secretary of the Corporation shall give notice of a
special meeting of holders of the shares of the Junior Preferred Stock of the
election of a director to fill such vacancy caused by the death, resignation or
other inability to serve as a director elected by such holders, to be held not
less than ten (10) nor more than twenty (20) calendar days following receipt by
the Secretary of the Corporation of such written request. So long as special
voting rights are in effect pursuant to paragraph (c)(i) of this Section 3, any
director who shall have been so elected by the holders of the Junior Preferred
Stock may be removed at any time, either with or without cause, only by the
affirmative vote of the holders of the shares at the time entitled to cast a
majority of the votes entitled to be cast for the election of such director at a
special meeting of such holders called for that purpose, and any vacancy thereby
created may be filled by the vote of such holders.
(D) Except as set forth herein, or as otherwise provided by the Amended and
Restated Certificate of Incorporation or by law, holders of Junior Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
4
<PAGE>
(E) Holders of Junior Preferred Stock shall be entitled to such notice of
each meeting of stockholders as is furnished to the holders of Common Stock with
respect to such meeting.
Section 4. Certain Restrictions.
(A) Subject to the provisions of the Amended and Restated Certificate of
Incorporation, whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in Section 2 are in arrears as
of any Quarterly Dividend Payment Date, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Junior
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Junior Preferred Stock, except dividends
paid ratably on the Junior Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (both as to dividends and upon dissolution, liquidation or winding up) to
the Junior Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Junior
Preferred Stock, or any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Junior
Preferred Stock or redeem any shares of such parity stock, except in accordance
with the terms of the Amended and Restated Certificate of Incorporation and with
a purchase offer made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after such purchase or acquisition. All
such shares shall upon their cancellation
5
<PAGE>
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preference Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein, in the Amended and Restated
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preference Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Junior Preferred Stock unless, prior thereto, the holders of shares of Junior
Preferred Stock shall have received $1.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Junior Preferred Liquidation Preference").
Following the payment of the full amount of the Junior Preferred Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Junior Preferred Stock unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the "Common Adjustment") equal to
the quotient obtained by dividing (i) the Junior Preferred Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph
(C) below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause (ii)
immediately above being referred to as the "Adjustment Number"). Following the
payment of the full amount of the Junior Preferred Liquidation Preference and
the Common Adjustment in respect of all outstanding shares of Junior Preferred
Stock and Common Stock, respectively, holders of Junior Preferred Stock and
holders of shares of Common Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed in the ratio of the Adjustment
Number to one (1) with respect to such Junior Preferred Stock and Common Stock,
on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Junior Preferred Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any, which
rank on a parity with the Junior Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such parity shares in proportion
to their respective liquidation preferences. In the event, however, that there
are not sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time (i) declare any dividend
on Common Stock payable in shares of Common Stock (other than the Stock Split),
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property,
6
<PAGE>
then in any such case each share of Junior Preferred Stock shall at the same
time be similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to one hundred (100) times
the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time declare any dividend on the Common Stock payable in shares of Common Stock
(other than the Stock Split), or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Junior Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. Ranking. The Junior Preferred Stock shall rank senior, as to
dividends and upon liquidation, dissolution or winding up, to the Common Stock,
and junior, as to dividends and upon liquidation, dissolution or winding up, to
all other classes and series of capital stock of the Corporation, including all
series of Preference Stock of the Corporation, unless the terms of any such
class or series shall expressly provide otherwise.
Section 9. No Redemption. The shares of Junior Preferred Stock shall not be
redeemable.
Section 10. Fractional Shares. The Junior Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of shares of Junior Preferred Stock.
7
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Executive Vice President and General Counsel as of the
14th day of May, 1998.
/s/ Stephanie W. Abramson
Executive Vice President and General
Counsel
EXHIBIT 10.28
---------------------------------------
U.S. $400,000,000
CREDIT AGREEMENT
Dated as of May 8, 1998
YOUNG & RUBICAM INC.
and the other Borrowers named herein or
that hereafter become Borrowers hereunder
as Borrowers
THE BANKS NAMED HEREIN
as Banks
CITIBANK, N.A.
as Administrative Agent and Documentation Agent
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
as Syndication Agent
CITICORP SECURITIES, INC.
as Arranger
BANCAMERICA ROBERTSON STEPHENS
as Co-Arranger
---------------------------------------
[Exhibit C-1 is a photocopy of Opinion of General Counsel to the Company as
executed and delivered. Exhibit C-2 is a photocopy of Opinion of Special
Counsel to the Company as executed and delivered. Exhibit D is a photocopy of
Opinion of Special New York Counsel to the Administrative Agent as executed and
delivered.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C>
SECTION 1.01. CERTAIN DEFINED TERMS................................................................1
SECTION 1.02. COMPUTATION OF TIME PERIODS.........................................................18
SECTION 1.03. ACCOUNTING TERMS....................................................................18
SECTION 1.04. CURRENCIES AND TYPES OF ADVANCES....................................................18
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. THE REVOLVING CREDIT ADVANCES.......................................................19
SECTION 2.02. SWING LINE ADVANCES.................................................................22
SECTION 2.03. FEES................................................................................24
SECTION 2.04. CHANGES IN COMMITMENTS..............................................................24
SECTION 2.05. REPAYMENT OF ADVANCES...............................................................26
SECTION 2.06. INTEREST............................................................................27
SECTION 2.07. ADDITIONAL INTEREST ON LIBO RATE ADVANCES...........................................28
SECTION 2.08. INTEREST RATE DETERMINATIONS; CHANGES IN PRICING LEVELS.............................28
SECTION 2.09. CONVERSION AND CONTINUATION OF ADVANCES.............................................29
SECTION 2.10. OPTIONAL AND MANDATORY PREPAYMENTS OF ADVANCES......................................31
SECTION 2.11. INCREASED COSTS.....................................................................31
SECTION 2.12. ILLEGALITY..........................................................................33
SECTION 2.13. PAYMENTS AND COMPUTATIONS...........................................................33
SECTION 2.14. TAXES...............................................................................35
SECTION 2.15. PRO RATA TREATMENT..................................................................37
SECTION 2.16. SHARING OF PAYMENTS, ETC............................................................38
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL BORROWING BY THE COMPANY............................38
SECTION 3.02. CONDITIONS PRECEDENT TO INITIAL BORROWING BY SUBSIDIARY
BORROWERS PARTY TO THIS AGREEMENT ON THE CLOSING DATE..............................................40
SECTION 3.03. CONDITIONS PRECEDENT TO EACH BORROWING..............................................40
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES......................................................41
ARTICLE V
COVENANTS OF THE BORROWERS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section Page
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<S> <C>
SECTION 5.01. AFFIRMATIVE COVENANTS...............................................................47
SECTION 5.02. NEGATIVE COVENANTS..................................................................52
SECTION 5.03 FINANCIAL COVENANTS.................................................................57
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT...................................................................57
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. AUTHORIZATION AND ACTION............................................................60
SECTION 7.02. ADMINISTRATIVE AGENT'S RELIANCE, ETC................................................60
SECTION 7.03. CITIBANK AND AFFILIATES.............................................................61
SECTION 7.04. BANK CREDIT DECISION................................................................61
SECTION 7.05. INDEMNIFICATION.....................................................................61
SECTION 7.06. SUCCESSOR ADMINISTRATIVE AGENT......................................................61
SECTION 7.07. SYNDICATION AGENT, ARRANGER AND CO-ARRANGER.........................................62
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. AMENDMENTS, ETC.....................................................................62
SECTION 8.02. NOTICES, ETC........................................................................63
SECTION 8.03. NO WAIVER; REMEDIES.................................................................63
SECTION 8.04. COSTS, EXPENSES AND INDEMNIFICATION.................................................63
SECTION 8.05. RIGHT OF SET-OFF....................................................................65
SECTION 8.06. BINDING EFFECT......................................................................65
SECTION 8.07. ASSIGNMENTS AND PARTICIPATIONS......................................................65
SECTION 8.08. GOVERNING LAW; SUBMISSION TO JURISDICTION...........................................68
SECTION 8.09. SEVERABILITY........................................................................69
SECTION 8.10. EXECUTION IN COUNTERPARTS...........................................................69
SECTION 8.11. SURVIVAL............................................................................69
SECTION 8.12. WAIVER OF JURY TRIAL................................................................69
SECTION 8.13. CONFIDENTIALITY.....................................................................69
SECTION 8.14. EUROPEAN MONETARY UNION.............................................................70
SECTION 8.15. ADDITIONAL SUBSIDIARY BORROWERS.....................................................71
SECTION 8.16. WAIVER OF IMMUNITY...................................................................71
SECTION 8.17. JUDGMENT CURRENCY....................................................................71
SECTION 8.18. LIMITATION ON FOREIGN BORROWER OBLIGATIONS..........................................72
SECTION 8.19. AFFILIATES..........................................................................72
ARTICLE IX
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section Page
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GUARANTEE
<S> <C>
SECTION 9.01. THE GUARANTEE.......................................................................73
SECTION 9.02. OBLIGATIONS UNCONDITIONAL...........................................................73
SECTION 9.03. REINSTATEMENT.......................................................................74
SECTION 9.04. SUBROGATION.........................................................................74
SECTION 9.05. REMEDIES............................................................................74
SECTION 9.06. CONTINUING GUARANTEE................................................................75
SECTION 9.07. INSTRUMENT FOR THE PAYMENT OF MONEY.................................................75
</TABLE>
SCHEDULES
---------
Schedule I - ERISA Matters
Schedule II - Existing Liens
EXHIBITS
--------
Exhibit A - Form of Note
Exhibit B-1 - Form of Notice of Revolving Credit Borrowing
Exhibit B-2 - Form of Notice of Swing Line Borrowing
Exhibit C-1 - Form of Opinion of General Counsel to the Company
Exhibit C-2 - Form of Opinion of Special Counsel to the Company
Exhibit D - Form of Opinion of Special New York Counsel to the Administrative
Agent
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Subsidiary Borrower Supplement
<PAGE>
CREDIT AGREEMENT dated as of May 8, 1998, among YOUNG & RUBICAM INC., a
Delaware corporation (the "Company"), the subsidiaries of the Company listed on
the signature pages hereto under the caption "Subsidiary Borrowers" and each
other subsidiary of the Borrower that hereafter becomes a Subsidiary Borrower
hereunder as provided in Section 8.15 (the "Subsidiary Borrowers" and, together
with the Company, the "Borrowers"), the banks (the "Banks") listed on the
signature pages hereof, CITIBANK, N.A. ("Citibank") as administrative agent (in
such capacity, the "Administrative Agent") for the Banks hereunder, and Bank of
America National Trust and Savings Association as syndication agent (in such
capacity, the "Syndication Agent").
The Borrowers have requested that the Banks make loans to them in an
aggregate principal amount up to but not exceeding $400,000,000 at any one time
outstanding in Dollars and/or in certain other Approved Currencies (as
hereinafter defined) for general corporate purposes, including the making of
acquisitions and repayment of the Debt (as hereinafter defined) under the
Existing Credit Agreement (as hereinafter defined), and the Banks are prepared
to make such loans upon the terms and conditions hereof. Accordingly, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Acquisition" shall mean any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the
Company and/or any of its Subsidiaries (a) acquires any going business or
all or substantially all of the Property of any firm, corporation or
division thereof, whether through the purchase of assets, merger or
otherwise, (b) directly or indirectly acquires (in one transaction or as
the most recent transaction in a series of transactions) control of at
least a majority of Voting Shares of another Person or (c) directly or
indirectly acquires control of a 50% or more ownership interest in any
partnership, joint venture or other entity, or of any general partnership
(or equivalent) interest in any such entity.
"Administrative Agent's Account" shall mean, for each Approved
Currency, an account in respect of such Approved Currency designated by the
Administrative Agent in a notice to the Company and the Banks.
"Advance" means a Revolving Credit Advance or a Swing Line Advance.
Credit Agreement
----------------
<PAGE>
-2-
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person. For purposes of this definition, the term "control" (including
the terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to vote
10% or more of the Voting Shares of such Person or to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of such Voting Shares, by contract or otherwise.
"Alternate Currency" means any Foreign Currency that (a) is dealt with
in the London interbank deposit market, (b) is freely transferable and
convertible into Dollars in the London foreign exchange market and
available to all of the Banks and (c) no central bank or other governmental
authorization in the country of issue of such currency is required to
permit use of such Foreign Currency by any Bank for making any Advance
hereunder and/or to permit the relevant Borrower to borrow and repay the
principal thereof and to pay the interest thereon, unless such
authorization has been obtained and is in full force and effect.
"Applicable Facility Fee Rate" for any Pricing Level Period means the
rate set forth below opposite the reference to such Pricing Level Period:
Applicable
Pricing Level Facility
Period Fee Rate (% p.a.)
------ -----------------
Pricing Level 1 Period 0.125%
Pricing Level 2 Period 0.150%
Pricing Level 3 Period 0.200%
Each change in the Applicable Facility Fee Rate resulting from a Pricing
Level Change shall be effective on the effective date of such Pricing Level
Change. The Applicable Facility Fee Rate at the Closing Date and until the
first Pricing Level Change will be 0.150% per annum.
"Applicable Lending Office" means, with respect to each Bank, for each
Currency and Type of Advance, the Domestic Lending Office of such Bank (or
of an Affiliate of such Bank) in the case of a Base Rate Advance and the
LIBO Lending Office of such Bank (or of an Affiliate of such Bank) in the
case of a LIBO Rate Advance.
"Applicable Margin" in respect of any Advance for any Pricing Level
Period means the rate for the respective Type of Advance set forth below
opposite the reference to such Pricing Level Period:
Credit Agreement
----------------
<PAGE>
-3-
Base Rate LIBO
Pricing Level Advances Rate Advances
Period (% p.a.) (% p.a.)
------ -------- --------
Pricing Level 1 Period 0.0000% 0.2750%
Pricing Level 2 Period 0.0000% 0.3000%
Pricing Level 3 Period 0.0000% 0.3000%
Each change in the Applicable Margin resulting from a Pricing Level Change
shall take effect on the effective date of such Pricing Level Change. The
Applicable Margin at the Closing Date and until the first Pricing Level
Change will be (a) 0.0000% per annum for Base Rate Advances and (b) 0.3000%
per annum for LIBO Rate Advances.
"Approved Currency" means Dollars, or, subject to Section 8.14, any
Specified Eurocurrency or any Alternate Currency.
"Approved Foreign Currency" means an Approved Currency other than
Dollars.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Bank and an assignee, and accepted by the Administrative Agent,
in substantially the form of Exhibit E.
"Banks" means the Banks listed on the signature pages hereof, and each
Person that shall become a party hereto pursuant to Section 2.04(a) or
Section 8.07(a), (b) and (c) and, for purposes of Sections 2.01, 2.05,
2.06, 2.07, 2.08, 2.09, 2.10, 2.11, 2.12, 2.13, 2.14, 2.15, 2.16 and
Article IX and any related definitions used in any of such Sections or
Article IX, each Affiliate of a Bank that has made a Revolving Credit
Advance to a Foreign Borrower pursuant to Section 2.01(a)(ii); provided
that, anything in this Agreement to the contrary notwithstanding, no such
Affiliate shall have a Commitment hereunder.
"BARS" means BancAmerica Robertson Stephens.
"Base Rate" means, for any period, a fluctuating interest rate per
annum in effect from time to time which rate per annum shall at all times
be equal to the highest of:
(a) the rate of interest announced publicly by Citibank in New York,
New York, from time to time, as Citibank's base rate;
(b) 0.50% per annum above the Federal Funds Rate; and
(c) the sum (adjusted to the nearest 1/16 of one percent or, if there
is no nearest 1/16 of one percent, to the next higher 1/16 of one
percent) of
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(i) 0.50% per annum plus (ii) the rate obtained by dividing (x)
the latest three-week moving average of secondary market morning
offering rates in the United States for three-month certificates
of deposit of major United States money center banks, such
three-week moving average (adjusted to the basis of a year of 365
days) being determined weekly on each Monday (or, if such day is
not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank on
the basis of such rates reported by certificate of deposit
dealers to and published by the Federal Reserve Bank of New York
or, if such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Citibank from
three New York certificate of deposit dealers of recognized
standing selected by Citibank by (y) a percentage equal to 100%
minus the average of the daily percentages specified during such
three-week period by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum
reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement)
for Citibank with respect to liabilities consisting of or
including (among other liabilities) three-mon Dollar non-personal
time deposits in the United States plus (iii) the average during
such three-week period of the annual assessment rates estimated
by Citibank for determining the then current annual assessment
rate payable by Citibank to the Federal Deposit Insurance
Corporation (or any successor) for insuring Dollar deposits of
Citibank in the United States.
Each change in any interest rate provided for herein based upon the Base
Rate resulting from a change in the Base Rate shall take effect at the time
of such change in the Base Rate.
"Base Rate Advance" means, at any time, an Advance which bears
interest at the Base Rate.
"Borrowing" means a Revolving Credit Borrowing or a Swing Line
Borrowing.
"Business Day" means a day of the year (a) on which banks are not
required or authorized to close in New York, New York, (b) if the
applicable Business Day relates to any LIBO Rate Advance, on which dealings
in deposits denominated in the Currency of such LIBO Rate Advance are
carried on in the London interbank market, and (c) if such day relates to a
Borrowing of, a payment or prepayment of principal of or interest on, or
the Interest Period for, any Advance denominated in any Foreign Currency or
a notice by the Borrower with respect to any such Borrowing, payment,
prepayment or Interest Period, that is also a day on which commercial banks
settle payments in the Principal Financial Center for the Currency in which
such Advance is denominated and in which the London foreign exchange market
settles payments in such Currency.
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"Capital Lease Obligations" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal Property which
obligations are required to be classified and accounted for as a capital
lease on a balance sheet of such Person under GAAP and, for purposes of
this Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition thereof issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b)
certificates of deposit and Eurodollar time deposits with maturities of one
year or less from the date of acquisition thereof and overnight bank
deposits of any Bank or of any commercial bank having capital and surplus
in excess of $500,000,000, (c) repurchase obligations of any Bank or of any
commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least A-2 by
Standard and Poor's Rating Group ("S&P") or P-2 by Moody's Investors
Service, Inc. ("Moody's"), (e) securities with maturities of one year or
less from the date of acquisition thereof issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or
territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by
Moody's, (f) securities with maturities of one year or less from the date
of acquisition thereof backed by standby letters of credit issued by any
Bank or any commercial bank satisfying the requirements of clause (b) of
this definition or (g) shares of money market mutual or similar funds which
invest exclusively in assets satisfying the requirements of clauses (a)
through (f) of this definition.
"Change in Control" means:
(i) any "person" or "group" (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended),
other than (a) the HFCP Investors and their "affiliates" (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended) or (b) the Management Voting Trust or the Management Investors
becomes the "beneficial owner" (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended), directly or indirectly, of Voting Shares
of the Company (or other securities convertible into such Voting Shares)
representing not less than 30% of the combined voting power of all Voting
Shares of the Company; or
(ii) individuals who as of the date hereof are directors of the
Company (together with any new director whose election by the board of
directors or whose nomination for election by the stockholders of the
Company was approved by a vote of at least a
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majority of the directors then in office who either were directors as of
the date hereof or whose election or nomination for election was previously
so approved) shall cease for any reason (other than solely as a result of
(a) death or disability or (b) voluntary retirement of any individual in
the ordinary course and not for reasons related to an actual or proposed
change in control of the Company) to constitute a majority of the board of
directors of the Company; or
(iii) any Person or two or more Persons acting in concert (excluding
(a) the HFCP Investors and their "affiliates" (as such term is defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended)) or (b)
the Management Voting Trust or the Management Investors shall have acquired
the power to exercise, directly or indirectly, effective control for any
purpose over Voting Shares of the Company (or other securities convertible
into such securities) representing not less than 30% of the combined voting
power of all Voting Shares of the Company.
"Closing Date" means the date on which the Administrative Agent
notifies the Company that the conditions precedent set forth in Section
3.01 shall have been satisfied or waived.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commitment" has the meaning specified in Section 2.01(a)(i).
"Commitment Termination Date" means May 8, 2003, provided, that if
such date is not a Business Day, then the Commitment Termination Date shall
be the immediately preceding Business Day.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Company within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Company and which is treated as a single employer under Section 414 of the
Code.
"Consolidated" means, when used in connection with any term (which is
not otherwise defined herein), such term as it applies to the Company and
its Subsidiaries on a consolidated basis in accordance with GAAP, after
eliminating all intercompany items.
"Consolidated Debt" means, at any time, the aggregate outstanding
principal amount of all Debt of the Company and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, provided, that
any portion of Consolidated Debt denominated in a currency other than
Dollars, and any cash balances or securities denominated in a currency
other than Dollars, shall be converted to Dollars in the manner set forth
in the definition of "Dollar Equivalent".
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"Consolidated EBITDA" means, for any period, the amount equal to
Consolidated Net Income for such period excluding non-operating gains or
losses, plus, in each case to the extent deducted in determining
Consolidated Net Income for such period, the sum for the Company and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP,
of the following: (a) Consolidated Interest Expense for such period, (b)
amortization or write-off of debt issuance costs in connection with the
termination of the Existing Credit Agreement, (c) Consolidated provision
for income taxes for such period, (d) Consolidated depreciation and
amortization expense for such period, (e) Consolidated non-cash
compensation expense attributable to the vesting, in connection with the
consummation of the public offering of the shares of common stock of the
Company referred to in Section 3.01(g), of 9,231,105 shares of restricted
common stock of the Company, (f) any amounts in respect of the minority
interest of any other Person in the Company and its Subsidiaries for such
period, (g) the amount of all dividends received during such period from
Persons which are partially-owned by the Company, but which are not
Wholly-Owned Subsidiaries of the Company and which are not Consolidated for
such period, (h) expenses incurred or reserves taken during such period
associated with (i) the sale of the New York Real Property, including the
relocation or consolidation of individuals and offices located i New York
City (whether or not occupying the New York Real Property) in connection
with, or in anticipation of, such sale, or (ii) the relocation or
consolidation of individuals and offices located in New York City,
currently occupying more than 300,000 square feet, including in each case
all expenses of renovating office space, and (i) equity losses from any
other Person which is partially-owned by the Company but which is not a
Wholly-Owned Subsidiary of the Company and which is not Consolidated for
such period, minus, in each case to the extent added in determining such
Consolidated Net Income for such period, (x) any amounts in respect of the
minority interest of any other Person in the Company and its Subsidiaries
for such period, (y) the amount of all dividends paid during such period by
Persons which are not Wholly-Owned Subsidiaries of the Company, but which
the Company reports on a consolidated basis in accordance with GAAP, and
(z) equity gains from any other Person which is partially-owned by the
Company but which is not a Wholly-Owned Subsidiary of the Company and which
is not Consolidated for such period.
"Consolidated Interest Expense" means, for any period, for the Company
and its Consolidated Subsidiaries, the sum, determined on a consolidated
basis in accordance with GAAP and without duplication, of the aggregate
amount of interest accruing during such period by the Company and its
Consolidated Subsidiaries, including the interest portion of payments under
Capital Lease Obligations and any capitalized interest and amortization of
debt discount and expense, but excluding interest paid in kind and
amortization or write-off of debt issuance costs in connection with the
termination of the Existing Credit Agreement, provided that (a)
Consolidated Interest Expense for the period of four consecutive fiscal
quarters ending June 30, 1998 shall be equal to the product of Consolidated
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Interest Expense for the fiscal quarter ending June 30, 1998 multiplied by
four, (b) Consolidated Interest Expense for the period of four consecutive
fiscal quarters ending September 30, 1998 shall be equa to the product of
Consolidated Interest Expense for the two consecutive fiscal quarters
ending September 30, 1998 multiplied by two, (c) Consolidated Interest
Expense for the period of four consecutive fiscal quarters ending December
31, 1998 shall be equal to the product of Consolidated Interest Expense for
the three consecutive fiscal quarters ending December 31, 1998 multiplied
by a fraction, the numerator of which is four and the denominator of which
is three.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries determined on a consolidated
basis in accordance with GAAP for such period.
"Consolidated Subsidiary" means, at any date, any Subsidiary of the
Company the accounts of which are consolidated with those of the Company in
its consolidated financial statements prepared in accordance with GAAP.
"Continue", "Continuation" and "Continued" each refers to a
continuation of Advances of one Type as Advances of the same Type pursuant
to Section 2.09(b).
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Convert", "Conversion" and "Converted" each refers to a conversion of
Advances of one Type into Advances of the other Type pursuant to Section
2.09(a), (c) or (d).
"CSI" means Citicorp Securities, Inc.
"Currency" means Dollars or any Foreign Currency.
"Debt" of any Person means, without duplication, (a) indebtedness of
such Person for borrowed money, (b) obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments (other than any
subordinated payment obligations existing on the Closing Date in respect of
the repurchase, retirement or redemption of capital stock of the Company
from former Management Investors), (c) obligations of such Person to pay
the deferred purchase price of Property or services, (d Capital Lease
Obligations of such Person, (e) Debt of others Guaranteed by such Person,
(f) Debt of others secured by a Lien on the Property of such Person, (g)
all obligations of such Person to redeem, retire, defease or otherwise make
any payment in respect of shares of capital stock of such Person (other
than any subordinated payment obligations existing on the Closing Date in
respect of the repurchase, retirement or redemption of capital stock of the
Company from former Management Investors), and (h) all obligations,
contingent or otherwise, of such Person in respect of letters of credit or
acceptances (excluding, however, trade accounts payable arising in the
ordinary course of business and deferred
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rent and deferred employee compensation incurred in the ordinary course of
business, and, in each case, not overdue).
"Debt to EBITDA Ratio" means, on any date, the ratio of (i)
Consolidated Debt on such date to (ii) Consolidated EBITDA for the period
of four consecutive fiscal quarters of the Company ending on or most
recently ended prior to such date.
"Default" means an Event of Default or an event that, with notice or
lapse of time or both, would become an Event of Default.
"Divestiture" shall mean any transaction, or any series of related
transactions, consummated after the date of this Agreement, by which the
Company and/or any of its Subsidiaries sells, transfers or otherwise
disposes of (a) any going business or all or substantially all of the
Property of any of its Subsidiaries, whether through the purchase of
assets, merger or otherwise or (b) at least a majority of Voting Shares of
any of its Subsidiaries.
"Dollar Equivalent" means, with respect to any Advance denominated in
any Foreign Currency, the amount of Dollars that would be required to
purchase the amount of the Foreign Currency of such Advance on the date
such Advance is requested (or (a) in the case of any determination made
under Section 2.01(a)(iii) hereof, on the date of any Borrowing referred to
therein, and (b) in the case of any determination made under Section
2.10(c) or redenomination under the last sentence of Section 2.13(e), on
the date of determination or redenomination therein referred to), based
upon the spot selling rate at which Citibank offers to sell such Foreign
Currency for Dollars in the London foreign exchange market at approximately
11:00 a.m. London time for delivery two Business Days later.
"Dollars" and "$" means lawful money of the United States of America.
"Domestic Lending Office" means, with respect to any Bank, the office
of such Bank (or of an Affiliate of such Bank) specified as its "Domestic
Lending Office" below its signature hereto or in the Assignment and
Acceptance pursuant to which it became a Bank, or such other office of such
Bank (or of an Affiliate of such Bank) as such Bank may from time to time
specify to the Borrower and the Administrative Agent.
"Domestic Operating Subsidiary" means any Operating Subsidiary
organized under the laws of any jurisdiction within the United States.
"Environmental Laws" means any and all present and future United
States Federal, state, local and foreign laws, rules or regulations, and
any orders or decrees, in each case as now or hereafter in effect, relating
to the regulation or protection of human health, safety or the environment
or to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or toxic or hazardous substances or
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wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land
or subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or
wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Credit Agreement" means the Credit and Guarantee Agreement,
dated as of December 12, 1996, among Young & Rubicam Holdings Inc., the
Company, Young & Rubicam Inc., a New York corporation, Young & Rubicam
L.P., the Subsidiary Borrowers party thereto, the Lenders party thereto,
Bank of America National Trust and Savings Association, as Administrative
Agent, and Bank of America International Limited, as European Paying Agent.
"Facility Fee" has the meaning specified in Section 2.03(a).
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
"Foreign Borrower" means each Borrower that is a Foreign Operating
Subsidiary.
"Foreign Currency" means, at any time, any currency other than
Dollars.
"Foreign Currency Equivalent" means, with respect to any amount in
Dollars, the amount of any Foreign Currency that could be purchased with
such amount of Dollars using the reciprocal of the foreign exchange rate(s)
specified in the definition of the term "Dollar Equivalent", as determined
by the Administrative Agent.
"Foreign Operating Subsidiary" means any Operating Subsidiary of the
Company organized under the laws of any jurisdiction outside the United
States of America.
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"GAAP" has the meaning specified in Section 1.03.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of
another Person, including without limitation, any obligation of such Person
(a) to purchase or pay (or supply or advance funds for the purchase or
payment of) such Debt (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise), or (b) entered into for the purpose of assuring
in any other manner the holder of such Debt of the payment thereof in whole
or in part; provided, that the term "Guarantee" shall not include any
endorsement of an instrument for deposit or collection in the ordinary
course of business. The term "Guarantee" used as verb has a corresponding
meaning.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement
or other interest or currency exchange rate or commodity price hedging
arrangement.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person in respect of Hedging Agreements. The "principal
amount" of the obligations of any Person in respect of any Hedging
Agreement at any time shall be the maximum aggregate amount (giving effect
to any netting arrangements) that such Person would be required to pay if
such Hedging Agreement were terminated at such time.
"HFCP Investors" means, collectively, Hellman & Friedman Capital
Partners III, L.P., a California limited partnership, H&F Orchard Partners
III, L.P. , a California limited partnership, and H&F International
Partners III, L.P. , a California limited partnership.
"Hostile Acquisition" means an Acquisition that has not been approved
by the board of directors of the target company prior to the commencement
of a tender offer or proxy contest in respect thereof.
"Inactive Subsidiary" means any Subsidiary of the Company which (and
only for so long as such Subsidiary) (a) is not a Borrower, (b) is not then
actually engaged in any business, (c) does not have liabilities or
obligations, and is not a party to any litigation or other proceeding
involving amounts, in excess of $1,000,000 in the aggregate, (d) does not
own Property with an aggregate book value in excess of $1,000,000, (e) does
not own any capital stock of any Person (other than another Inactive
Subsidiary) and (f) does not
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incur any liabilities or obligations other than in connection with its
continued inactive existence or the liquidation or dissolution thereof.
"Insolvent" means, with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA. "Insolvency" has a correlative meaning.
"Interest Coverage Ratio" means, on any date, the ratio of (a)
Consolidated EBITDA for the period of four consecutive fiscal quarters most
recently ended on or prior to such date to (b) Consolidated Interest
Expense for such period.
"Interest Period" means, with respect to any LIBO Rate Advance, the
period beginning on the date such LIBO Rate Advance is made, or Converted
from a Base Rate Advance or Continued as a LIBO Rate Advance, and ending on
the last day of the period selected by the Company pursuant to the
provisions below. The duration of each Interest Period in respect of any
LIBO Rate Advance shall be 1, 2, 3 or 6 months, as the Company may, upon
notice received by the Administrative Agent not later than 12:00 noon (New
York City time) on the third Business Day prior to the first day of such
Interest Period, select; provided, however, that:
(a) the Company may not select any Interest Period in respect of
any LIBO Rate Advance that ends after the Commitment Termination Date;
(b) each Interest Period that begins on the last Business Day of
a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall
end on the last Business Day of the appropriate subsequent calendar
month; and
(c) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day, provided, that, if such extension would cause the last
day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next
preceding Business Day.
"Investment" has the meaning specified in Section 5.02(d).
"Joint Venture" means any corporation, partnership, association,
business trust or other entity or organization which is not a Subsidiary of
a Borrower and in which the Company or a Subsidiary has a significant
ownership interest.
"LIBO Lending Office" means, with respect to any Bank, the office of
such Bank (or of an Affiliate of such Bank) specified as its "LIBO Lending
Office" below its signature hereto or in the Assignment and Acceptance
pursuant to which it became a Bank (or, if no such office is specified, its
Domestic Lending Office), or such other office
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of such Bank (or of an Affiliate of such Bank) as such Bank may from time
to time specify to the Borrower and the Administrative Agent.
"LIBO Rate" means, with respect to each day during the relevant
Interest Period, the rate per annum equal to the average (rounded upward to
the nearest whole multiple of 1/16 of 1% per annum, if such average is not
such a multiple) of the rates per annum at which deposits in Dollars or the
relevant Approved Foreign Currency are offered by the principal office of
each of the Reference Banks in London, England to prime banks in the London
(or, in the case of English Pounds Sterling, Paris) interbank market at
11:00 A.M. (London time) two Business Days before the first day of such
Interest Period for a period comparable to such Interest Period and in an
amount approximately equal to such Reference Banks' collective pro rata
share of the requested Advance. The LIBO Rate for any Interest Period for
each LIBO Rate Advance comprising part of each Borrowing shall be
determined by the Administrative Agent on the basis of applicable rates
furnished to and received by the Administrative Agent from the Reference
Banks two Business Days before the first day of such Interest Period,
subject, however, to the provisions of Section 2.08.
"LIBO Rate Advance" means an Advance which bears interest as provided
in Section 2.06(a)(ii) or 2.06(b)(i)(y).
"LIBO Rate Reserve Percentage" of any Bank for any Interest Period for
any LIBO Rate Advance means the effective rate (expressed as a percentage)
at which reserve requirements (including, without limitation, emergency,
supplemental and other marginal reserve requirements) are imposed on such
Bank during such Interest Period (or if more than one such percentage shall
be so applicable, the daily average of such percentages for those days in
such Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities
having a term equal to such Interest Period.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind on or with respect to Property, including, without
limitation, the retained security title of a conditional vendor, any
easement, right of way or other encumbrance on title to real Property and
any sale of accounts or general intangibles for money due or to become due.
"Local Time" shall mean, with respect to any Advance denominated in or
any payment to be made in any Currency, the local time in the Principal
Financial Center for the Currency in which such Advance is denominated or
such payment is to be made.
"Majority Banks" means at any time Banks holding more than 50% of the
Commitments or, if the Commitments have expired or been terminated, Banks
holding
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more than 50% of the then aggregate unpaid principal amount of the Advances
held by Banks (for which purpose Advances held by any Affiliate of a Bank
shall be deemed to be held by such Bank).
"Management Investor" means any holder of Voting Shares or of a right
to acquire Voting Shares who is a current or former employee of the
Company.
"Management Voting Trust" means the voting trust established pursuant
to the Management Voting Trust Agreement, dated as of December 12, 1996.
"Material Adverse Effect" means a material adverse effect on (a) the
business, condition (financial or otherwise) or prospects of the Company
and its Subsidiaries, taken as a whole, or (b) the legality, validity or
enforceability of this Agreement or any Note, or (c) the ability of any
Borrower to perform its obligations under this Agreement or any Note.
"Material Foreign Operating Subsidiary" means any Foreign Operating
Subsidiary of the Company (a) which has liabilities or obligations, or is a
party to any litigation or other proceeding involving amounts, in excess of
$5,000,000 in the aggregate, provided that no Foreign Operating Subsidiary
shall be a Material Foreign Operating Subsidiary under this clause (a)
unless a Borrower or any Domestic Operating Subsidiary or other Material
Foreign Operating Subsidiary is or may be liable for such liabilities,
obligations, litigations or proceedings, or (b) which owns assets (net of
current liabilities (other than those owed to the Company or any of its
Subsidiaries) immediately prior to the occurrence of the relevant event
described in Section 6.01(g) with respect to such Foreign Operating
Subsidiary) with an aggregate book value in excess of $5,000,000.
"Material Lease" means any lease, sublease, license or other occupancy
agreement (a) which involves an obligation with respect to 50,000 or more
square feet in area of real Property and (b) to which any Borrower or any
of its Subsidiaries is a party or pursuant to which such Borrower or any
such Subsidiary uses or occupies real Property.
"Materials of Environmental Concern" means any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Amount" means, with respect to any Investment, the cost to the
Company and its Subsidiaries of such Investment (determined in accordance
with GAAP, but without regard to any increase or decrease in the value of
such Investment, whether
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resulting from profits and losses or from changes in currency exchange
rates or otherwise, or the existence of any undistributed profits or losses
with respect thereto), less any net return of capital realized upon the
sale, repayment or other liquidation of such Investment (determined in
accordance with GAAP, but without regard to any amounts realized as
earnings on such Investment).
"New York Real Property" means the real Property owned by the Company
located at 285 Madison Avenue, New York City.
"Note" means a promissory note of any Borrower payable to the order of
any Bank, in substantially the form of Exhibit A hereto, evidencing the
aggregate indebtedness of such Borrower to such Bank resulting from the
Revolving Credit Advances made by such Bank.
"Notice of Borrowing" means a Notice of Revolving Credit Borrowing or
a Notice of Swing Line Borrowing.
"Notice of Revolving Credit Borrowing" has the meaning specified in
Section 2.01(d)(i).
"Notice of Swing Line Borrowing" has the meaning specified in Section
2.02(d).
"Operating Subsidiary" means any Subsidiary other than an Inactive
Subsidiary.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a Government
Authority.
"Plan" means, at any time, any employee benefit plan which is covered
by ERISA and in respect of which the Company or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section
3(5) of ERISA.
"Pricing Level Change" means a change in the Debt to EBITDA Ratio that
results in the change from one Pricing Level Period to another, each
Pricing Level Change to be effective on the date of delivery by the
Borrower pursuant to Section 5.01(a)(i) and (ii) of the financial
statements that demonstrate such change; provided, that if the Borrowers
shall fail to deliver when due such financial statements, the Pricing Level
3 Period shall be deemed to apply from the date on which such financial
statements were due until they are delivered in accordance with said
Section 5.01(a)(i) or (ii).
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"Pricing Level Period" means a Pricing Level 1 Period, a Pricing Level
2 Period or a Pricing Level 3 Period.
"Pricing Level 1 Period" means a period during which the Debt to
EBITDA Ratio is less than 1.0 to 1.0.
"Pricing Level 2 Period" means a period that is not a Pricing Level 1
Period during which the Debt to EBITDA Ratio is less than 2.5 to 1.0.
"Pricing Level 3 Period" means a period during which the Debt to
EBITDA Ratio is greater than or equal to 2.5 to 1.0.
"Principal Financial Center" shall mean, in the case of any Currency,
the principal financial center of the country of issue of such Currency, as
determined by the Administrative Agent.
"Property" means, with respect to any Person, any property, assets or
revenues of such Person or any interest of such Person therein.
"Quarterly Date" means the last Business Day of each March, June,
September and December.
"Reference Banks" means the principal London office of each of
Citibank, Bank of America National Trust and Savings Association and The
Bank of New York.
"Register" has the meaning specified in Section 8.07(d).
"Related Equity Securities" means, all options, warrants or other
rights to acquire, or obligations to issue, shares of capital stock of,
equity interests in, or partnership interests in, the Company or any of its
Subsidiaries, or similar securities or contractual obligations the value of
which is derived from the value of an equity interest in the Company or any
of its Subsidiaries, or securities convertible into or exchangeable for
capital stock of, equity interests in, partnership interests in, or similar
securities or contractual obligations of, the Company or any of its
Subsidiaries.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty-day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC
Reg. ss. 2615.
"Reorganization" means, with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other
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Governmental Authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its
Property is subject.
"Responsible Officer" means, as to any Person, the chief executive
officer, the president, any member of the management committee of such
Person or any other officer of such Person designated as such in writing by
any of the foregoing officers of such Person or, with respect to financial
matters, the chief financial officer, the chief accounting officer or the
treasurer of such Person.
"Revolving Credit Advance" means an advance by a Bank to a Borrower as
part of a Revolving Credit Borrowing.
"Revolving Credit Borrowing" means (a) a borrowing consisting of
simultaneous Revolving Credit Advances of the same Currency and Type having
the same Interest Period and (b) other than for purposes of Section 3.02,
(i) the simultaneous Conversion of Revolving Credit Advances of one Type to
Revolving Credit Advances of the other Type in the same Currency (having,
in the case of Conversions into LIBO Rate Advances, the same Interest
Period) and (ii) the simultaneous Continuation of Revolving Credit Advances
of one Type as Revolving Credit Advances of the same Type in the same
Currency and having the same Interest Period.
"Single Employer Plan" means any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Specified Eurocurrency" means any of English Pounds Sterling, German
Deutschemarks, French Francs, Swiss Francs or Japanese Yen.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company or other entity of which at least a
majority of the Voting Shares of such corporation, partnership, limited
liability company or other entity is at the time directly or indirectly
owned or controlled by such Person or one or more Subsidiaries of such
Person or by such Person and one or more Subsidiaries of such Person.
Unless the context otherwise indicates, a reference to a Subsidiary, shall
mean a Subsidiary of the Company.
"Swing Line Advance" means an advance made by (a) the Swing Line Bank
pursuant to Section 2.02 or (b) any other Bank pursuant to Section 2.02(g).
"Swing Line Bank" means Citibank.
"Swing Line Borrowing" means a borrowing consisting of a Swing Line
Advance made by the Swing Line Bank.
"Swing Line Facility" means an aggregate amount not to exceed
$20,000,000 at any time outstanding.
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"Swing Line Reduction" has the meaning specified in Section
2.01(a)(i).
"Termination Date" means the earlier of the Commitment Termination
Date and the date of termination in whole of the Commitments pursuant to
Section 2.04(b) or 6.01.
"Voting Shares" means, at any time, as to any Person, the outstanding
securities of such Person the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person.
"Wholly-Owned Subsidiary" means, with respect to any Person, any
Subsidiary of such Person 100% of the Voting Shares (except qualifying
shares held by directors or others in order to comply with local law) of
which are owned by such Person and/or one or more other Wholly-Owned
Subsidiaries of such Person.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted United
States accounting principles ("GAAP"), applied on a basis consistent (except for
changes concurred in by the Borrower's independent public accountants) with the
most recent audited consolidated financial statements of the Company and its
Consolidated Subsidiaries delivered to the Banks; provided, that if, after the
date of this Agreement there are any changes to GAAP, the Company or the
Required Banks may request an amendment to any provision of this Agreement to
take account of such changes, and, until such provision is so amended or such
request withdrawn, all determinations of such provision shall be made on the
basis of GAAP applied on a basis consistent with the audited financial
statements of the Company and its Consolidated Subsidiaries most recently
delivered prior to the time such changes to GAAP became effective.
SECTION 1.04. Currencies and Types of Advances. Advances are distinguished
by "Currency" and by "Type". The "Currency" of an Advance refers to the Currency
in which it is at the time denominated. The "Type" of an Advance refers to
whether it is at the time a Base Rate Advance or a LIBO Rate Advance.
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ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Revolving Credit Advances.
(a)(i) Each Bank severally agrees, on the terms and conditions
hereinafter set forth, to make Revolving Credit Advances to any Borrower in
Dollars or (in the case of LIBO Rate Advances only) in an Approved Foreign
Currency from time to time on any Business Day during the period from the
date hereof until the Termination Date in an aggregate amount not to exceed
at any time outstanding the amount set opposite such Bank's name on the
signature pages hereof or, if such Bank has entered int any Assignment and
Acceptance, set forth for such Bank in the Register, as such amount may be
increased or reduced pursuant to Section 2.04 (such Bank's "Commitment");
provided that the aggregate amount of the Commitments of the Banks shall be
deemed used from time to time to the extent of the aggregate amount of
Swing Line Advances then outstanding, such deemed use of the aggregate
amount of the Commitments to be deemed applied to the Banks ratably
according to their respective Commitments (such deemed use of the aggregate
amount of the Commitments being a "Swing Line Reduction").
(ii) Subject to the terms and conditions of this Agreement, each
Foreign Borrower agrees that the Commitment of each Bank that has an
Affiliate in the country or countries (including any political subdivision
or taxing authority thereof or therein) under whose laws such Foreign
Borrower is organized or where such Borrower is domiciled, resident or
licensed or otherwise qualified to do business or where any significant
part of the Property of such Foreign Borrower is located may be satisfied
to the extent of Revolving Credit Advances made to such Foreign Borrower by
such Affiliate at its sole discretion; provided that the outstanding
principal amount of such Revolving Credit Advances made by an Affiliate of
any Bank shall constitute a utilization of the Commitment of such Bank for
all purposes of this Agreement.
(iii) If after giving effect to any LIBO Rate Advances under this
Section 2.01(a) more than six separate Interest Periods in respect of LIBO
Rate Advances denominated in a single Currency, or more than twelve
separate Interest Periods in respect of all LIBO Rate Advances, would be
outstanding at the same time, then such Advances shall not be required to
be made as LIBO Rate Advances.
(iv) For purposes of determining (i) whether the amount of any
Borrowing, together with all other Advances then outstanding, would exceed
the aggregate amount of the Commitments, (ii) for purposes of Section
2.04(b), the aggregate unutilized amount of the Commitments and (iii) for
purposes of Sections 2.09, 2.10(b) and 2.10(c), the aggregate outstanding
principal amount of the Advances, the outstanding principal
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amount of any Advance that is denominated in a Foreign Currency shall
be deemed to be the Dollar Equivalent of the Foreign Currency amount
of such Advance.
(b) Each Revolving Credit Borrowing (i) shall (except as otherwise provided
in Sections 2.09(c) and (d)) be in an aggregate amount not less than (x) in the
case of a Revolving Credit Borrowing comprised of Advances denominated in
Dollars, $10,000,000 or an integral multiple of $1,000,000 in excess thereof and
(y) in the case of a Revolving Credit Borrowing comprised of Advances
denominated in any Approved Foreign Currency, the Foreign Currency Equivalent of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof (rounded
downwards to the nearest 1,000 units of such Approved Foreign Currency) and (ii)
shall consist of Revolving Credit Advances of the same Type (and, if such
Revolving Credit Advances are LIBO Rate Advances, having the same Interest
Period), denominated in the same Currency and made, Converted or Continued on
the same day by the Banks ratably according to their respective Commitments.
Subject to the terms and conditions of this Agreement, the Borrowers may from
time to time borrow under this Section 2.01, prepay pursuant to Section 2.10(b)
and reborrow the amount of the Commitments; provided, that no such reborrowing
shall be permitted hereunder at any time if, after giving effect thereto, the
aggregate outstanding principal amount of Advances would exceed the aggregate
amount of the Commitments at such time (for which purpose the Advances made by
an Affiliate of any Bank pursuant to Section 2.01(a)(ii) shall be deemed to be
Advances made by such Bank).
(c) The Revolving Credit Advances of each Bank made to any Borrower under
this Section 2.01 shall be evidenced by a single promissory note of such
Borrower in the amount of such Bank's Commitment in substantially the form of
Exhibit A.
(d) (i) The Company shall give the Administrative Agent notice of each
Revolving Credit Borrowing not later (x) than 12:00 noon (New York City
time) on the third Business Day (or, if such Revolving Credit Borrowing is
to be denominated in an Alternate Currency, 12:00 noon (London time) on the
third Business Day) prior to the date of such Revolving Credit Borrowing in
the case of a Revolving Credit Borrowing consisting of LIBO Rate Advances,
or (y) than 11:00 A.M. (New York City time) o the Business Day of the
proposed Revolving Credit Borrowing in the case of a Revolving Credit
Borrowing consisting of Base Rate Advances, and the Administrative Agent
shall give to each Bank prompt notice thereof by telecopier, telex or
cable. Each such notice of a Revolving Credit Borrowing (a "Notice of
Revolving Credit Borrowing") shall be by telecopier, telex or cable, in
substantially the form of Exhibit B-1, specifying therein (i) the requested
date of such Revolving Credit Borrowing, (ii) the requested Currency and
Type of Revolving Credit Advances comprising such Revolving Credit
Borrowing, (iii) the requested aggregate amount of such Revolving Credit
Borrowing, (iv) in the case of a Revolving Credit Borrowing consisting of
LIBO Rate Advances, the requested initial Interest Period for each such
Advance, and (v) the name of the applicable Borrower.
(ii) Each Bank shall, before 1:00 P.M. Local Time on the date of such
Revolving Credit Borrowing, make available for the account of its
Applicable Lending Office to the
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Administrative Agent at the Administrative Agent's Account for the Currency
of such Revolving Credit Advances, in same day funds, such Bank's ratable
portion of such Revolving Credit Borrowing. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Article III, the Administrative Agent will make
such funds available to the applicable Borrower at such account as such
Borrower and the Administrative Agent may agree.
(e) Each Notice of Revolving Credit Borrowing shall be irrevocable and
binding on the Company and the applicable Borrower. In the case of any Revolving
Credit Borrowing which the related Notice of Revolving Credit Borrowing
specifies is to be comprised of LIBO Rate Advances, the Company shall indemnify
each Bank against any loss, cost or expense incurred by such Bank as a result of
any failure to fulfill, on or before the date specified in such Notice of
Revolving Credit Borrowing, the applicable conditions set forth in Article III,
including, without limitation, any loss (excluding loss of anticipated profits),
cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Bank to fund the Revolving Credit
Advance to be made by such Bank as part of such Revolving Credit Borrowing. The
Company shall not be liable under this clause for the payment of any amounts
incurred or accrued more than 180 days prior to the date on which notice of the
event or circumstance giving rise to the obligation to make such payment is
given to the Company hereunder, except to the extent such amounts were incurred
or accrued prior to such date due solely to the retroactive nature of the
relevant requirement. The Company shall pay amounts owing to any Bank pursuant
to this Section 2.01(e) within 30 days after receipt from such Bank of a
certificate setting forth in reasonable detail the calculation of the amount
such Bank is entitled to claim under this Section 2.01(e) (which certificate
shall be conclusive and binding on the Company, absent manifest error). If the
Company objects in good faith to any payment demanded under this clause on or
before the date such payment is due, then the Company and the Bank demanding
such payment shall enter into discussions to review the amount due, and the
Company's obligation to pay such amount to such Bank shall be deferred for 45
days after the original demand for payment, and if the Company and such Bank do
not reach agreement during such 45-day period on the amount due, the Company
shall pay to such Bank at the end of such 45-day period the amount certified by
such Bank to be due.
(f) Unless the Administrative Agent shall have received notice from a Bank
prior to the date of any Revolving Credit Borrowing that such Bank will not make
available to the Administrative Agent such Bank's ratable portion of such
Revolving Credit Borrowing, the Administrative Agent may assume that such Bank
has made such portion available to the Administrative Agent on the date of such
Revolving Credit Borrowing in accordance with Section 2.01(d) and the
Administrative Agent may, in reliance upon such assumption, make available to
the applicable Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such ratable portion available to
the Administrative Agent, such Bank and such Borrower severally agree to repay
to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to such Borrower until the date such amount is repaid to the
Administrative Agent, at (i) in the case of such Borrower, the interest rate
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applicable at the time to the Revolving Credit Advances and (ii) in the case of
such Bank, the Federal Funds Rate. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Advance as part of such Revolving Credit Borrowing for
purposes of this Agreement (and such Advance shall be deemed to have been made
by such Bank on the date on which such amount is so repaid to the Administrative
Agent).
(g) The failure of any Bank to make the Revolving Credit Advance to be made
by it as part of any Revolving Credit Borrowing shall not relieve any other Bank
of its obligation, if any, hereunder to make its Revolving Credit Advance on the
date of such Revolving Credit Borrowing, but no Bank shall be responsible for
the failure of any other Bank to make the Revolving Credit Advance to be made by
such other Bank on the date of any Revolving Credit Borrowing.
(h) The Revolving Credit Advances of each Currency and Type made by each
Bank shall be made and maintained at such Bank's Applicable Lending Office for
Revolving Credit Advances of such Currency and Type.
SECTION 2.02. Swing Line Advances.
(a) The Company may request the Swing Line Bank to make, and the Swing Line
Bank may from time to time, in its sole discretion, make, on the terms and
conditions herein set forth, Swing Line Advances to the Company in Dollars on
any Business Day during the period from the date hereof until the earlier of (i)
the Termination Date and (ii) 30 days before the Commitment Termination Date in
an aggregate amount not to exceed at any time outstanding the lesser of (i) the
Swing Line Facility and (ii) the unused amount of the Commitments on such
Business Day.
(b) Each Swing Line Borrowing shall be in a principal amount not less than
$1,000,000.
(c) Subject to the terms and conditions of this Agreement, the Company may
borrow under this Section 2.02, prepay pursuant to Section 2.10(a) and reborrow
hereunder; provided, that no such reborrowing shall be permitted hereunder at
any time if, after giving effect thereto, (i) the aggregate outstanding
principal amount of Advances would exceed the aggregate amount of the
Commitments at such time or (ii) the aggregate outstanding principal amount of
Swing Line Advances would exceed the amount of the Swing Line Facility at such
time.
(d) The Company may request a Swing Line Borrowing from the Swing Line Bank
under this Section 2.02 by delivering to the Administrative Agent and the Swing
Line Bank, no later than 12:00 noon (New York City time) on the date of the
proposed Swing Line Borrowing, a notice of a Swing Line Borrowing (a "Notice of
Swing Line Borrowing"), which shall be made by telecopier, telex or cable, in
substantially the form of Exhibit B-2, specifying therein (i) the requested date
of such Swing Line Borrowing (which shall be a Business Day), (ii)
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the requested amount of such Swing Line Borrowing, (iii) the requested maturity
of such Swing Line Borrowing (which maturity shall be no later than the seventh
day after the requested date of such Swing Line Borrowing) and (iv) the account
of the Company to which the proceeds of such Swing Line Borrowing are to be made
available.
(e) The Swing Line Bank shall, no later than 2:00 P.M. (New York City time)
on the requested date of such Swing Line Borrowing notify the Administrative
Agent and the Company of its decision whether or not to make the requested Swing
Line Advance; provided that any failure by the Swing Line Bank to give such
notice shall not cause the Swing Line Bank to be obligated to make such Swing
Line Advance.
(f) If the Swing Line Bank, in its sole discretion, elects to make such
Swing Line Advance, it will (subject to the applicable conditions set forth in
Article III) make the amount of such Swing Line Advance available to the Company
at the account specified in the relevant Notice of Swing Line Borrowing.
(g) Upon demand by the Swing Line Bank through the Administrative Agent,
each other Bank shall purchase from the Swing Line Bank, and the Swing Line Bank
shall sell and assign to each other Bank, such other Bank's pro rata share
(based upon such Bank's respective amount of the Commitments at such time or, if
the Commitments have terminated, such Bank's respective amount of the Advances
at such time) of the amount of each outstanding Swing Line Advance (and related
claims for accrued and unpaid interest thereon in respect of the period from and
after the effective date of such assignment) made by the Swing Line Bank, by
making available for the account of its Applicable Lending Office to the
Administrative Agent for the account of the Swing Line Bank by deposit to the
Administrative Agent's Account, in same day funds, an amount equal to the
portion of the outstanding principal amount of such Swing Line Advances to be
purchased by such Bank. Each Bank's obligations to make such payments t the
Administrative Agent for the account of the Swing Line Bank under this paragraph
(g), and the Swing Line Bank's right to receive the same, shall be absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including, without limitation, the failure of any other Bank to make its payment
under this paragraph (g), the financial condition of the Company or any other
Borrower, the existence of any Default, the failure of any of the conditions set
forth in Article III to be satisfied, or the termination of the Commitments.
Each such payment to the Swing Line Bank shall be made without any offset,
abatement, withholding or reduction whatsoever. Each Bank agrees to purchase its
pro rata share of such outstanding Swing Line Advances on (i) the Business Day
on which demand therefor is made by the Swing Line Bank, provided that notice of
such demand is given not later than 11:00 A.M. (New York City time) on such
Business Day or (ii) the first Business Day next succeeding such demand if
notice of such demand is given after such time. Upon any such assignment by the
Swing Line Bank to any other Bank of a portion of the Swing Line Advances, the
Swing Line Bank represents and warrants to such other Bank that the Swing Line
Bank is the legal and beneficial owner of such interest being assigned by it,
but makes no other representation or warranty and assumes no responsibility with
respect to such Swing Line Advance. If and to the extent that any Bank shall not
have so made the amount of such Swing Line Advance available
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to the Administrative Agent, such Bank agrees to pay to the Administrative Agent
for the account of the Swing Line Bank forthwith on demand such amount together
with interest thereon, for each day from the date of demand by the Swing Line
Bank until the date such amount is paid to the Administrative Agent, at the
Federal Funds Rate. If such Bank shall pay to the Administrative Agent such
amount for the account of the Swing Line Bank, such amount so paid in respect of
principal shall constitute a Swing Line Advance by such Bank for purposes of
this Agreement, and the outstanding principal amount of the Swing Line Advances
made by the Swing Line Bank shall be reduced by such amount.
SECTION 2.03. Fees.
(a) Facility Fee. The Company and each Borrower that is not a Foreign
Borrower jointly and severally agree to pay to the Administrative Agent for the
account of each Bank a facility fee (the "Facility Fee") on the daily average
amount (both used and unused) of such Bank's Commitment from the date (in the
case of each Bank that is a signatory hereto) on which the Borrowers sign this
Agreement and from the effective date specified in the Assignment and Acceptance
(in the case of each Ban that becomes a party hereto pursuant to Section 2.04(a)
or 8.07) pursuant to which it became a Bank, until the Termination Date, at a
rate per annum equal to the Applicable Facility Fee Rate as in effect from time
to time. Any accrued Facility Fees shall be paid on each Quarterly Date and on
the Termination Date.
(b) Administrative Agent's Fee. The Company agrees to pay to the
Administrative Agent, for the Administrative Agent's own account, an annual
administrative agency fee at the times and in the amounts heretofore agreed
between the Company and the Administrative Agent.
(c) Arrangement Fee. The Company agrees to pay (i) to CSI for CSI's own
account, an arrangement fee on the Closing Date in the amount heretofore agreed
between the Company and CSI and (ii) to BARS for BARS's own account, an
arrangement fee on the Closing Date in the amount heretofore agreed between the
Company and BARS.
(d) Upfront Fee. The Company agrees to pay to the Administrative Agent for
the account of each Bank an upfront fee on the Closing Date in the amount
heretofore agreed between the Company, the Administrative Agent and CSI.
SECTION 2.04. Changes in Commitments.
(a) Commitment Increases. The Company shall have the right, no more than
once in any calendar year, to increase the aggregate amount of the Commitments
hereunder on and subject to the following terms and conditions:
(i) The Company may, by notice to the Administrative Agent (which
shall promptly notify the Banks), request that the Banks increase ratably
their respective
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Commitments by an aggregate amount up to but not exceeding $100,000,000,
specifying the amount of the proposed increase and the proposed effective
date thereof.
(ii) The Company may offer the increase to (x) then existing Banks,
and each such existing Bank shall have the right (but no obligation) to
commit to all or a specified portion of the proposed increase, or (y) other
financial institutions (each an "Additional Bank") that are not Banks and
that are reasonably acceptable to the Administrative Agent; provided, that
the commitment of any such other financial institution shall be at least
$10,000,000.
(iii) Each Bank, acting in its sole discretion, shall, by notice to
the Company and the Administrative Agent given no later than the date (the
"Increase Consent Date") that is 15 days after the date of such increase
request (or, if such date is not a Business Day, the next succeeding
Business Day), advise the Company and the Administrative Agent whether or
not such Bank agrees to such increase; provided, that each Bank that
determines not to increase its Commitment (a "Non-Increasing Bank") shall
notify the Administrative Agent (which shall notify the Banks) of such fact
promptly after such determination (but in any event no later than the
Increase Consent Date) and any Bank that does not advise the Company on or
before the Increase Consent Date shall be deemed to be a Non-Increasing
Bank. The election of any Bank to agree to such increase shall not obligate
any other Bank to so agree.
(iv) The Administrative Agent shall notify each Bank of such increase,
confirming the effective date thereof (the "Increased Commitment Date") and
the aggregate amount thereof and the amount of the increase (if any) in
each Bank's Commitment; and on such effective date, each Bank's Commitment
shall automatically, without any other action by any Person, be increased
by the additional amount agreed to by such Bank; provided that, in the
event that the amount by which the Banks have agreed to increase their
Commitments exceeds the amount of the requested increase of the Commitments
offered to the Banks, such increase in the Commitments shall be allocated
among such Banks pro rata in accordance with the respective amounts of by
which such Banks have agreed to increase their Commitments.
(v) Each Additional Bank shall, prior to the Increased Commitment
Date, execute and deliver an agreement in form and substance satisfactory
to the Borrower and the Administrative Agent pursuant to which it
undertakes a Commitment hereunder (and such Additional Bank shall thereupon
become a "Bank" for all purposes of this Agreement).
(vi) On the Increased Commitment Date, each Borrower that has borrowed
Revolving Credit Advances that remain outstanding on the Increased
Commitment Date shall borrow from, and each Bank that is increasing its
Commitment on the Increased Commitment Date and each Additional Bank shall
make Revolving Credit Advances to, such Borrower, and (notwithstanding the
provisions of Section 2.15 requiring that
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prepayments be made ratably in accordance with the principal amounts of the
Revolving Credit Advances held by the Banks) such Borrower shall have
prepaid Revolving Credit Advances made by the other Banks in such amounts
as shall be necessary, so that after giving effect to such borrowings and
prepayments, the Revolving Credit Advances shall be held by the Banks pro
rata in accordance with the respective amounts of their Commitments (as
increased hereby).
(vii) Notwithstanding the foregoing, any increase in the aggregate
Commitments hereunder pursuant to this Section 2.04(a) shall notbe
effective unless.
(x) the Company shall have given the Administrative Agent notice
of any such increase at least 20 Business Days prior to any such
Increased Commitment Date;
(y) no Default shall have occurred and be continuing as of the
date of the notice referred to in the foregoing clause (x) or on the
Increased Commitment Date; and
(z) the aggregate amount of increase in the aggregate Commitments
pursuant to this Section 2.04(a) may not exceed $100,000,000, and the
amount of any single increase in the aggregate Commitments pursuant to
this Section 2.04(a) shall be at least $25,000,000.
(b) Commitment Reductions. (i) The aggregate amount of the Commitments
shall automatically be reduced to zero on the Commitment Termination Date.
(ii) The Company shall have the right, upon at least three Business
Days' notice to the Administrative Agent, to terminate in whole or reduce
ratably in part the unutilized portions of the respective Commitments of
the Banks, provided, that the aggregate amount of the Commitments of the
Banks shall not be reduced to an amount which is less than the aggregate
principal amount of the Advances then outstanding (computed, in the case of
Advances denominated in a Foreign Currency, as the Dollar Equivalent
thereof), and provided, further, that each partial reduction shall be in an
aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in
excess thereof.
(c) Reductions Permanent. The Commitments once terminated or reduced
under this Section 2.04 may not be reinstated.
SECTION 2.05. Repayment of Advances.
(a) Advances. Each Borrower hereby promises to repay to the Administrative
Agent for the account of each Bank the principal amount of each Revolving Credit
Advance made by such Bank to such Borrower, and each Revolving Credit Advance
shall mature, on the Termination Date.
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(b) Swing Line Advances. The Company hereby promises to pay to the Swing
Line Bank (with notice to the Administrative Agent), and to the Administrative
Agent for the account of each other Bank that has made a Swing Line Advance, the
outstanding principal amount of each Swing Line Advance made by each of them,
and each such Swing Line Advance shall mature, on the earlier of the maturity
date specified in the applicable Notice of Swing Line Borrowing (which maturity
shall be no later than the seventh day after the requested date of such Swing
Line Borrowing) and the Termination Date.
SECTION 2.06. Interest.
(a) Ordinary Interest. Each Borrower shall pay interest on the unpaid
principal amount of each Advance made by each Bank to such Borrower, from the
date of such Advance until such principal amount shall be paid in full, at the
following rates per annum:
(i) Base Rate Advances. If such Advance is a Base Rate Advance, a rate
per annum equal to the sum of the Base Rate in effect from time to time
plus the Applicable Margin for Base Rate Advances as in effect from time to
time, payable quarterly in arrears on each Quarterly Date and on the date
such Base Rate Advance shall be Converted or paid in full.
(ii) LIBO Rate Advances. If such Advance is a LIBO Rate Advance, a
rate per annum for the Interest Period for such Advance, equal to the sum
of the LIBO Rate for such Interest Period plus the Applicable Margin for
LIBO Rate Advances as in effect from time to time, payable on the last day
of such Interest Period and, if such Interest Period has a duration of more
than three months, on the three-month anniversary of the first day of such
Interest Period, and on the date such LIBO Rate Advance shall be Converted
or paid in full.
(iii) Swing Line Advances. If such Advance is a Swing Line Advance, a
rate per annum equal to the sum of the Base Rate in effect from time to
time (or such other rate as may be agreed to in writing by the Company and
the Swing Line Bank prior to the making of such Swing Line Advance) plus
the Applicable Margin for Base Rate Advances in effect from time to time,
payable quarterly in arrears on each Quarterly Date, on the scheduled
maturity date of such Swing Line Advance and on the date such Swing Line
Advance shall be paid in full.
(b) Default Interest. Each Borrower shall pay interest on the unpaid
principal amount of each Advance made to such Borrower that is not paid when due
(whether at stated maturity, by acceleration or otherwise), and on the unpaid
amount of any interest, fee or other amount whatsoever payable hereunder that is
not paid when due, payable on demand, at a rate per annum during the period from
the due date thereof to the date on which such amount is paid in full equal to:
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(i) in the case of any amount of principal of such Advance:
(x) in the case of any Base Rate Advance or any Swing Line
Advance, 2% per annum plus the rate which would otherwise be
applicable to such Advance, and
(y) in the case of any LIBO Rate Advance, for the balance of the
then current Interest Period, 2% per annum plus the rate which would
otherwise be applicable to such Advance for such Interest Period and,
thereafter, 2% per annum plus the Base Rate as in effect from time to
time, and
(ii) in the case of all other amounts, 2% per annum plus the Base Rate
as in effect from time to time.
SECTION 2.07. Additional Interest on LIBO Rate Advances. Each Borrower
shall pay to each Bank, so long as such Bank shall be required under regulations
of the Board of Governors of the Federal Reserve System to maintain reserves
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or the equivalent), additional interest on the unpaid principal
amount of each LIBO Rate Advance of such Bank made to such Borrower, from the
date of such LIBO Rate Advance until such principal amount is paid in full, at
an interest rate per annum equal at all times to the remainder obtained by
subtracting (a) the LIBO Rate for the then current Interest Period for such LIBO
Rate Advance from (b) the rate obtained by dividing such LIBO Rate by a
percentage equal to 100% minus the LIBO Rate Reserve Percentage of such Bank for
such Interest Period, payable on each date on which interest is payable on such
LIBO Rate Advance. Any Bank wishing to require payment of such additional
interest on any LIBO Rate Advance shall so notify the Borrower of such LIBO Rate
Advance and the Administrative Agent and shall furnish to such Borrower a
certificate (which certificate shall be conclusive and binding on such Borrower,
absent manifest error) setting forth the basis for such assertion and the amount
to which such Bank is then entitled under this Section.
SECTION 2.08. Interest Rate Determinations; Changes in Pricing Levels.
(a) Each Reference Bank agrees to furnish to the Administrative Agent, upon
request of the Administrative Agent, timely information for the purpose of
determining the LIBO Rate from time to time. If any one or more of the Reference
Banks shall not furnish such timely information to the Administrative Agent for
the purpose of determining the LIBO Rate, the Administrative Agent shall
determine the LIBO Rate on the basis of timely information furnished by the
remaining Reference Banks (subject to clause (c) below).
(b) The Administrative Agent shall give prompt notice to the Company and
the Banks of the applicable interest rate determined by the Administrative Agent
for the purpose of Section 2.06 and the applicable rate, if any, furnished by
each Reference Bank for the purpose of determining the applicable interest rate
under Section 2.06(a)(ii).
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(c) If fewer than two Reference Banks furnish timely information to the
Administrative Agent for determining the LIBO Rate for the Interest Period for
any LIBO Rate Advances,
(i) the Administrative Agent shall forthwith notify the Company and
the Banks that the interest rate cannot be determined for such LIBO Rate
Advances for such Interest Period,
(ii) each such Advance will instead be made as a Base Rate Advance,
and
(iii) the obligation of the Banks to make, or to Convert Advances
into, or to Continue Advances as, LIBO Rate Advances shall be suspended
until the Administrative Agent shall notify the Company and the Banks that
the circumstances causing such suspension no longer exist.
(d) If prior to the commencement of the Interest Period for any Borrowing
the Majority Banks notify the Administrative Agent (and the Administrative Agent
notifies the Company) that, by reason of circumstances generally affecting the
London or Paris interbank market, as the case may be, the LIBO Rate does not
adequately reflect the cost to such Banks of funding their Advances constituting
part of such Borrowing, the rate of interest applicable to each such Advance for
such Interest Period shall be the Applicable Margin plus the cost to each such
Bank from time to time of funding its Advance constituting part of such
Borrowing. A certificate or certificates of such Bank, given in good faith, as
to such cost of funding shall be conclusive and binding on each Borrower in the
absence of manifest error.
(e) If the Company shall fail to select the duration of the Interest Period
for any LIBO Rate Advances in accordance with the provisions contained in the
definition of "Interest Period" in Section 1.01, the Administrative Agent will
forthwith so notify the Company and the Banks and such Advances will be made as
Base Rate Advances.
SECTION 2.09. Conversion and Continuation of Advances.
(a) The Company may on any Business Day, upon notice given to the
Administrative Agent not later than 12:00 noon (New York City time) on the third
Business Day (or if the proposed Conversion relates to Advances denominated in
an Alternate Currency, 12:00 noon (London time) on the third Business Day) prior
to the date of the proposed Conversion and subject to the provisions of Sections
2.08 and 2.12, Convert all or any portion of the outstanding Advances of one
Type comprising part of th same Borrowing into Advances of the other Type in the
same Currency; provided, that in the case of any such Conversion of a LIBO Rate
Advance into a Base Rate Advance on a day other than the last day of an Interest
Period therefor, the Borrower of such LIBO Rate Advance shall reimburse the
Banks in respect thereof pursuant to Section 8.04(c). Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Advances or portions thereof to be
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Converted, and (iii) if such Conversion is into LIBO Rate Advances, the duration
of the Interest Period for each such Advance. Each notice of Conversion shall be
irrevocable and binding on each Borrower. Each portion of the Advances Converted
as herein provided shall be in an aggregate amount of (x) in the case of a
Conversion of Advances denominated in Dollars, $10,000,000 or an integral
multiple of $1,000,000 in excess thereof and (y) in the case of a Conversion of
Advances denominated in any Approved Foreign Currency, the Foreign Currency
Equivalent of $5,000,000 or an integral multiple of $1,000,000 in excess thereof
(rounded downwards to the nearest 1,000 units of such Approved Foreign
Currency).
(b) The Company may on any Business Day, upon notice given to the
Administrative Agent not later than 12:00 noon (New York City time) on the third
Business Day (or if the proposed Continuation relates to Advances denominated in
an Alternate Currency, 12:00 noon (London time) on the third Business Day) prior
to the date of the proposed Continuation and subject to the provisions of
Sections 2.08 and 2.12, Continue all or any portion of the outstanding LIBO Rate
Advances comprising part of the same Borrowing into LIBO Rate Advances in the
same Currency; provided, that any such Continuation of a LIBO Rate Advance shall
be made only on the last day of an Interest Period therefor. Each such notice of
a Continuation shall, within the restrictions specified above, specify (i) the
date of such Continuation, (ii) the Advances or portions thereof to be
Continued, and (iii) if such Continuation is of a LIBO Rate Advances, the
duration of the Interest Period for each such Advance. Each notice of
Continuation shall be irrevocable and binding on each Borrower. Each portion of
the Advances Continued as herein provided shall be in an aggregate amount of (x)
in the case of a Continuation of Advances denominated in Dollars, $10,000,000 or
an integral multiple of $1,000,000 in excess thereof and (y) in the case of a
Continuation of Advances denominated in any Approved Foreign Currency, the
Foreign Currency Equivalent of $5,000,000 or an integral multiple of $1,000,000
in excess thereof (rounded downwards to the nearest 1,000 units of such Approved
Foreign Currency).
(c) On the date on which the aggregate unpaid principal amount of LIBO Rate
Advances comprising any Borrowing shall be reduced, by payment or prepayment or
otherwise, to less than $2,500,000, such Advances shall automatically Convert
into Base Rate Advances.
(d) Upon the occurrence and during the continuance of any Event of Default
or any Default under Section 6.01(b) and upon notice from the Administrative
Agent to the Company at the request of the Majority Banks, (i) each LIBO Rate
Advance will automatically, on the last day of the Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Banks to make,
or to Convert Advances into, or to Continue Advances as, LIBO Rate Advances
shall be suspended.
(e) In the event that the Company fails to give a notice of Continuation of
a LIBO Rate Advance as provided in subsection (b) above, such LIBO Rate Advance
shall automatically be Converted into a Base Rate Advance on the last day of the
Interest Period therefor.
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SECTION 2.10. Optional and Mandatory Prepayments of Advances.
(a) Prepayments Generally. Each Borrower may prepay the Advances made to
such Borrower only as provided in subsection (b) below.
(b) Optional Prepayments. The Company may, upon giving notice to the
Administrative Agent (and in the case of prepayment of a Swing Line Advance, the
Swing Line Bank) not later than 11:00 a.m. New York City time on the date of
prepayment, in the case of a Base Rate Advance or a Swing Line Advance, and not
later than two Business Days prior to the date of prepayment in the case of a
LIBO Rate Advance, in each case stating the Advances to be prepaid and the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given, the Borrower of such Advances shall, prepay the outstanding
principal amounts of such Advances in whole or ratably in part, together with
accrued interest to the date of such prepayment on the principal amount prepaid;
provided, that (i) each partial prepayment of a Revolving Credit Advance shall
be in an aggregate principal amount not less than (x) in the case of Revolving
Credit Advances denominated in Dollars, $10,000,000 or an integral multiple of
$1,000,000 in excess thereof and (y) in the case of Revolving Credit Advances
denominated in any Approved Foreign Currency, the Foreign Currency Equivalent of
$5,000,000 or an integral multiple of $1,000,000 in excess thereof (rounded
downwards to the nearest 1,000 units of such Approved Foreign Currency), (ii)
each partial prepayment of a Swing Line Advance shall be in an aggregate
principal amount not less than $1,000,000 or an integral multiple thereof and
(iii) in the case of any such prepayment of a LIBO Rate Advance on a day other
than the last day of an Interest Period therefor, such Borrower shall reimburse
the Banks in respect thereof pursuant to Section 8.04(c).
(c) Mandatory Prepayments. If at any time the aggregate amount of all
Advances (for which purpose the amount of any Advance that is denominated in a
Foreign Currency shall be deemed to be the Dollar Equivalent thereof as of the
date of determination) exceeds 105% of the aggregate amount of the Commitments
as then in effect, the Administrative Agent shall use all reasonable efforts to
give prompt notice thereof to the Company, and the Company shall, upon receipt
of such notice, cause th Advances forthwith to be prepaid in an amount so that
after giving effect thereto the aggregate outstanding principal amount of the
Advances (determined as aforesaid) does not exceed the aggregate amount of the
Commitments; provided, that, any such payment shall be accompanied by any
amounts payable under Section 8.04(c). The determinations of the Administrative
Agent hereunder shall be conclusive and binding on the Borrowers and the Banks
in the absence of manifest error.
SECTION 2.11. Increased Costs.
(a) If, due to either (i) the introduction of or any change (other than any
change relating to taxes (as to which Section 2.14 applies) or any change by way
of imposition or increase of reserve requirements included in the LIBO Rate
Reserve Percentage) in or in the interpretation of (to the extent any such
introduction or change occurs after the date hereof) any law or regulation or
(ii) the compliance with any guideline or request of any central bank or other
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Governmental Authority adopted or made after the date hereof (whether or not
having the force of law), there shall be any increase deemed by such Bank to be
material in the cost to any Bank of agreeing to make or making, funding or
maintaining LIBO Rate Advances denominated in any Currency, each Borrower shall
from time to time, within 30 days after delivery by such Bank to the Company
(with a copy to the Administrative Agent) of a certificate as to the amount of
(and specifying in reasonable detail the basis for) such increase cost, pay
(subject to Section 2.11(c)) to the Administrative Agent for the account of such
Bank the amount of the increased costs set forth in such certificate (which
certificate shall be conclusive and binding for all purposes of this Agreement,
absent manifest error); provided, that, before making any such demand, each Bank
agrees to use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to designate a different Applicable Lending Office
if the making of such designation would avoid the need for, or reduce the amount
of, such increased cost and would not, in the reasonable judgment of such Bank,
be otherwise disadvantageous to such Bank.
(b) (i) If any Bank determines that compliance with any law or
regulation enacted or introduced after the date hereof or any guideline or
request of any central bank or other Governmental Authority adopted or made
after the date hereof (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by
such Bank or any corporation controlling such Bank deemed by such Bank to
be material and that the amount of such capital is increased by or based
upon the existence of such Bank's Commitment and other commitments of this
type, or the Advances, then, within 30 days after delivery by such Bank to
the Company (with a copy to the Administrative Agent) of a certificate as
to (and specifying in reasonable detail the basis for) the Additional
Amounts (as hereinafter defined) requested by such Bank, the Company shall
pay (subject to Section 2.11(c)) to the Administrative Agent for the
account of such Bank, from time to time a specified by such Bank, the
amount specified in such certificate (which certificate shall be conclusive
and binding for all purposes, absent manifest error); provided, that,
before making any such demand, each Bank agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions)
to designate a different Applicable Lending Office if the making of such a
designation would avoid the need for, or reduce the amount of, such
increased cost and would not, in the reasonable judgment of such Bank, be
otherwise disadvantageous to such Bank.
(ii) For purposes hereof, the "Additional Amounts" that may be
requested by any Bank under this Section 2.11(b) means such amounts as such
Bank shall reasonably determine to be sufficient to compensate such Bank or
any corporation controlling such Bank for any costs that such Bank
reasonably determines are attributable to the maintenance by such Bank (or
such corporation) of capital in respect of its Commitment or the Advances
hereunder (such compensation to include, without limitation, an amount
equal to any reduction of the rate of return on assets or equity of such
Bank (or such corporation) to a level below that which such Bank (or such
corporation) could have
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achieved but for the enactment or introduction of such law or regulation or
the adoption or making of such guideline or request).
SECTION 2.12. Illegality. Notwithstanding any other provision of this
Agreement, if any Bank shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other Governmental
Authority asserts that it is unlawful, for such Bank or its LIBO Lending Office
to perform its obligations hereunder to make LIBO Rate Advances or to fund or
maintain LIBO Rate Advances hereunder, then, on notice thereof and demand
therefor by such Bank to the Company through the Administrative Agent, (a) the
obligation of the Banks to make or to Convert Advances into, or Continue
Advances as, LIBO Rate Advances shall be suspended until the Administrative
Agent shall notify the Company and the Banks that the circumstances causing such
suspension no longer exist and (b) the Borrowers shall upon demand prepay in
full all LIBO Rate Advances of all Banks then outstanding, together with
interest accrued thereon, unless the Borrowers, within five Business Days of
notice from the Administrative Agent, Convert all LIBO Rate Advances of all the
Banks then outstanding into Base Rate Advances in accordance with Section 2.09;
provided, that, before making any such demand, such Bank agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different LIBO Lending Office if the making of such
a designation would allow such Bank or its LIBO Lending Office to continue to
perform its obligations to make LIBO Rate Advances or to continue to fund or
maintain LIBO Rate Advances and would not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank.
SECTION 2.13. Payments and Computations.
(a) (i) Except to the extent otherwise provided herein, all payments
of principal of and interest on any Advance denominated in Dollars, and all
Facility Fees and other amounts (other than the principal of and interest
on any Advance denominated in a Foreign Currency) to be paid by the
Borrowers under this Agreement and the Notes shall be made in Dollars, and
all payments of principal of and interest on any Advance denominated in a
Foreign Currency shall be made in such Foreign Currency in each case in
immediately available funds, without set-off or counterclaim, to the
Administrative Agent's Account for the Currency in which such Advance or
other amount is denominated, not later than 11:00 a.m. Local Time on the
date on which such payment shall become due (each payment made after such
time on such due date to be deemed to have been made on the next Business
Day); provided, that if a new Advance is to be made to a Borrower by a Bank
on a date on which such Borrower is to repay any principal of an
outstanding Advance by such Bank in the same Currency, such Bank shall
apply the proceeds of such new Advance to the payment of the principal to
be repaid and only an amount equal to the difference between the principal
to be borrowed and the principal to be repaid shall be made available by
such Bank to the Administrative Agent or paid by such Borrower to the
Administrative Agent, as the case may be.
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(ii) The Administrative Agent will promptly cause to be distributed
like funds relating to the payment of principal, interest or fees ratably
(other than amounts payable pursuant to Section 2.07, 2.11, 2.14 or
8.04(c)) to the Banks for the account of their respective Applicable
Lending Offices, and like funds relating to the payment of any other amount
payable to any Bank to such Bank for the account of its Applicable Lending
Office, in each case to be applied in accordance with the terms of this
Agreement.
(iii) Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(c), from and after the effective date specified in such
Assignment and Acceptance, the Administrative Agent shall make all payments
hereunder and under the Notes in respect of the interest assigned thereby
to the Bank assignee thereunder, and the parties to such Assignment and
Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) All computations of interest based on the Base Rate shall be made by
the Administrative Agent on the basis of a year of 365 or 366 days, as the case
may be, and all computations of interest based on the LIBO Rate and the Federal
Funds Rate and of Facility Fees shall be made by the Administrative Agent, and
all computations of interest pursuant to Section 2.07 shall be made by a Bank,
on the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or Facility Fees are payable. Each determination by the
Administrative Agent of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Notes would be due on a day
other than a Business Day, such due date shall be extended to the next
succeeding Business Day, and any such extension of such due date shall in such
case be included in the computation of payment of interest or fees, as the case
may be; provided, however, if such extension would cause payment of interest on
or principal of LIBO Rate Advances to be made in the next following calendar
month, such payment shall be made on the next preceding Business Day.
(d) Unless the Administrative Agent shall have received notice from the
Company prior to the date on which any payment is due to the Banks hereunder
that a Borrower will not make such payment in full, the Administrative Agent may
assume that such Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Bank on such due date an amount
equal to the amount then due suc Bank. If and to the extent that such Borrower
shall not have so made such payment in full to the Administrative Agent, each
Bank shall repay to the Administrative Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for each day from the
date such amount is distributed to such Bank until the date such Bank repays
such amount to the Administrative Agent, at the Federal Funds Rate.
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(e) If a Borrower shall fail to pay any principal of any Advance when due
(whether at stated maturity, by acceleration, by mandatory prepayment or
otherwise), the unpaid portion of such Advance shall, if such Advance is not
denominated in Dollars, automatically be redenominated in Dollars on the due
date thereof (or, if such due date is a day other than the last day of the
Interest Period therefor, on the last day of such Interest Period) in an amount
equal to the Dollar Equivalent thereof on the date of such redenomination and
such principal shall be payable on demand; and if such Borrower shall fail to
pay any interest on any Advance that is not denominated in Dollars, such
interest shall automatically be redenominated in Dollars on the due date thereof
(or, if such due date is a day other than the last day of the Interest Period
therefor, on the last day of such Interest Period) in an amount equal to the
Dollar Equivalent thereof on the date of such redenomination and such interest
shall be payable on demand.
SECTION 2.14. Taxes.
(a) (i) Subject to Section 2.14(f), any and all payments by the
Borrowers hereunder or under the Notes shall be made, in accordance with
Section 2.13, free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the
case of each Bank and the Administrative Agent, taxes imposed on its net
income, and franchise taxes imposed on it in lieu of net income taxes, b
the jurisdiction under the laws of which such Bank or the Administrative
Agent (as the case may be) is organized or any political subdivision
thereof or by any other jurisdiction as a result of a present or former
connection between such Bank or the Administrative Agent and such
jurisdiction and, in the case of each Bank, taxes imposed on its net
income, and franchise taxes imposed on it in lieu of net income taxes, by
the jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes").
(ii) If a Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable by such Borrower hereunder or under any
Note to any Bank or the Administrative Agent, (i) subject to Section
2.14(f), the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.14) of Taxes such Bank or the
Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions of Taxes been made, (ii)
such Borrower shall make such deductions and (iii) such Borrower shall pay
the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
(b) In addition, each Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made by such Borrower hereunder or under the
Notes or from the execution,
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delivery or registration of, or otherwise with respect to, this Agreement or the
Notes (hereinafter referred to as "Other Taxes").
(c) Subject to Section 2.14(f), each Borrower will indemnify each Bank and
the Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes and Other Taxes imposed by any jurisdiction on
amounts payable under this Section 2.14) paid by such Bank or the Administrative
Agent (as the case may be) in respect of Advances made to such Borrower and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. This indemnification shall be made within 30 days from the date
such Bank or the Administrative Agent (as the case may be) makes written demand
therefor, accompanied by a calculation in reasonable detail of the amount
demanded and evidence of the Taxes or Other Taxes (including, without
limitation, taxes of any kind imposed by any jurisdiction or amounts payable
under this Section 2.14) imposed on or paid by the Administrative Agent or such
Bank.
(d) Within 30 days after the date of any payment of Taxes by a Borrower,
such Borrower will furnish to the Administrative Agent, at its address referred
to in Section 8.02, the original or a certified copy of a receipt evidencing
payment thereof.
(e) (i) With respect to any Advance made to a Borrower that is not a
Foreign Borrower, each Bank that is entitled to any exemption from or
reduction of withholding tax with respect to payments hereunder and under
the Notes payable to such Bank shall, on or prior to the date of its
execution and delivery of this Agreement (in the case of each Bank that is
a signatory hereto) and on the date of the Assignment and Acceptance
pursuant to which it becomes a Bank (in the case of each other Ban that
becomes a party hereto pursuant to Section 2.04(a) or 8.07), and from time
to time thereafter if requested in writing by any Borrower (but only so
long as such Bank remains lawfully able to do so), provide such Borrower
with such documentation prescribed by applicable law and reasonably
requested by such Borrower to permit payments by such Borrower under this
Agreement and the Notes to be made without withholding or at a reduced rate
of withholding. Each Bank hereby agrees to use reasonable efforts to inform
the Company of any such documentation or other requirements of which it is
aware that may provide an exemption from or reduction in the rate of
withholding applicable to payments hereunder to such Bank. Notwithstanding
any other provision of this Agreement to the contrary, with respect to any
Advance made to any Borrower that is not a Foreign Borrower, Taxes shall
not include (and such Borrower shall not be responsible for): (x) any
taxes, levies, imposts, deductions, charges o withholdings that would be
imposed on any payment hereunder or under a Note to a Bank under the law at
the time such Bank first becomes a party to this Agreement and (y) any
other taxes, levies, imposts, deductions, charges or withholdings imposed
on any payment hereunder or under a Note other than such amounts imposed by
reason of (A) a change in law after the date such Bank becomes a party to
this Agreement or (B) a change in the location of such Bank's Applicable
Lending Office pursuant to Section 2.14(g).
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(ii) With respect to any Advance made to a Foreign Borrower, each Bank
that is entitled to any exemption from or reduction of withholding tax with
respect to payments hereunder and under the Notes payable to such Bank
shall, from time to time as requested in writing by any Borrower (but only
so long as such Bank remains lawfully able to do so), provide such Borrower
with such documentation prescribed by applicable law and reasonably
requested by such Borrower to permit payments by such Borrower under this
Agreement and the Notes to be made without withholding or at a reduced rate
of withholding. Each Bank hereby agrees to use reasonable efforts to inform
the Borrower of any such documentation or other requirements of which it is
aware that may provide an exemption from or reduction in the rate in
withholding applicable to payments hereunder to such Bank.
(f) For any period with respect to which a Bank has failed to provide a
Borrower with the appropriate documentation described in Section 2.14(e) (other
than if such failure is due to a change in law occurring subsequent to the date
on which documentation originally was required to be provided, or if such
documentation otherwise is not required under the first sentence of
paragraph(e)(i) or (ii) above), such Bank shall not be entitled to
indemnification by a Borrower under Section 2.14(a) or (c) with respect to Taxes
imposed by the jurisdiction with respect to which such failure occurred;
provided, however, that should a Bank become subject to Taxes because of its
failure to deliver documentation required hereunder, the Borrowers shall take
such steps as the Bank shall reasonably request to assist the Bank to recover
such Taxes.
(g) Any Bank claiming any additional amounts payable pursuant to this
Section 2.14 shall use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office(s) if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that may thereafter
accrue and would not, in the reasonable judgment of such Bank, be otherwise
disadvantageous to such Bank. In addition, each Bank shall use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) not to change the jurisdiction of its Applicable Lending Office(s)
if the making of such a change would increase the aggregate amount payable by
the Borrowers pursuant to this Section 2.14.
SECTION 2.15. Pro Rata Treatment. Except to the extent otherwise provided
herein:
(a) each Borrowing under Section 2.01 hereof shall be made from the
Banks pro rata according to their respective Commitments;
(b) each payment of Facility Fee under Section 2.03(a) shall be made
for the account of the Banks, and each termination or reduction of the
amount of the Commitments under Section 2.04 shall be applied to the
respective Commitments of the Banks, pro rata according to the amounts of
their respective Commitments;
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(c) LIBO Rate Advances denominated in the same Currency and having the
same Interest Period shall be allocated pro rata among the Banks according
to their respective Commitments;
(d) each payment or prepayment by a Borrower of principal of Advances
of any Type and denominated in any Currency shall be made for the account
of the Banks pro rata in accordance with the respective unpaid principal
amounts of the Advances of such Type and denominated in such Currency held
by them; and
(e) each payment by a Borrower of interest on Advances of any Type and
denominated in any Currency shall be made for the account of the Banks pro
rata in accordance with the amounts of interest on Advances of such Type
and denominated in such Currency then due and payable to them. --- ----
SECTION 2.16. Sharing of Payments, Etc. If any Bank shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise), in Dollars or any other Currency, on account of the
Advances made by it (other than pursuant to Section 2.07, 2.11, 2.14 or 8.04(c))
in excess of its ratable share of payments on account of the Advances, as the
case may be, obtained by all the Banks, such Bank shall forthwith purchase from
the other Banks such participations in the Advances made by them as shall be
necessary to cause such purchasing Bank to share the excess payment ratably with
each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Bank, such purchase from
each Bank shall be rescinded and such Bank shall repay to the purchasing Bank
the purchase price to the extent of such recovery together with an amount equal
to such Bank's ratable share (according to the proportion of (a) the amount of
such Bank's required repayment to (b) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. Each Borrower
agrees that any Bank so purchasing a participation from another Bank pursuant to
this Section 2.16 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Bank were the direct creditor of such Borrower
in the amount of such participation.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Borrowing by the Company. The
obligation of each Bank to make an Advance to the Company on the occasion of the
initial Borrowing by the Company is subject to the condition precedent that the
Administrative Agent shall have received, on or prior to the day of the initial
Borrowing by the Company but no later than May 30, 1998, the following documents
and evidence, each (unless otherwise specified
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below) dated the date of such initial Borrowing and in form and substance
satisfactory to the Administrative Agent and (except for the Notes) in
sufficient copies for each Bank:
(a) The Notes from the Company payable to the order of the respective
Banks.
(b) Certified copies of the charter and by-laws (or equivalent
documents) of the Company and of all corporate authority for the Company
(including, without limitation, board of director resolutions and evidence
of the incumbency, including specimen signatures, of officers) with respect
to the execution, delivery and performance of this Agreement and the Notes
and each other document to be delivered by the Company from time to time in
connection herewith and the extensions of credit hereunder (and the
Administrative Agent and each Bank may conclusively rely on such
certificate until it receives notice in writing from the Company to the
contrary).
(c) A favorable opinion of Stephanie W. Abramson, Esq., General
Counsel for the Company, substantially in the form of Exhibit C-1, and a
favorable opinion of Wachtell, Lipton, Rosen & Katz, special counsel for
the Company, substantially in the form of Exhibit C-2.
(d) A favorable opinion of Milbank, Tweed, Hadley & McCloy, special
New York counsel for the Administrative Agent, substantially in the form of
Exhibit D.
(e) A certificate of a senior officer of the Company certifying that
(i) no Default has occurred and is continuing as of the date thereof, and
(ii) the representations and warranties contained in Section 4.01 are true
and correct on and as of the date thereof as if made on and as of such date
(except to the extent any of such representations and warranties expressly
relate to an earlier date).
(f) Evidence that the principal of and interest on, and all other
amounts owing in respect of, the Debt (including, without limitation, any
contingent or other amounts payable in respect of letters of credit) under
the Existing Credit Agreement shall have been (or shall be simultaneously)
paid in full, that any commitments to extend credit thereunder shall have
been canceled or terminated and that all Guarantees in respect of, and all
Liens securing, any such Debt shall have been released (or arrangements for
such release satisfactory to the Majority Banks shall have been made); in
addition, the Administrative Agent shall have received from any Person
holding any Lien securing any such Debt, such Uniform Commercial Code
termination statements, mortgage releases and other instruments, in each
case in proper form for recording, as the Administrative Agent shall have
requested to release and terminate of record the Liens securing such Debt
(or arrangements for such release and termination satisfactory to the
Majority Banks shall have been made).
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(g) Evidence that the Company shall have received not less than
$100,000,000 of net cash proceeds from the issuance of its common stock in
a public offering thereof registered under the Securities Act of 1933, as
amended.
SECTION 3.02. Conditions Precedent to Initial Borrowing by Subsidiary
Borrowers Party to this Agreement on the Closing Date. The obligation of each
Bank to make an Advance to any Subsidiary Borrower party to this Agreement on
the Closing Date (each, an "Initial Subsidiary Borrower") on the occasion of the
initial Borrowing by such Initial Subsidiary Borrower is subject to the
condition precedent that the Administrative Agent shall have received, on or
prior to the day of the initial Borrowing by such Initial Subsidiary Borrower,
the following documents and evidence, each (unless otherwise specified below)
dated the date of such initial Borrowing and in form and substance satisfactory
to the Administrative Agent and (except for the Notes) in sufficient copies for
each Bank:
(a) The Notes from such Initial Subsidiary Borrower payable to the
order of the respective Banks.
(b) Certified copies of the charter and by-laws (or equivalent
documents) of such Initial Subsidiary Borrower and of all corporate
authority for such Initial Subsidiary Borrower (including, without
limitation, board of director resolutions and evidence of the incumbency,
including specimen signatures, of officers) with respect to the execution,
delivery and performance of this Agreement and the Notes and each other
document to be delivered by such Initial Subsidiary Borrower from time t
time in connection herewith and the extensions of credit hereunder (and the
Administrative Agent and each Bank may conclusively rely on such
certificate until it receives notice in writing from such Initial
Subsidiary Borrower to the contrary).
(c) A favorable opinion of counsel (which counsel shall be reasonably
acceptable as the Administrative Agent), satisfactory to the Administrative
Agent in form and substance, for such Initial Subsidiary Borrower.
SECTION 3.03. Conditions Precedent to Each Borrowing. The obligation of
each Bank to make an Advance on the occasion of each Borrowing (including,
without limitation, the initial Borrowing), and the right of the Borrower to
request a Swing Line Borrowing, shall be subject to the further conditions
precedent that on the date of such Borrowing the following statements shall be
true (and each of the giving of the applicable Notice of Borrowing and the
acceptance by the applicable Borrower of the proceeds of such Borrowing shall
constitute a representation and warranty by the Company and the applicable
Borrower that on the date of such Borrowing such statements are true):
(a) the representations and warranties contained in Section 4.01 (not
including, in the case of any Borrowing after the initial Borrowing
hereunder, the representation and warranty set forth in Section 4.01(b))
are true and correct in all material respects on and as of the date of such
Borrowing, before and after giving effect to such Borrowing and to
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the application of the proceeds therefrom, as though made on and as of such
date (except to the extent any of such representations and warranties
expressly relate to an earlier date), and
(b) no Default has occurred and is continuing, or would result from such
Borrowing or from the application of the proceeds thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties. The Company and each Borrower
that is not a Foreign Borrower jointly and severally represent and warrant, and
each Borrower that is a Foreign Borrower severally represents and warrants
(solely with respect to the representations and warranties contained in clauses
(c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (n), (o) and (p) of this
Section 4.01 to the extent applicable to such Foreign Borrower and its
Subsidiaries), that:
(a) Financial Condition. The Consolidated balance sheet of the Company
and its Consolidated Subsidiaries as at December 31, 1997 and the related
Consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by Price Waterhouse LLP, copies of which
have heretofore been furnished to each Bank, present fairly the
Consolidated financial condition of the Company and its Consolidated
Subsidiaries as at such date, and the Consolidated results of their
operations and their Consolidated cash flows for the fiscal year then
ended. All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the period involved (except as approved by such
accountants or a Responsible Officer of the Company, as the case may be,
and as disclosed therein). Neither the Company nor any of its Consolidated
Subsidiaries had, at December 31, 1997, any material contingent liability
or liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not reflected in
the foregoing statements or in the notes thereto.
(b) No Change. Since December 31, 1997, there has been no development
or event which has had or could reasonably be expected to have a Material
Adverse Effect.
(c) Existence; Compliance with Law. Each Borrower (i) is duly
organized and validly existing under the laws of the jurisdiction of its
organization and, where applicable and except where the failure to be so
could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect, is in good standing under the laws of the
jurisdiction of its organization, (ii) has the power and authority, and
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the legal right, to own and operate its Property, to lease the Property it
operates as lessee and to conduct the business in which it is currently
engaged, (iii) is duly qualified as a foreign organization and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of Property or the conduct of its business requires such
qualification, except where the failure to be so qualified and/or in good
standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, and (iv) is in compliance with
all Requirements of Law except to the extent that the failure to comply
therewith could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(d) Corporate Power; Authorization; Enforceable Obligations. Each
Borrower has the power and authority, and the legal right, to make, deliver
and perform this Agreement and to borrow hereunder and has taken all
necessary action to authorize the borrowings on the terms and conditions of
this Agreement and the Notes and to authorize the execution, delivery and
performance of this Agreement and the Notes to which it is a party. No
consent or authorization of, filing with, notice to or other act by or in
respect of (including any exchange control approval), any Governmental
Authority or any other Person is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or the Notes. This Agreement has been, and
the Notes to which it is a party will be, duly executed and delivered on
behalf of such Borrower. This Agreement constitutes, and the Notes to which
it is a party when executed and delivere will constitute, the legal, valid
and binding obligations of such Borrower enforceable against such Borrower
in accordance with their terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
(e) No Legal Bar. The execution, delivery and performance by each
Borrower of this Agreement and the Notes to which such Borrower is a party,
the borrowings hereunder and the use of the proceeds thereof will not
violate any Requirement of Law or Contractual Obligation of such Borrower
or of any of its Subsidiaries and will not result in, or require, the
creation or imposition of any Lien on any of its or their respective
Properties pursuant to any such Requirement of Law or Contractual
Obligation.
(f) No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of each Borrower, threatened by or against such Borrower or any
of its Subsidiaries or against any of its or their respective Properties
(i) with respect to any of this Agreement, the Notes or any of the
transactions contemplated hereby or thereby or (ii) which could reasonably
be expected to have a Material Adverse Effect.
(g) No Default. Neither any Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which could
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reasonably be expected to have a Material Adverse Effect. No Default has
occurred and is continuing.
(h) Ownership of Properties; Liens. Each Borrower and each of its
Subsidiaries has good record and marketable title in fee simple to all real
Property owned by it and such Borrower and each of its Subsidiaries has a
valid leasehold interest or occupancy rights with respect to all real
Property leased or occupied pursuant to the Material Leases, and none of
such owned real Property is subject to any Lien except Liens permitted by
Section 5.02(b). Such Borrower and each of its Subsidiaries has such title
to their respective personal Property, tangible and intangible, as is
necessary to conduct their respective businesses in the same manner as such
businesses have been conducted, and none of such Property is subject to any
Lien except as permitted by Section 5.02(b).
(i) Intellectual Property. Each Borrower and each of its Subsidiaries
owns, or is licensed to use, all trademarks, tradenames, copyrights,
technology, know-how and processes necessary for the conduct of its
business as currently conducted (the "Intellectual Property") except for
those the failure to own or license which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. No
claim has been asserted and is pending by any Person challenging or
questioning the use by such Borrower or any of its Subsidiaries of any such
Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does such Borrower know of any valid basis for
any such claim, except for any such claims which could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
The use of such Intellectual Property by such Borrower and its Subsidiaries
does not infringe on the rights of any Person, except for such claims and
infringements that, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.
(j) No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation of each Borrower or any of its Operating Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
(k) Taxes. Each Borrower and each of its Subsidiaries has filed or
caused to be filed all tax returns which, to the knowledge of such
Borrower, are required to be filed and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of
its Property and all other taxes, fees or other charges imposed on it or
any of its Property by any Governmental Authority (other than any such
taxes, fees or other charges the amount or validity of which are currently
being contested in good faith by appropriate proceedings and with respect
to which reserves in conformity with GAAP have been provided on the books
of such Borrower or its Subsidiaries, as the case may be, and other than
where failures timely and properly to file could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect);
no tax Lien has been filed, and, to the knowledge of such Borrower, no
claim is being asserted, with respect to any suc tax, fee or other charge
(other than, such Liens,
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taxes, fees and other charges as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect).
(l) Margin Regulations. No part of the proceeds of any Advances will
be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
(m) ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302
of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan
or is reasonably expected to occur, and each Plan has complied in all
material respects with the applicable provisions of ERISA and the Code. No
termination of a Single Employer Plan has occurred, no Lie in favor of the
PBGC or a Plan has arisen, during such five-year period, and neither any
Borrower nor any Commonly Controlled Entity has received any notice
relating to an intent to terminate any such Single Employer Plan or impose
any such Lien. Except as set forth on Schedule I, the present value of all
accrued benefits under each Single Employer Plan (based on those
assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the last annual valuation date prior to
the date on which this representation is made or deemed made, exceed the
fair market value of the assets of such Plan allocable to such accrued
benefits. Neither such Borrower nor any Commonly Controlled Entity has had
a complete or partial withdrawal from any Multiemployer Plan, and neither
such Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA if such Borrower or any such Commonly Controlled
Entity were to withdraw completely from all Multiemployer Plans as of the
valuation date most closely preceding the date on which this representation
is made or deemed made. No filing has been made pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for waiver of the
minimum funding standard of any Single Employer Plan. No such Multiemployer
Plan is in Reorganization or Insolvent.
(n) Investment Company Act; Other Regulations. No Borrower is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No
Borrower is subject to regulation under any United States Federal or state
statute or regulation (other than Regulation X of the Board of Governors of
the Federal Reserve System) which limits its ability to incur Debt.
(o) Use of Proceeds. The proceeds of the Advances will be used by the
Borrowers (i) to repay Debt under the Existing Credit Agreement, (ii) for
acquisitions that are not Hostile Acquisitions in accordance with Section
5.02(c) and (iii) for other general corporate purposes.
(p) Environmental Matters.
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(i) To the best knowledge of each Borrower, the facilities and
Property owned, leased or operated by such Borrower or any of its
Subsidiaries (the "Applicable Properties") do not contain, and have
not previously contained, any Materials of Environmental Concern in
amounts or concentrations which (x) constitute or constituted a
violation of, or (y) could reasonably be expected to give rise to
liability under, any Environmental Law, except in either case insofar
as such violation or liability, or any aggregation thereof, could not
reasonably be expected to have a Material Adverse Effect.
(ii) To the best knowledge of such Borrower, the Applicable
Properties and all operations at the Applicable Properties are in
compliance, and have in the last five years been in compliance, in all
material respects with all applicable Environmental Laws, and there is
no contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Applicable Properties or the
business operated by the Borrower or any of its Subsidiaries (the
"Business" except in either case insofar as any such noncompliance,
contamination or violation, or any aggregation thereof, could not
reasonably be expected to have a Material Adverse Effect.
(iii) Neither such Borrower nor any of its Subsidiaries has
received any notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the
Applicable Properties or the Business, nor does such Borrower have
knowledge or reason to believe that any such notice will be received
or is being threatened, except insofar as such notice or threatened
notice, or any aggregation thereof, could not reasonably be expected
to have a Material Adverse Effect.
(iv) Materials of Environmental Concern have not been transported
or disposed of from the Applicable Properties in violation of, or in a
manner or to a location which could reasonably be expected to give
rise to liability under, any Environmental Law, nor have any Materials
of Environmental Concern been generated, treated, stored or disposed
of at, on or under any of the Applicable Properties in violation of,
or in a manner that could reasonably be expected to give rise to
liability under, any applicable Environmental Law, except insofar as
any such violation or liability referred to in this paragraph, or any
aggregation thereof, could not reasonably be expected to have a
Material Adverse Effect.
(v) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of such Borrower, threatened,
under any Environmental Law to which such Borrower or any Subsidiary
is or will be named as a party with respect to the Applicable
Properties or the Business, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or
other administrative or judicial requirements outstanding under
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any Environmental Law with respect to the Applicable Properties or the
Business, except insofar as such proceeding, action, decree, order or
other requirement, or any aggregation thereof, could not reasonably be
expected to have a Material Adverse Effect.
(vi) To the best knowledge of such Borrower, there has been no
release or threat of release of Materials of Environmental Concern at
or from the Properties, or arising from or related to the operations
of such Borrower or any Subsidiary in connection with the Applicable
Properties or otherwise in connection with the Business, in violation
of or in amounts or in a manner that could reasonably give rise to
liability under Environmental Laws, except insofar as any such
violation o liability referred to in this paragraph, or any
aggregation thereof, could not reasonably be expected to have a
Material Adverse Effect.
(q) Accuracy of Information. No statement or information contained in
this Agreement, or any other document, certificate or written statement
furnished to the Administrative Agent or the Banks or any of them, by or on
behalf of any Borrower for use in connection with the transactions
contemplated by this Agreement (including, without limitation, any
financial information furnished pursuant to Section 5.01(a)), taken as a
whole, contained as of the date such statement, information, document,
certificate or written statement was so furnished any untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements contained herein or therein in light of the
circumstances in which they were was made not misleading. The projections
and pro forma financial information, if any, contained in the materials
referenced above are based upon good faith estimates and assumptions
believed by management of such Borrower to be reasonable at the time made,
it being recognized by the Banks that such financial information as it
relates to future events is not to be viewed as fact and that actual
results during the period or periods covered by such financial information
may differ from the projected results set forth therein. There is no fact
known to any Borrower that could reasonably be expected to have a Material
Adverse Effect that has not been expressly disclosed herein or in such
other documents, certificates and written statements furnished to the
Administrative Agent for the benefit of the Banks for use in connection
with the transactions contemplated hereby.
(r) Insurance. Each Borrower and its Operating Subsidiaries maintain
with financially sound and reputable insurance companies insurance on (or,
to the extent consistent with prudent business practice, a program of
self-insurance with respect to) all their respective Property and
operations in at least such amounts and against at least such risks (but
including in any event public liability, product liability and business
interruption) as are usually insured against in the same general area by
companies engaged in the same or a similar business.
(s) Year 2000. The Company has reviewed its operations and those of
its Subsidiaries with a view to assessing whether it or its Subsidiaries'
respective businesses will, in the receipt, transmission, processing,
manipulation, storage, retrieval,
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retransmission or other utilization of data, be vulnerable to a Year 2000
Problem (as defined below). Based on such review, the Company has no reason
to believe that a Material Adverse Effect could reasonably be expected to
result from a Year 2000 Problem. For purposes of this paragraph (s), "Year
2000 Problem" means any significant risk that computer hardware or software
used in the business or operations of the Company or any of its
Subsidiaries will not, in the case of dates or time periods occurring after
December 31, 1999, function at least as effectively as in the case of dates
or time periods occurring prior to December 31, 1999.
(t) Ranking. The payment obligations of each Borrower hereunder and
under the Notes are and will at all times be unconditional, senior
unsecured and unsubordinated general obligations of such Borrower, and rank
and will at all times rank at least pari passu with all other present and
future unsecured and unsubordinated Debt of such Borrower.
(u) Commercial Activity; Absence of Immunity. Each Foreign Borrower is
subject to civil and commercial law with respect to its obligations under
this Agreement and the Notes, and the making and performance of this
Agreement and the Notes by such Foreign Borrower constitute private and
commercial acts rather than public or governmental acts. No Foreign
Borrower is entitled to any immunity on the ground of sovereignty or the
like from the jurisdiction of any court or from any action, suit or
proceeding, or from set-off or from the service of process in connection
therewith, arising under this Agreement or the Notes, and such Foreign
Borrower's Properties are not entitled to any immunity from attachment
(before or after judgment) or execution.
(v) Legal Form. This Agreement and the Notes are in proper legal form
under the laws of each jurisdiction under whose laws any Foreign Borrower
is organized or in which any Foreign Borrower is domiciled for the
enforcement thereof against such Foreign Borrower. All formalities required
in each such jurisdiction for the legality, validity, enforceability or
admissibility in evidence of this Agreement and the Notes have been
accomplished, and it is not necessary that this Agreement, any Note or any
other document be filed, registered or recorded with, or executed or
notarized before, any court or other Governmental Authority of or in any
such jurisdiction or that any registration charge or stamp or similar tax
be paid for the legality, validity, enforceability or admissibility in
evidence thereof.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. Affirmative Covenants. So long as any principal of or
interest on any Advance or any Note or any other amount payable hereunder shall
remain outstanding or
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any Bank shall have any Commitment hereunder, the Company and each Borrower that
is not a Foreign Borrower jointly and severally covenant and agree, and each
Foreign Borrower severally covenants and agrees (with respect to itself and its
Subsidiaries only and except with respect to the covenants and agreements
containe in the following clauses (a) and (b) of this Section 5.01), that:
(a) Financial Statements; Compliance Certificates. The Company will
furnish to the Administrative Agent and each Bank:
(i) as soon as available, but ion any event within 100 days after
the end of each fiscal year of the Company, a copy of the Consolidated
balance sheet of the Company and its Consolidated Subsidiaries as at
the end of such year and the related Consolidated statements of income
and retained earnings and of cash flows for such year, setting forth
in each case in comparative form the figures for the previous year,
reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the audit, by
Price Waterhouse LLP or other independent certified public accountants
of nationally recognized standing; and
(ii) as soon as available, but in any event not later than 50
days after the end of each of the first three quarters of each fiscal
year of the Company, the unaudited Consolidated balance sheet of the
Company and its Consolidated Subsidiaries as at the end of such
quarter and the related unaudited Consolidated statements of income
and retained earnings and of cash flows of the Company and its
Consolidated Subsidiaries for such quarter and the portion of the
fiscal year through the end of such quarter, setting forth in each
case in comparative form the figures for the previous year, certified
by a Responsible Officer of the Company as being fairly stated in all
material respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods (except as approved by such accountants or officer, as the
case may be, and disclosed therein).
(b) Certificates; Other Information. The Company will furnish to the
Administrative Agent and each Bank:
(i) concurrently with the delivery of the financial statements
referred to in Section 5.01(a)(i), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default, except as specified in such certificate;
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(ii) concurrently with the delivery of the financial statements
referred to in Sections 5.01(a)(i) and (ii), a certificate of a
Responsible Officer of the Company, (x) stating that, to the best of
such Responsible Officer's knowledge, during such period each Borrower
has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Agreement to be
observed, performed or satisfied by it, and that such Responsible
Officer has obtained no knowledge of any Default except as specified
in such certificate and (y) setting forth in reasonable detail the
calculations required to determine compliance with Section 5.03,
together with, in the event that there is any change in GAAP
subsequent to the date hereof, a reconciliation of the calculations
used to determine compliance with Section 5.03 to the financial
statements delivered in connection with such certificate;
(iii) within five days after the same are sent, copies of all
financial statements and reports which the Company sends to the
holders of its capital stock generally, and within five days after the
same are filed, copies of all financial statements and reports which
the Company may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority;
(iv) concurrently with the delivery of the financial statements
referred to in Sections 5.01(a)(i) and (ii), in the event that any
Subsidiary of the Company has become an Operating Subsidiary or any
Operating Subsidiary has ceased to constitute an Operating Subsidiary,
in each case during the immediately preceding fiscal quarter (or, in
the case of the financial statements referred to in Section
5.01(a)(i), the fourth fiscal quarter), a notice thereof; and
(v) promptly, such additional financial and other information as
the Administrative Agent or any Bank may from time to time reasonably
request.
(c) Payment of Obligations. Each Borrower will, and will cause each of
its Operating Subsidiaries to, pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all
its obligations of whatever nature, except where the amount or validity
thereof is being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP (or, in the case of a Foreign Operating
Subsidiary, generally accepted accounting principles in effect in the
relevant jurisdiction) with respect thereto have been provided on the books
of such Borrower or its Operating Subsidiaries, as the case may be, and
except to the extent that the failure to so pay, discharge or otherwise
satisfy its obligations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(d) Conduct of Business and Maintenance of Existence; Compliance with
Contractual Obligations and Requirements of Law. Each Borrower will, and
will cause each of its Operating Subsidiaries to, (i) continue to engage in
business of the same
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general type as conducted by the Company and its Operating Subsidiaries on
the date hereof, together with such other businesses as are reasonably
related or complementary thereto, (ii) preserve, renew and keep in full
force and effect its corporate existence except (x) as otherwise permitted
pursuant to Section 5.02(c) and (y) solely with respect to Operating
Subsidiaries that are not Borrowers and other than by reason of a merger,
consolidation, amalgamation, liquidation, winding up or dissolution, if
failure to do so would not be adverse to the Banks in any material respect,
(iii) take all reasonable action to maintain all rights, privileges and
franchises necessary in the normal conduct of its business except as
otherwise permitted pursuant to Section 5.02(c) and except if failure to do
so would not be adverse to the Banks in any material respect, and (iv)
comply with all Contractual Obligations and Requirements of Law except to
the extent that failure to comply therewith could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
(e) Maintenance of Property; Insurance. Each Borrower will, and will
cause each of its Operating Subsidiaries to, (i) keep all material Property
useful and necessary in its business in good working order and condition
(ordinary wear and tear excepted), (ii) maintain with financially sound and
reputable insurance companies insurance on (or, to the extent consistent
with prudent business practice, a program of self-insurance with respect
to) all its Property and operations in at least such amounts and against at
least such risks (but including in any event public liability, product
liability and business interruption) as are usually insured against in the
same general area by companies engaged in the same or a similar business,
and (iii) furnish to the Administrative Agent and each Bank, upon written
request, full information as to the insurance carried.
(f) Inspection of Property; Books and Records; Discussions. Each
Borrower will, and will cause each of its Operating Subsidiaries to, keep
proper books of records and account in conformity with GAAP (or, in the
case of a Foreign Operating Subsidiary, generally accepted accounting
principles in effect or applied in the relevant jurisdiction) and all
Requirements of Law; and permit representatives of any Bank to visit and
inspect any of its Property and examine and make abstracts from an of its
books and records at any reasonable time and as often as may reasonably be
desired and to discuss the business, operations, Property and financial and
other condition of such Borrower and its Subsidiaries with officers and
employees of such Borrower and its Subsidiaries and with its independent
certified public accountants.
(g) Notices. Each Borrower will promptly give notice to the
Administrative Agent and each Bank of:
(i) the occurrence of any Default;
(ii) any (x) default or event of default under any Contractual
Obligation of such Borrower or any of its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect or (y)
litigation, investigation or proceeding which
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may exist at any time as to which there is a reasonable possibility of
an adverse determination and which if adversely determined, could
reasonably be expected to have a Material Adverse Effect;
(iii) the following events, as soon as possible and in any event
within 30 days after such Borrower knows or has reason to know
thereof: (x) the occurrence or expected occurrence of any Reportable
Event with respect to any Plan, a failure to make any required
contribution to a Plan, the creation of any Lien in favor of the PBGC
or a Plan or any withdrawal from, or the termination, Reorganization
or Insolvency of, any Multiemployer Plan or (y) the institution of
proceedings or the taking of any other action by the PBGC or such
Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the terminating,
Reorganization or Insolvency of, any Plan; and
(iv) any development or event which could reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement
of a Responsible Officer of the Company setting forth details of the
occurrence referred to therein and stating what action the relevant
Borrower or Subsidiary proposes to take with respect thereto.
(h) Environmental Laws. Each Borrower will, and will cause each of its
Operating Subsidiaries to:
(i) comply with, and ensure compliance by all tenants and
subtenants, if any, with, all applicable Environmental Laws and obtain
and comply with and maintain, and ensure that all tenants and
subtenants obtain and comply with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by
applicable Environmental Laws, except in any such case to the extent
that failure to do so could not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect; and
(ii) conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required
under Environmental Laws, except to the extent that the failure to do
so could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect, and promptly comply with all lawful
orders and directives of all Governmental Authorities regarding
Environmental Laws, except to the extent that the same are being
contested i good faith by appropriate proceedings and the pendency of
such proceedings could not be reasonably expected to have a Material
Adverse Effect.
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(i) Governmental Authorizations. Each Borrower will promptly from time
to time obtain and maintain in full force and effect all consents or
authorizations of, or approvals by, any Governmental Authority necessary
under the laws of each jurisdiction under whose laws it is organized or in
which it is domiciled for the execution, delivery and performance by it of
this Agreement and the Notes.
(j) Ranking. Each Borrower will promptly take all actions as may be
necessary to ensure that the payment obligations of such Borrower under
this Agreement and the Notes will at all times constitute unconditional,
senior unsecured and unsubordinated general obligations of such Borrower
ranking at least pari passu with all other present and future unsecured and
unsubordinated Debt of such Borrower.
SECTION 5.02. Negative Covenants. So long as any principal of or interest
on any Advance or any Note or any other amount payable hereunder shall remain
outstanding or any Bank shall have any Commitment hereunder, the Company and
each Borrower that is not a Foreign Borrower jointly and severally covenant and
agree, and each Foreign Borrower severally covenants and agrees (with respect to
itself and its Subsidiaries only), that:
(a) Subsidiary Debt. The Company will not permit any of its
Subsidiaries to create, incur, assume or at any time be liable with respect
to any Debt, except for:
(i) Debt owing to the Banks hereunder;
(ii) Debt outstanding on December 31, 1997 and any refinancings,
renewals, extensions or refundings thereof which do not increase the
aggregate principal amount thereof;
(iii) Debt owing to the Company or to other Wholly-Owned
Subsidiaries of the Company; and
(iv) additional Debt in an aggregate principal amount for all
Subsidiaries at any one time outstanding not exceeding $100,000,000.
(b) Liens. The Borrowers will not, and will not permit any of their
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any
kind upon or in any of their respective Property, whether now owned or
hereafter acquired, except for:
(i) Liens for taxes not yet due or which are being contested in
good faith by appropriate proceedings, provided that adequate reserves
with respect thereto are maintained on the books of such Borrower or
its Subsidiaries, as the case may be, in conformity with GAAP (or, in
the case of a Foreign Operating Subsidiary, generally accepted
accounting principles in the relevant jurisdiction);
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(ii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings or
which are bonded;
(iii) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers
under insurance or self-insurance arrangements;
(iv) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(v) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the Property subject thereto or
materially interfere with the ordinary conduct of the business of such
Borrower or such Subsidiary;
(vi) Liens securing Debt of the Borrowers and their respective
Subsidiaries incurred to finance the acquisition of fixed or capital
assets, provided that (x) such Liens shall be created substantially
simultaneously with the acquisition of such fixed or capital assets,
(y) such Liens do not at any time encumber any Property other than the
Property financed by such Debt and (z) the principal amount of Debt
secured by any such Lien shall at no time exceed an amount equal to
100% o the original purchase price of such Property;
(vii) Liens on the Property of a corporation that becomes a
Subsidiary after the date hereof, provided that such Liens existed at
the time such corporation became a Subsidiary and were not created in
anticipation thereof;
(viii) any Lien renewing, extending, refunding or refinancing any
Lien permitted by clause (vi) or (vii) above or (xii) below, provided
that the principal amount of Debt secured by such Lien is not
increased, and such Lien is not extended to other Property;
(ix) Liens on Property of a Subsidiary to secure obligations of
such Subsidiary to a Borrower or another Subsidiary;
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(x) judgment Liens, so long as the finality of such judgment is
being actively contested in good faith by appropriate proceedings and
execution thereon is stayed;
(xi) other Liens securing Debt, provided that the aggregate
principal amount of Debt of the Company and its Subsidiaries secured
by such Liens permitted by this clause (xi) does not at any time
exceed $25,0000,000; and
(xii) Liens set forth in Schedule II;
provided, however, that no Lien otherwise permitted under clause (vi),
(vii), (viii) or (xi) hereof shall be permitted if such Lien secures
Debt which is prohibited under this Agreement.
(c) Fundamental Changes. The Borrowers will not, and will not permit
any of their Subsidiaries to, enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve (or suffer any liquidation
or dissolution), or convey, sell, lease, assign, transfer or otherwise
dispose of (each a "Transfer"), all or substantially all of their
respective Property, except that:
(i) any Subsidiary of a Borrower may be merged, consolidated or
amalgamated with or into such Borrower (provided that such Borrower
shall be the continuing or surviving corporation) or with or into any
one or more other Subsidiaries of the Company;
(ii) any Subsidiary of a Borrower may liquidate, wind-up or
dissolve if such liquidation, winding-up or dissolution is in the best
interests of such Borrower and would not be adverse to the Banks in
any material respect;
(iii) any Subsidiary of a Borrower may Transfer any or all of its
Property (upon voluntary liquidation or otherwise) to the Company or
any other Subsidiary of the Company;
(iv) any Borrower and any Subsidiary of a Borrower may merge,
consolidate or amalgamate with or into, any other Person provided that
(x) both immediately prior to such merger, consolidation or
amalgamation and after giving effect thereto, no Default shall exist,
(y) in the Company's reasonable judgment, a Default under Section 5.03
is not likely to occur on the last day of the fiscal quarter immediate
succeeding such merger, consolidation or amalgamation and (z) in the
case of merger, consolidation or amalgamation involving the Company,
the Company shall be the continuing or surviving corporation and in
the case of a merger consolidation or amalgamation involving any other
Borrower or Subsidiary, such other Borrower or Subsidiary shall be the
continuing or surviving corporation;
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(v) the Borrowers and their Subsidiaries may make Investments
permitted by Section 5.02(d);
(vi) the Borrowers and their Subsidiaries may Transfer obsolete
or worn-out Property in the ordinary course of business;
(vii) the Borrowers and their Subsidiaries may Transfer Property
for not less than fair market value in the ordinary course of
business, provided that the aggregate purchase price for all such
Transfers by the Borrowers and their Subsidiaries after the date
hereof shall not exceed $100,000,000;
(viii) the Borrowers and their Subsidiaries may sell inventory in
the ordinary course of business;
(ix) the Borrowers and their Subsidiaries may sell or discount
without recourse accounts receivable arising in the ordinary course of
business in connection with the compromise or collection thereof; and
(x) the Borrowers and their Subsidiaries may sell the New York
Real Property for not less than fair market value.
(d) Loans, Advances, Acquisitions and Liabilities. The Borrowers will
not, and will not permit any of their Subsidiaries to, make any advance,
loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any Property
constituting a business unit of, or make any other investment in, any
Person ("Investments"), except:
(i) extensions of trade credit in the ordinary course of
business;
(ii) investments in Cash Equivalents;
(iii) any Borrower and any Subsidiary of a Borrower may
consummate any Acquisition provided that (w) both immediately prior to
such Acquisition and after giving effect thereto, no Default shall
exist, (x) in the Company's reasonable judgment, a Default under
Section 5.03 is not likely to occur on the last day of the fiscal
quarter immediate succeeding such Acquisition, (y) in the case of an
Acquisition involving the Company, the Company shall be the continuing
or surviving corporation and in the case of an Acquisition involving
any other Borrower or Subsidiary, such other Borrower or Subsidiary
shall be the continuing or surviving corporation, and (z) such
Acquisition is not a Hostile Acquisition;
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(iv) loans and advances to employees of the Borrowers and their
respective Subsidiaries for travel, entertainment and relocation
expenses and in connection with management incentive plans, in each
case in the ordinary course of business, and loans to officers of the
Borrowers and their respective Subsidiaries in the ordinary course of
business, in an aggregate amount for the Borrowers and their
respective Subsidiaries not to exceed $10,000,000 at any one time
outstanding;
(v) Investments by any Borrower in any other Borrower or in any
Subsidiary of any Borrower and Investments by Subsidiaries of any
Borrower in any Borrower and in any Subsidiary of any Borrower; and
(vi) other Investments (including Investments in any Joint
Venture), provided that the Net Amount of such Investments shall not
exceed, in the aggregate, $100,000,000;
(e) Dividends and Purchase of Stock. At any time when a Default has
occurred and is continuing, none of the Borrowers will, nor will it permit
any of its Subsidiaries to, declare or pay any dividends on any shares of
any class of its capital stock, or make any distributions to partners or
members, or apply any of its Property to the purchase, redemption or other
retirement of, or set apart any sum for the payment of any dividends on, or
for the purchase, redemption or other retirement of, or make any other
distribution by reduction of capital or otherwise in respect of, any shares
of any class of capital stock or other equity ownership interests of any
Borrower, or purchase or acquire any shares of any class of capital stock
or other equity ownership interests of any Borrower except that (i) any
Subsidiary may declare and pay dividends with respect to their capital
stock and (ii) the Company may (x) declare and pay dividends payable solely
in shares of its capital stock and (y pay any dividend declared prior to
the occurrence of such Default (and not in anticipation thereof), provided,
in the case of this clause (y), that such payment is made within 30 days
after the declaration of such dividend.
(f) Transactions with Affiliates. The Borrowers will not, and will not
permit any of their Subsidiaries to, enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of Property or
the rendering of any service, with any Affiliate unless such transaction is
(i) not otherwise prohibited under this Agreement and (ii) upon fair and
reasonable terms no less favorable to such Borrower or such Subsidiary, as
the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate.
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SECTION 5.03 Financial Covenants. So long as any principal of or interest
on any Advance or any Note or any other amount payable hereunder shall remain
outstanding or any Bank shall have any Commitment hereunder, the Company and
each Borrower that is not a Foreign Borrower covenant and agree that:
(a) Debt to EBITDA Ratio. They will not permit the Debt to EBITDA
Ratio as at the last day of any fiscal quarter to be greater than 3.25 to
1.0.
(b) Interest Coverage Ratio. They will not permit the Interest
Coverage Ratio as at the last day of any fiscal quarter to be less than
3.50 to 1.0.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Advance when
due in accordance with the terms hereof, whether at maturity, by notice of
intention to prepay or otherwise; or
(b) Any Borrower shall fail to pay any interest on any Advance, or any
Facility Fee or any other fee or amount payable hereunder, within three
days after any such interest or other amount becomes due in accordance with
the terms hereof; or
(c) Any representation or warranty made or deemed made by any Borrower
herein or which is contained in any certificate, document or financial or
other statement furnished by it at any time under or in connection with
this Agreement shall prove to have been incorrect in any material respect
on or as of the date made or deemed made; or
(d) Any Borrower shall default in the observance or performance of any
agreement contained in Section 5.02 of this Agreement; or
(e) Any Borrower shall default in the observance or performance of any
other agreement contained in this Agreement (other than as provided in
paragraphs (a) through (d) of this Section), and such default shall
continue unremedied for a period of 30 days after the earlier of (i) the
date upon which written notice thereof is given to the Company by the
Administrative Agent or the Majority Banks or (ii) the date upon which a
Responsible Officer of any Borrower becomes aware of such default or
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(f) Any Borrower or any of its Subsidiaries shall (i) default in any
payment of principal of or interest of any Debt (other than the Advances)
or any Hedging Obligation, beyond the period of grace (not to exceed 30
days), if any, provided in the instrument or agreement under which such
Debt or Hedging Obligation, as the case may be, was created; or (ii)
default in the observance or performance of any other agreement or
condition relating to any such Debt or such Hedging Obligation or contained
in any instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the effect of which default
or other event or condition is to cause, or to permit the holder or holders
of such Debt or such Hedging Obligation (or a trustee or agent on behalf of
such holder or holders) to cause, with the giving of notice or the lapse of
time or both if required, such Debt or such Hedging Obligation to become
due prior to its stated maturity; provided, however, that no Default shall
exist under this paragraph unless the aggregate amount of Debt and Hedging
Obligations at any time in respect of which any default or other event or
condition referred to in this paragraph shall have occurred shall be equal
to at least $5,000,000 (or the equivalent in any one or more other
currencies); or
(g) (i) Any Borrower or any of its Domestic Operating Subsidiaries or
Material Foreign Operating Subsidiaries shall commence any case, proceeding
or other action (x) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect
to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (y) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
Property, or any Borrower or any of its Domestic Operating Subsidiaries or
Material Foreign Operating Subsidiaries shall make a general assignment for
the benefit of its creditors; or (ii) there shall be commenced against any
Borrower or any of its Domestic Operating Subsidiaries or Material Foreign
Operating Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (x) results in the entry of an order
for relief or any such adjudication or appointment or (y) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against any Borrower or any of its Domestic
Operating Subsidiaries or Material Foreign Operating Subsidiaries any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part
of its Property which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) any Borrower or any
of its Domestic Operating Subsidiaries or Material Foreign Operating
Subsidiaries shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or any Borrower or any of its Domestic
Operating Subsidiaries or Material Foreign Operating Subsidiaries shall
generally not, or
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shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(h) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of any
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Banks, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) any Borrower or any
Commonly Controlled Entity shall or in the reasonable opinion of the
Majority Banks is likely to, incur any liability, in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(i) One or more judgments or decrees shall be entered against any
Borrower or any of its Subsidiaries involving in the aggregate for the
Borrowers and their respective Subsidiaries, taken as a whole, a liability
(to the extent not paid or fully covered by insurance or third-party
indemnification from third parties which could reasonably be expected to
satisfy any indemnification claim) of $5,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 60 days from the entry thereof; or
(j) A Change in Control shall occur;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Majority Banks, by notice to the Company,
declare the obligation of each Bank to make, Convert and/or Continue Advances to
be terminated, whereupon the same shall forthwith terminate, and (ii) shall at
the request, or may with the consent, of the Majority Banks, by notice to the
Company, declare the Notes, all interest thereon and all other amounts payable
under this Agreement to be forthwith du and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrowers; provided, however, that
in the event of an actual or deemed entry of an order for relief with respect to
any Borrower under the United States Federal Bankruptcy Code or any analogous
statute or law in any jurisdiction outside of the United States, (x) the
obligation of each Bank to make, Convert and/or Continue Advances shall
automatically be terminated and (y) the Notes, all such interest and all such
amounts shall automatically become and be due and payable,
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without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by the Borrowers.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Bank hereby appoints and
authorizes the Administrative Agent to take such action as administrative agent
on its behalf and to exercise such powers under this Agreement as are delegated
to the Administrative Agent by the terms hereof, together with such powers as
are reasonably incidental thereto. As to any matters not expressly provided for
by this Agreement (including, without limitation, enforcement or collection of
the Notes), the Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Majority Banks, and such instructions shall be
binding upon all Banks and all holders of Notes; provided, however, that the
Administrative Agent shall not be required to take any action which exposes the
Administrative Agent to personal liability or which is contrar to this Agreement
or applicable law. The Administrative Agent agrees to give to each Bank prompt
notice of each notice given to it by any Borrower pursuant to the terms of this
Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent: (a) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives and accepts an Assignment
and Acceptance entered into by the Bank which is the payee of such Note, as
assignor, and an assignee as provided in Section 8.07; (b) may consult with
legal counsel (including counsel for the Borrowers), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement; (d) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of any Borrower or to inspect the
Property (including the books and records) of any Borrower or any of their
Subsidiaries; (e) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; and (f)
shall incur no liability under or in respect of this Agreement by acting upon
any notice, consent,
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certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its Commitment, the
Advances made by it and the Notes issued to it, Citibank shall have the same
rights and powers under this Agreement as any other Bank and may exercise the
same as though it were not the Administrative Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Citibank in its
individual capacity. Citibank and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any kind
of business with, the Borrowers, any of their Subsidiaries and any Person who
may do business with or own securities of the any Borrower or any such
Subsidiary, all as if Citibank were not the Administrative Agent and without any
duty to account therefor to the Banks.
SECTION 7.04. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank and based on the financial statements referred to in Section 4.01 and such
other documents and information as it has deemed appropriate, made its own
credit analysis of the Borrowers and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent o any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 7.05. Indemnification. The Banks agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrowers but without
limiting the reimbursement obligations the Borrowers hereunder), ratably
according to the respective principal amounts of the Notes held by them at the
time indemnification is sought hereunder (or if no Notes are at the time
outstanding, ratably according to the respective amounts of their Commitments at
such time), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Administrative Agent in any way relating to or arising out
of this Agreement or any action taken or omitted by the Administrative Agent
under this Agreement, provided, that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Administrative
Agent's gross negligence or willful misconduct. Without limiting the foregoing,
each Bank agrees to reimburse the Administrative Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, to the
extent that the Administrative Agent is not reimbursed for such expenses by the
Borrowers.
SECTION 7.06. Successor Administrative Agent. The Administrative Agent may
resign at any time by giving written notice thereof to the Banks and the Company
and may
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be removed at any time with or without cause by the Majority Banks. Upon any
such resignation or removal, the Majority Banks shall have the right to appoint
a successor Administrative Agent from among the Banks that, unless a Default or
Event of Default shall have occurred and then be continuing, is reasonably
acceptable to the Company. If no successor Administrative Agent shall have been
so appointed by the Majority Banks, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Administrative Agent,
then the retiring Administrative Agent may, on behalf of the Banks, appoint a
successor Administrative Agent, which shall be a Bank or a commercial bank
organized under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $100,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations under this Agreement. After
any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article VII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
SECTION 7.07. Syndication Agent, Arranger and Co-Arranger. Neither Bank of
America National Trust and Savings Association, CSI nor BARS shall not have any
rights (except to the extent expressly provided herein) or obligations hereunder
in their respective capacities as Syndication Agent, Arranger and Co-Arranger.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by any Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Banks, or by the Administrative Agent with the
consent of the Majority Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Banks, or by the Administrative Agent with the
consent of all the Banks do any of the following: (a) waive any of the
conditions specified in Section 3.01, (b) except as provided in Section 2.04(a),
increase the Commitments of such Banks or subject such Banks to any additional
obligations, (c) reduce the principal of, or interest on, the Advances or the
Notes or any fees or other amounts payable hereunder, (d) postpone any date
fixed for any payment of principal of, or interest on, the Advances or the Notes
or any fees or other amounts payable hereunder, (e) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Advances or the
Notes, or the number of Banks, which shall be required for the Banks or any of
them to take any action hereunder, (f) amend this Section 8.01, (g) modify the
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definition of the term "Approved Foreign Currency", (h) amend Section 2.15 or
(i) release the Company from its Guarantee of the Guaranteed Obligations;
provided, further, that no amendment, waiver or consent shall, unless in writing
and (i) signed by the Administrative Agent in addition to the Banks required
above to take such action, affect the rights or duties of the Administrative
Agent under this Agreement or any Note and (ii) signed by the Swing Line Bank in
addition to the Banks required to take such action, amend Section 2.02, increase
the Swing Line Facility or otherwise affect the rights or obligations of the
Swing Line Bank under this Agreement. This Agreement and the Notes and the other
documents referred to herein constitute the entire agreement of the parties with
respect to the subject matter hereof and thereof.
SECTION 8.02. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telecopier, telegraphic, telex or
cable communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to any Borrower, to it care or the Company at the Company's
address at Young & Rubicam Inc, 285 Madison Avenue, New York, New York 10017,
Attention: Paul Rourke, telephone no. 212-210-4920, telecopier number
212-210-5363; if to any Bank, at the Domestic Lending Office specified beneath
its signature hereto; and if to the Administrative Agent, Citibank, N.A., 399
Park Avenue, New York, New York 10043, Attention: Eric Huttner, telephone no.
212-559-8564, telecopier no. 212-793-6873; or, as to any Borrower or the
Administrative Agent, at such other address as shall be designated by such party
in a written notice to the other parties and, as to each other party, at such
other address as shall be designated by such party in a written notice to the
Company and the Administrative Agent. All such notices and communications shall,
when mailed, telecopied, telegraphed, telexed or cabled, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively,
except that notices and communications to the Administrative Agent pursuant to
Article II or VII shall not be effective until received by the Administrative
Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Bank or
the Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs, Expenses and Indemnification.
(a) The Borrowers jointly and severally agree to pay and reimburse promptly
after demand all reasonable costs and expenses of the Administrative Agent in
connection with the preparation, execution, delivery, administration,
modification and amendment of this Agreement, the Notes and the other documents
to be delivered hereunder, including, without limitation, the reasonable fees
and out-of-pocket expenses of counsel for the Administrative Agent with respect
thereto and with respect to advising the Administrative Agent as to its rights
and responsibilities under this Agreement. The Borrowers further jointly and
severally agree to pay on demand all costs and expenses, if any (including,
without limitation, reasonable counsel
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fees and expenses of the Administrative Agent and each of the Banks), incurred
by the Administrative Agent or any Bank in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 8.04(a).
(b) The Borrowers hereby jointly and severally indemnify the Administrative
Agent, the Syndication Agent, CSI, BARS, each Bank and each of their respective
Affiliates and their respective officers, directors, employees, agents, advisors
and representatives (each, an "Indemnified Party") from and against any and all
claims, damages, losses, liabilities and expenses (including, without
limitation, fees and disbursements of counsel), joint or several, that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or relating to any investigation,
litigation or proceeding or the preparation of any defense with respect thereto
arising out of or in connection with or relating to this Agreement, the Notes or
the transactions contemplated hereby or thereby or any use made or proposed to
be made with the proceeds of the Advances, whether or not such investigation,
litigation or proceeding is brought by a Borrower, any of its shareholders or
creditors, an Indemnified Party or any other Person, or an Indemnified Party is
otherwise a party thereto, and whether or not any of the conditions precedent
set forth in Article III are satisfied or the other transactions contemplated by
this Agreement are consummated, except to the extent such claim, damage, loss,
liability or expense is found by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct,
or from a violation by such Indemnified Party of any law, order, regulation or
agreement to which such Indemnified Party or its properties is subject, or from
a breach of this Agreement.
The Borrowers hereby further agree that no Indemnified Party shall have any
liability (whether direct or indirect, in contract, tort or otherwise) to the
Borrowers for or in connection with or relating to this Agreement, the Notes or
the transactions contemplated hereby or thereby or any use made or proposed to
be made with the proceeds of the Advances, except to the extent such liability
is found by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct, nor any liability
for consequential or punitive damages.
(c) If any payment of principal of, or Conversion of, any LIBO Rate Advance
is made other than on the last day of an Interest Period for such Advance, as a
result of acceleration of the maturity of the Notes pursuant to Section 6.01 or
for any other reason whatsoever, the Borrower of such Advance shall pay to the
Administrative Agent for the account of each Bank any amounts required to
compensate such Bank for any additional losses, costs or expenses which it may
reasonably incur as a result of such payment or Conversion, including, without
limitation, any loss (excluding loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Bank to fund or maintain such Advance. Subject to the next two
sentences hereof, such Borrower shall pay amounts owing to such Bank pursuant to
this Section 8.04(c) within 30 days after receipt from such Bank of a
certificate setting forth in reasonable detail the calculation of the amount
such
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Bank is entitled to claim under this Section 8.04(c) (which certificate shall be
conclusive and binding on the Borrower, absent manifest error). Such Borrower
shall not be liable under this clause for the payment of any amounts incurred or
accrued more than 180 days prior to the date on which notice of the event or
circumstance giving rise to the obligation to make such payment is given to such
Borrower hereunder, except to the extent such amounts were incurred or accrued
prior to such date due solely to the retroactive nature of the relevant
requirement. If such Borrower objects in good faith to any payment demanded
under this clause on or before the date such payment is due, then such Borrower
and the Bank demanding such payment shall enter into discussions to review the
amount due, and such Borrower's obligation to pay such amount to such Bank shall
be deferred for 45 days after the original demand for payment, and if such
Borrower and such Bank do not reach agreements during such 4 day period on the
amount due, such Borrower shall pay to such Bank at the end of such 45-day
period the amount certified by such Bank to be due.
SECTION 8.05. Right of Set-off. Upon (a) the occurrence and during the
continuance of any Event of Default under Section 6.01(a) or (b) or (b) the
making of the request or the granting of the consent specified by Section 6.01
to authorize the Administrative Agent to declare the Notes due and payable
pursuant to the provisions of Section 6.01, each Bank and each of its Affiliates
is hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by such Bank or such Affiliate to or for the credit or the
account of any Borrower (all such deposits and other indebtedness being herein
called "Obligations") against any and all of the obligations of any Borrower now
or hereafter existing under this Agreement and any Note held by such Bank,
whether or not such Bank shall have made any demand under this Agreement or such
Note and although the Obligations may be unmatured. Each Bank agrees promptly to
notify the Company after any such set-off and application made by such Bank or
such Affiliate, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of each Bank and its
Affiliate under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which such Bank or such
Affiliate may have
SECTION 8.06. Binding Effect. This Agreement shall become effective when it
shall have been executed by each Borrower and the Administrative Agent and when
the Administrative Agent shall have been notified by each Bank that such Bank
has executed it and thereafter shall be binding upon and inure to the benefit of
each Borrower, the Administrative Agent and each Bank and their respective
successors and assigns, except that no Borrower shall have the right to assign
its rights hereunder or any interest herein without the prior written consent of
the Banks.
SECTION 8.07. Assignments and Participations.
(a) Each Bank may, with notice to and the consent of the Administrative
Agent and (unless at the time an Event of Default has occurred and is
continuing) the Company, such
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consents not to be unreasonably withheld (but not otherwise), assign to another
bank, financial institution or other entity (other than the Company or any
Affiliate of the Company), all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note or Notes held by it);
provided, however, that (i) no such consent by the Company or the Administrative
Agent shall be required in the case of any assignment to a Subsidiary of the
assigning Bank or to another Bank, (ii) each such assignment shall be of a
constant, and not a varying, percentage of all rights and obligations of the
assigning Bank under this Agreement, (iii) except in the case of an assignment
of the entire remaining portion of an assigning Bank's rights and obligations
under this Agreement, the amount of the Commitment of the assigning Bank being
assigned pursuant to each such assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $10,000,000 and shall be an integral multiple of $1,000,000, (iv) the
parties to each such assignment shall execute and deliver to the Administrative
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together wit any Note or Notes subject to such assignment, and (v)
the parties to each such assignment (other than the Borrower) shall deliver to
the Administrative Agent a processing and recordation fee of $3,000. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (x) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Bank hereunder and (y) the Bank assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Bank makes no representation or warranty and assumes
no responsibility with respect to the financial condition of any Borrower or the
performance or observance by any Borrower of any of its obligations under this
Agreement or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.01 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Administrative
Agent, such assigning Bank or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
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assignee appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required t be performed by
it as a Bank.
(c) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an assignee, together with any Note or Notes subject to such
assignment, the Administrative Agent shall, if such Assignment and Acceptance
has been completed (and the Company and the Administrative Agent shall have
consented to the relevant assignment to the extent required pursuant to Section
8.07(a)) and is in substantially the form of Exhibit E hereto, (i) accept such
Assignment and Acceptance, (ii record the information contained therein in the
Register and (iii) give prompt notice thereof to the Company. Within five
Business Days after its receipt of such notice, each Borrower, at its own
expense, shall execute and deliver to the Administrative Agent, in exchange for
the surrendered Note or Notes, a Note to the order of such assignee in an amount
equal to the Commitment assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Bank has retained a Commitment hereunder, a new Note to
the order of the assigning Bank in an amount equal to the Commitment retained by
it hereunder. Such new Note(s) shall be in an aggregate principal amount equal
to the aggregate principal amount of such surrendered Notes. All such Notes
shall be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of Exhibit A hereto.
(d) The Administrative Agent shall maintain at its address referred to in
Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of each of
the Banks and, with respect to Banks, the Commitment of, and principal amount of
the Advances owing to, each such Bank from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for the purposes, absent
manifest error, and the Borrowers, the Administrative Agent and the Banks may
treat each Person whose name is recorded in the Register as a Bank hereunder for
the purposes of this Agreement. The Register shall be available for inspection
by any Borrower or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(e) Each Bank may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the Advances owing to it and the Note or Notes held by it); provided, however,
that (i) such Bank's obligations under this Agreement (including, without
limitation, its Commitment hereunder) shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Bank shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrowers, the Administrative Agent
and the other Banks shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement, and (v)
no participant under any such participation agreement shall have any right to
approve any amendment or waiver of any provision of this Agreement or any Note,
or to consent
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to any departure by any Borrower therefrom, except to the extent that any such
amendment, waiver or consent would (x) reduce the principal of, or interest on,
the Notes or any fee or other amounts payable hereunder, in each case to the
extent the same are subject to such participation, or (y) postpone any date
fixed for the payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder, in each case to the extent the same are subject
to such participation.
(f) Any Bank may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 8.07, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrowers or any of their Subsidiaries furnished to such Bank by
or on behalf of any Borrower; provided, that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to any
Borrower or any such Subsidiary received by it from such Bank on the terms set
forth in Section 8.13.
(g) Notwithstanding any other provision set forth in this Agreement, any
Bank may at any time create a security interest in all or any portion of its
rights under this Agreement (including, without limitation, the Advances owing
to it and the Notes held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System.
(h) All amounts payable by the Borrower to any Bank under Sections 2.07,
2.11, 2.14 and 8.04(c) in respect of Advances held by such Bank, and such Bank's
Commitment, shall be determined as if such Bank had not sold or agreed to sell
any participations in such Advances or Commitment and as if such Bank were
funding each of such Advances and Commitments in the same way that it is funding
the portion of such Advances and Commitment in which no participations have been
sold. No assignee or other transferee of any Bank's rights shall be entitled to
receive any greater payment under Section 2.11 than such Bank would have been
entitled to receive with respect to the rights transferred, unless such transfer
is made (i) with the Company's prior written consent, (ii) by reason of the
provisions of said Section 2.11 requiring such Bank to designate a different
Applicable Lending Office as provided in said Section 2.11 or (iii) at a time
when the circumstances giving rise to such greater payment di not exist.
SECTION 8.08. Governing Law; Submission to Jurisdiction. This Agreement and
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. Each Borrower hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York state court sitting in New York City for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each Borrower agrees that service of all writs, process and
summonses in any such legal proceedings brought in the State of New York may be
made upon the Company at its address specified in Section 8.02 and each Borrower
other than the Company hereby appoints the Company as its agent and true and
lawful attorney-in-fact in its name, place and stead to accept such service of
any and all such writs, process and summonses, and agrees that the failure of
the Company to give any notice of any such service of
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process to such Borrower shall not impair or affect the validity of such service
or of any judgment based thereon. Each such appointment shall be irrevocable to
the fullest extent permitted by applicable law. Each Borrower irrevocably
waives, to the fullest extent permitted by applicable law, any objection that it
may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought i an inconvenient forum.
SECTION 8.09. Severability. In case any provision in this Agreement or in
any Note shall be held to be invalid, illegal or unenforceable, such provision
shall be severable from the rest of this Agreement or such Note, as the case may
be, and the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.
SECTION 8.10. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
SECTION 8.11. Survival. The obligations of the Borrowers under Sections
2.07, 2.11, 2.14 and 8.04, and the obligations of the Banks under Section 7.05,
shall survive the repayment of the Advances and the termination of the
Commitments. In addition, each representation and warranty made, or deemed to be
made by or in connection with any Notice of Borrowing, herein or pursuant hereto
shall survive the making of such representation and warranty as of the date
made, and no Bank shall be deemed to have waived, by reason of making any
Advance, any Default or Event of Default that may arise by reason of such
representation or warranty proving to have been false or misleading,
notwithstanding that such Bank or the Administrative Agent may have had notice
or knowledge or reason to believe that such representation or warranty was false
or misleading at the time such extension of credit was made.
SECTION 8.12. Waiver of Jury Trial. EACH OF THE BORROWERS, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.13. Confidentiality. Each Bank agrees to hold all non-public
information obtained pursuant to the provisions of this Agreement in accordance
with its customary procedure for handling confidential information of this
nature and in accordance with safe and sound banking practices, provided, that
nothing herein shall prevent any Bank from disclosing such information (a) to
any other Bank or to the Administrative Agent (or to CSI or BARS), (b) upon the
order of any court or administrative agency or otherwise to the extent required
by statute, rule, regulation or judicial process, (c) to bank examiners or upon
the request or demand of any other regulatory agency or authority, (d) which had
been publicly disclosed other than as a result of a disclosure by the
Administrative Agent or any Bank prohibited by this
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----------------
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Agreement, (e) in connection with any litigation to which any one or more of the
Banks or the Administrative Agent is a party, or in connection with the exercise
of any remedy hereunder or under any Note, (f) to such Bank's or Administrative
Agent's legal counsel and independent auditors and accountants and (g) subject
to provisions substantially similar to those contained in this Section, to any
actual or proposed participant or assignee.
SECTION 8.14. European Monetary Union. (a) If, as a result of the
implementation of European monetary union, (i) any European Currency ceases to
be lawful currency of the nation issuing the same and is replaced by a European
common currency (the "Euro"), or (ii) any European Currency and the Euro are at
the same time recognized by any Governmental Authority of the nation issuing
such European Currency as lawful currency of such nation and the Administrative
Agent or the Majority Banks shall so request in a notice delivered to the
Company, then any amount payable hereunder by any party hereto in such European
Currency shall instead be payable in the Euro and the amount so payable shall be
determined by translating the amount payable in such European Currency to the
Euro at the exchange rate recognized by the European Central Bank for the
purpose of implementing European monetary union. Prior to the occurrence of the
event or events described in clause (i) or (ii) of the preceding sentence, each
amount payable hereunder in any European Currency will, except as otherwise
provided herein, continue to be payable only in that Currency.
(b) The Company agrees, at the request of any Bank, to compensate such Bank
for any loss, cost, expense or reduction in return that such Bank shall
reasonably determine shall be incurred or sustained by such Bank as a result of
the implementation of European monetary union and that would not have been
incurred or sustained but for the transactions provided for herein. A
certificate of a Bank setting forth such Bank's determination of the amount or
amounts necessary to compensate such Bank shall be delivered to the Company and
shall be conclusive and binding on the Company absent manifest error. The
Company shall pay such Bank the amount shown as due on any such certificate
within 10 days after receipt thereof. If the Company objects in good faith to
any payment demanded under this clause on or before the date such payment is
due, then the Company and the Bank demanding such payment shall enter into
discussions to review the amount due, and the Company's obligation to pay such
amount to such Bank shall be deferred for 45 days after the original demand for
payment, and if the Company and such Bank do not reach agreement during such
45-day period on the amount due, the Company shall pay to such Bank at the end
of such 45-day period the amount certified by such Bank to be due.
(c) The parties hereto agree, at the time of or at any time following the
implementation of European monetary union, to use reasonable efforts to enter
into an agreement amending this Agreement in order to reflect the implementation
of such monetary union, to permit (if feasible) the Euro to qualify as an
Approved Foreign Currency under the terms and conditions of the definition of
such term and to place the parties hereto in the position with respect to the
settlement of payments of th Euro as they would have been with respect to the
settlement of the Currencies it replaced.
Credit Agreement
----------------
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SECTION 8.15. Additional Subsidiary Borrowers. Subject to the conditions
set forth below, any Subsidiary of the Company may become a party to this
Agreement as a Subsidiary Borrower hereunder. Any such Subsidiary shall become a
party to this Agreement at such time as (a) the Administrative Agent shall have
received (i) a supplement to this Agreement (a "Subsidiary Borrower
Supplement"), in substantially the form of Exhibit F hereto, duly executed by
such Subsidiary, (ii) a Note for each Bank, duly executed by such Subsidiary,
(iii) certified copies of the charter and by-laws (or equivalent documents) of
such Subsidiary and of all corporate authority for such Subsidiary (including,
without limitation, board of director resolutions and evidence of the
incumbency, including specimen signatures, of officers) with respect to the
execution, delivery and performance of this Agreement and the Notes and each
other document to be delivered by such Subsidiary from time to time in
connection herewith and the extensions of credit hereunder, and (iv) a favorable
opinion of counsel (which counsel shall be reasonably acceptable to the
Administrative Agent) for such Subsidiary with regard to the due organization,
power and authority of such Subsidiary to execute and deliver such Subsidiary
Borrower Supplement, and the legality, validity, binding effect and
enforceability thereof and of such Subsidiary's obligations under this Agreement
and said Notes, and the obtaining of any and all foreign exchange and other
governmental approvals required in connection therewith, and (b) the
Administrative Agent shall have accepted such Subsidiary Borrower Supplement
(which the Administrative Agent shall accept upon its receipt of the
documentation required to be delivered pursuant to the foregoing clause (a) in
form and substance satisfactory to the Administrative Agent). Upon such receipt
and acceptance, such Subsidiary shall be a party hereto and shall have the
rights and obligations of a Borrower hereunder and under the Notes, and the
Administrative Agent shall notify the Banks thereof and shall deliver to each
Bank its Note of such Subsidiary.
SECTION 8.16. Waiver of Immunity. To the fullest extent permitted by
applicable law, to the extent that any Foreign Borrower may be or become
entitled to claim for itself or its Properties any immunity on the ground of
sovereignty or the like from suit, court jurisdiction, attachment prior to
judgment, attachment in aid of execution of a judgment or execution of a
judgment, and to the extent that in any jurisdiction there may be attributed
such an immunity (whether or not claimed), such Foreign Borrower hereby
irrevocably agrees not to claim and hereby irrevocably waives such immunity with
respect to its obligations under this Agreement and the Notes.
SECTION 8.17. Judgment Currency. This is an international loan transaction
in which the specification of Dollars or any Foreign Currency, as the case may
be (the "Specified Currency"), and any payment in New York County or the country
of the Specified Currency, as the case may be (the "Specified Place"), is of the
essence, and the Specified Currency shall be the currency of account in all
events relating to Loans denominated in the Specified Currency. The payment
obligations of the Borrowers under this Agreement shall not be discharged by an
amount paid in another currency or in another place, whether pursuant to a
judgment or otherwise, to the extent that the amount so paid on conversion to
the Specified Currency and transfer to the Specified Place under normal banking
procedures does not yield the amount of the Specified Currency at the Specified
Place due hereunder. If for the purpose of obtaining
Credit Agreement
----------------
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judgment in any court it is necessary to convert a sum due hereunder in the
Specified Currency into another currency (the "Second Currency"), the rate of
exchange which shall be applied shall be that at which in accordance with normal
banking procedures the Administrative Agent could purchase the Specified
Currency with the Second Currency on the Business Day next preceding that on
which such judgment is rendered. The obligation of each Borrower in respect of
any such sum due from it to the Administrative Agent or any Bank hereunder
shall, notwithstanding the rate of exchange actually applied in rendering such
judgment, be discharged only to the extent that on the Business Day following
receipt by the Administrative Agent or such Bank, as the case may be, of any sum
adjudged to be due hereunder in the Second Currency to the Administrative Agent
or such Bank, as the case may be, the Administrative Agent or such Bank, as the
case may be, may in accordance with normal banking procedures purchase and
transfer to the Specified Place the Specified Currency with the amount of the
Second Currency so adjudged to be due; and the Company hereby, as a separate
obligation and notwithstanding any such judgment, agrees to indemnify the
Administrative Agent or such Bank, as the case may be, against, and to pay the
Administrative Agent or such Bank, as the case may be, on demand in the
Specified Currency, any difference between the sum originally due to the
Administrative Agent or such Bank, as the case may be, in the Specified Currency
and the amount of the Specified Currency so purchased and transferred.
SECTION 8.18. Limitation on Foreign Borrower Obligations. Anything in this
Agreement to the contrary notwithstanding, no Foreign Borrower shall be deemed
to guarantee the obligations of any other Borrower hereunder and no Foreign
Borrower shall be liable for the obligations, covenants, representations or
warranties of any other Borrower hereunder; provided, that nothing in this
Section 8.18 shall be deemed to limit the rights and remedies of the
Administrative Agent and the Banks under this Agreement upon the occurrence of
any Default, whether such Default results from any action or inaction on the
part of such Foreign Borrower, any other Borrower or any other Person.
SECTION 8.19. Affiliates.
(a) The parties hereto hereby acknowledge and agree that any Affiliate of a
Bank that makes a Revolving Credit Advance to any Foreign Borrower as
contemplated by Section 2.01(a)(ii) hereof shall have made such Revolving Credit
Advance in reliance upon, and shall be entitled to the benefits of, this
Agreement and shall be entitled to enforce its rights hereunder in respect of
such Revolving Credit Advance as fully as if it were a party hereto.
(b) At the request of any Bank, any Affiliate of such Bank that makes (or
proposes to make) a Revolving Credit Advance to any Foreign Borrower as
contemplated by Section 2.01(a)(ii) hereof may become a signatory hereto by
executing and delivering to the Administrative Agent a supplement to this
Agreement satisfactory in form and substance to the Administrative Agent if
being a signatory hereto will be advantageous to such Affiliate under applicable
laws, provided that no such Affiliate shall have a Commitment hereunder.
Credit Agreement
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ARTICLE IX
GUARANTEE
SECTION 9.01. The Guarantee. The Company hereby guarantees to each Bank and
the Administrative Agent and their respective successors and assigns the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the principal of and interest on the Advances made by each Bank to
each Borrower other than the Company (the "Guaranteed Borrowers") and all other
amounts from time to time owing to each Bank or the Administrative Agent by each
Guaranteed Borrower under this Agreement, in each case strictly in accordance
with the terms thereof (such obligations being herein collectively called the
"Guaranteed Obligations"). The Company hereby further agrees that if any
Guaranteed Borrower shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Company will promptly pay the same, without any demand or notice whatsoever, and
that in the case of any extension of time of payment or renewal of any of the
Guaranteed Obligations, the same will be promptly paid in full when due (whether
at extended maturity, by acceleration or otherwise) in accordance with the terms
of such extension or renewal.
SECTION 9.02. Obligations Unconditional. The obligations of the Company
under Section 9.01 are, to the fullest extent permitted by applicable law,
absolute and unconditional irrespective of the authorization, legality value,
genuineness, validity, regularity or enforceability of any Subsidiary Borrower
Supplement or any of the obligations of any Guaranteed Borrower under this
Agreement or any other agreement or instrument referred to herein or therein, or
any substitution, release or exchange of any other guarantee of or security for
any of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 9.02 that the obligations of the
Company hereunder shall be absolute and unconditional under any and all
circumstances. Without limiting the generality of the foregoing, it is agree
that the occurrence of any one or more of the following shall not alter or
impair the liability of the Company hereunder which shall remain absolute and
unconditional as described above:
(a) at any time or time to time, without notice to the Company, the
time for any performance of or compliance with any of the Guaranteed
Obligations shall be extended, or such performance or compliance shall be
waived;
(b) any of the acts mentioned in any of the provisions of this
Agreement or any other agreement or instrument referred to herein or
therein shall be done or omitted;
(c) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement
or any other agreement or instrument referred to herein or therein shall be
waived or any other guarantee of any of the Guaranteed
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Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(d) any lien or security interest granted to, or in favor of, the
Administrative Agent or any Bank or Banks as security for any of the
Guaranteed Obligations shall fail to be perfected.
The Company hereby expressly waives diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Administrative
Agent or any Bank exhaust any right, power or remedy or proceed against any
Guaranteed Borrower under this Agreement or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations.
SECTION 9.03. Reinstatement. The obligations of the Company under this
Article IX shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of any Guaranteed Borrower in respect of the
Guaranteed Obligations is rescinded or must be otherwise restored by any holder
of any of the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy or reorganization or otherwise and the Company agrees that it will
indemnify the Administrative Agent and each Bank on demand for all reasonable
costs and expenses (including, without limitation, fees of counsel) incurred by
the Administrative Agent or such Bank in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
SECTION 9.04. Subrogation. The Company hereby agrees that until the payment
and satisfaction in full of all Guaranteed Obligations and the expiration and
termination of the Commitments of the Banks under this Agreement it shall not
exercise any right or remedy arising by reason of any performance by it of its
guarantee in Section 9.01, whether by subrogation or otherwise, against any
Guaranteed Borrower or any other guarantor of any of the Guaranteed Obligations
or any security for any of the Guaranteed Obligations.
SECTION 9.05. Remedies. The Company agrees that, as between the Company and
the Banks, the obligations of the Guaranteed Borrowers under this Agreement may
be declared to be forthwith due and payable as provided in Section 6.01 (and
shall be deemed to have become automatically due and payable in the
circumstances provided in said Section 6.01) for purposes of Section 9.01
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such obligations from becoming automatically due and payable) as
against any Guaranteed Borrower and that, in the event of such declaration (or
such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by such Guaranteed Borrower)
shall forthwith become due and payable by the Company for purposes of Section
9.01.
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SECTION 9.06. Continuing Guarantee. The guarantee in this Article IX is a
continuing guarantee of payment (and not of collection), and shall apply to all
Guaranteed Obligations whenever arising.
SECTION 9.07. Instrument for the Payment of Money. The Company hereby
acknowledges that the guarantee in this Article IX constitutes an instrument for
the payment of money, and consents and agrees that any Bank or the
Administrative Agent, at its sole option, in the event of a dispute by the
Company in the payment of any moneys due hereunder, shall have the right to
bring motion-action under New York CPLR Section 3213.
Credit Agreement
----------------
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
YOUNG & RUBICAM INC.
By /s/ Jay M. Kushner
-----------------------------------
Title: Senior Vice President
Tax & Treasury
SUBSIDIARY BORROWERS
--------------------
BURSON-MARSTELLER HOLDING GMBH
By /s/ Karl Fischer
-----------------------------------
Title: Chief Financial Officer
YOUNG & RUBICAM HOLDINGS
(U.K.) LIMITED
By /s/ Beat von Rechenberg
-----------------------------------
Title: Director
CMG AG, ZUG
By /s/ Allain Rousset
-----------------------------------
Title: Chairman of the Board
ADMINISTRATIVE AGENT
--------------------------------------
CITIBANK, N.A., as Administrative
Agent
By /s/ Carolyn A. Kee
-----------------------------------
Title: Attorney-in-Fact
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Commitment Banks
- ---------- -----
$47,000,000 CITIBANK, N.A.
By /s/ Carolyn A. Kee
----------------------------
Title: Attorney-in-Fact
Domestic Lending Office:
Citibank, N.A.
399 Park Avenue
New York, NY 10043
LIBO Lending Office:
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Address for Notices:
Citibank, N.A.
399 Park Avenue
New York, NY 10043
Attention: Eric Huttner
Telephone: 212-559-8564
Facsimile: 212-793-6873
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----------------
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Commitment BANK OF AMERICA NATIONAL TRUST
- ---------- AND SAVINGS ASSOCIATION
$47,000,000
By: /s/ Barry R. Dunn
-----------------------------------------
Title: Vice President
Domestic Lending Office:
Bank of America National Trust
and Savings Association
335 Madison Avenue, 5th Floor
New York, New York 10017
LIBO Lending Office:
Bank of America National Trust
and Savings Association
335 Madison Avenue, 5th Floor
New York, New York 10017
Address for Notices (other than Notices of
Borrowings, Continuations or Conversions):
Bank of America National Trust
and Savings Association
335 Madison Avenue, 5th Floor
New York, New York 10017
Attention: Carl F. Salas
Telephone: 212-503-8425
Facsimile: 212-503-7173
Address for Notices of Borrowings,
Continuations or Conversions):
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Clyde Langham
Telephone: 312-828-3876
Facsimile: 312-974-9626
Credit Agreement
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Commitment THE BANK OF NEW YORK
- ----------
$32,000,000
By: /s/ Georgia Pan-Kita
-----------------------
Title: Vice President
Domestic Lending Office:
The Bank of New York
One Wall Street
New York, New York 10286
LIBO Lending Office:
The Bank of New York
One Wall Street
New York, New York 10286
Address for Notices:
The Bank of New York
One Wall Street - 22nd Floor
New York Corporate Division
New York, New York 10286
Attention: Georgia Pan-Kita
Telephone: 212-635-1475
Facsimile: 212-635-1480
Credit Agreement
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Commitment THE BANK OF NOVA SCOTIA
- ----------
$32,000,000
By: /s/ Todd Meller
-------------------------------------
Title: Senior Relationship Manager
Domestic Lending Office:
The Bank of Nova Scotia, New York Agency
One Liberty Plaza
New York, New York 10006
Attention: Karl Scott
LIBO Lending Office:
The Bank of Nova Scotia, New York Agency
One Liberty Plaza
New York, New York 10006
Attention: Karl Scott
Address for Notices:
The Bank of Nova Scotia
One Liberty Plaza
New York, New York 10006
Attention: Todd S. Meller
Telephone: 212-225-5096
Facsimile: 212-225-5090
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Commitment CREDIT LYONNAIS NEW YORK BRANCH
- ----------
$32,000,000
By: /s/ Vladimir Labun
------------------------------------
Title: First Vice President - Manager
Domestic Lending Office:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
LIBO Lending Office:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Address for Credit Notices:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Vladimir Labun
Telephone: 212-261-7144
Facsimile: 212-459-3179
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Commitment FLEET BANK, N.A.
- ----------
$32,000,000
By: /s/ Thomas Levy
------------------------
Title: Vice President
Domestic Lending Office:
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036
LIBO Lending Office:
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036
Address for Notices:
Fleet Bank, N.A.
1185 Avenue of the Americas
3rd Floor
New York, New York 10036
Attention: Thomas J. Levy, Vice President
Telephone: 212-819-5751
Facsimile: 212-819-4112
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Commitment ING BANK N.V.
- ----------
$32,000,000
By: /s/ Peter Nabney
-------------------------
Title: General Manager
By: /s/ Samantha de Foubert
-------------------------
Title: Account Manager
Domestic Lending Office:
ING Bank N.V.
49, St. Stephen's Green
Dublin 2, Ireland
LIBO Lending Office:
ING Bank N.V.
49, St. Stephen's Green
Dublin 2, Ireland
Address for Notices:
ING Bank N.V.
49, St. Stephen's Green
Dublin 2, Ireland
Attention: Samantha de Foubert
Telephone: 353-1-662-1911
Facsimile: 353-1-662-1916
Credit Agreement
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Commitment KEYBANK NATIONAL ASSOCIATION
- ----------
$32,000,000
By: Karen A. Lee
--------------------------------------
Title: Vice President
Domestic Lending Office:
KeyBank National Association
127 Public Square
OH-01-27-0606
Cleveland, Ohio 44114
LIBO Lending Office:
KeyBank National Association
127 Public Square
OH-01-27-0606
Cleveland, Ohio 44114
Address for Administrative Notices:
KeyBank National Association
127 Public Square
OH-01-27-0606
Cleveland, Ohio 44114
Attention: Dianne Cox
Telephone: 216-689-4450
Facsimile: 216-689-4981
Address for Credit Notices:
KeyBank National Association
127 Public Square
OH-01-27-0606
Cleveland, Ohio 44114
Attention: Karen Lee
Telephone: 216-689-8065
Facsimile: 216-689-4981
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Commitment WACHOVIA BANK, N.A.
- ----------
$32,000,000
By: /s/ William C. Christie
-----------------------------
Title: Senior Vice President
Domestic Lending Office:
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
LIBO Lending Office:
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Address for Credit Notices:
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: William C. Christie
Telephone: 404-332-1434
Facsimile: 404-332-6898
Address for Administrative and Funding Notices
and Notices Relating to Repayment:
Wachovia Bank, N.A.
152 West 57th Street, 37th Floor
New York, New York 10019-3301
Attention: William C. Christie
Telephone: 212-603-7709
Facsimile: 212-603-7729
Credit Agreement
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Commitment BANK OF TOKYO-MITSUBISHI TRUST
- ---------- COMPANY
$25,000,000
By: /s/ Jim Brown
-------------------------
Title: Vice President
Domestic Lending Office:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas, 12th Floor
New York, New York 10020-1104
LIBO Lending Office:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas, 12th Floor
New York, New York 10020-1104
Address for Credit Notices:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas, 12th Floor
New York, New York 10020-1104
Attention: Mr. Rolando Uy
Telephone: 212-782-5637
Facsimile: 212-782-5635/5636
Credit Agreement
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Commitment CREDIT AGRICOLE INDOSUEZ
- ----------
$20,000,000
By: /s/ John McCloskey
--------------------------
Title: Vice President - TL
By: /s/ Craig Welch
---------------------------
Title: First Vice President
Domestic Lending Office:
Credit Agricole Indosuez
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
LIBO Lending Office:
Credit Agricole Indosuez
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Address for Credit Matters:
Credit Agricole Indosuez
520 Madison Avenue, 8th Floor
New York, New York 10022
Attention: John McCloskey
Telephone: 212-418-2217
Facsimile: 212-418-2228
Address for Funding Notices:
Credit Agricole Indosuez
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Attention: Sue Kolodziey
Telephone: 312-917-7560
Facsimile: 312-372-4421
Credit Agreement
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Commitment NATIONAL WESTMINSTER BANK PLC
- ----------
$20,000,000
Nassau Branch
By: /s/ John Brett
----------------------------
Title: Corporate Manager
New York Branch
By: /s/ John Brett
----------------------------
Title: Corporate Manager
Domestic Lending Office:
NatWest Markets - Commercial Loans
175 Water Street
New York, New York 10038
LIBO Lending Office:
NatWest Markets - Commercial Loans
175 Water Street
New York, New York 10038
Address for Notices:
NatWest Markets - Commercial Loans
175 Water Street
New York, New York 10038
Attention: Evonne Wearing/Sheila Shaw
Telephone: 212-602-4180/4195
Facsimile: 212-602-4118
Credit Agreement
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Commitment THE FIRST NATIONAL BANK OF CHICAGO
- ----------
$17,000,000
By: /s/ Juan J. Duarte
-------------------------------
Title: Assistant Vice President
Domestic Lending Office:
The First National Bank of Chicago
1 First National Plaza
Chicago, Illinois 60670
LIBO Lending Office:
The First National Bank of Chicago
1 First National Plaza
Chicago, Illinois 60670
Address for Notices:
The First National Bank of Chicago
153 West 51st Street
New York, New York 10019
Attention: Juan Duarte
Telephone: 212-373-1253
Facsimile: 212-373-1180
Credit Agreement
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SCHEDULE I
ERISA Matters
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None
Credit Agreement
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<PAGE>
SCHEDULE II
Existing Liens
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None
Schedule II
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 19, 1998,
relating to the financial statements of Young & Rubicam Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedules for the three years ended December 31, 1997 listed
under Item 16(b) of this Registration Statement when such schedules are read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included these schedules. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
New York, New York
November 6, 1998
