<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1998
REGISTRATION NO. 333-46929
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
YOUNG & RUBICAM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7311 13-1493710
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
285 MADISON AVENUE
NEW YORK, NEW YORK 10017
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHANIE W. ABRAMSON, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
YOUNG & RUBICAM INC.
285 MADISON AVENUE
NEW YORK, NEW YORK 10017
(212) 210-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PETER H. DARROW, ESQ. MARK C. SMITH, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ONE LIBERTY PLAZA 919 THIRD AVENUE
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10022
(212) 225-2000 (212) 735-3000
</TABLE>
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value............................... $458,160,000 $8,308(2)
- ------------------------------------------------------------------------------------------------------------------------
Preferred Share Purchase Rights(3)..........................
- ------------------------------------------------------------------------------------------------------------------------
Total....................................................... $458,160,000 $8,308(2)
========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) $126,850 of registration fee was previously paid by the registrant.
(3) Rights initially will trade together with the Common Stock. The value
attributable to the Rights, if any, is reflected in the market price of the
Common Stock.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus; one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering outside the United States and Canada (the "International Prospectus").
The U.S. Prospectus and the International Prospectus will be identical in all
respects except for the front cover pages, the back cover pages and an
additional page for the International Prospectus. The form of the U.S.
Prospectus is included herein; the form of the front cover page of the
International Prospectus follows the front cover page of the U.S. Prospectus,
the form of the back cover page of the International Prospectus follows the back
cover page of the U.S. Prospectus and the form of additional page for the
International Prospectus follows the "Available Information" section of the U.S.
Prospectus.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 20, 1998
PROSPECTUS
, 1998
16,600,000 SHARES
[YOUNG & RUBICAM INC. LOGO]
COMMON STOCK
Of the 16,600,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of Young & Rubicam Inc. ("Y&R" or the "Company") offered
hereby, 13,280,000 shares are initially being offered in the United States and
Canada (the "U.S. Offering") by the underwriters of the U.S. Offering named
herein (the "U.S. Underwriters") and 3,320,000 shares are initially being
offered in a concurrent international offering outside the United States and
Canada (the "International Offering," and together with the U.S. Offering, the
"Offerings") by the managers of the International Offering named herein (the
"International Managers"). The initial public offering price and the per share
underwriting discounts and commissions will be identical for each of the
Offerings. Of the 16,600,000 shares of Common Stock offered hereby, 6,666,667
shares are being sold by the Company and 9,933,333 shares are being sold by
certain selling stockholders (the "Selling Stockholders"). The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholders. See "Principal and Selling Stockholders."
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock offered pursuant to the Offerings will be between $21.00 and $24.00
per share. For information relating to the factors to be considered in
determining the initial public offering price, see "Underwriting."
Application has been made to list the Common Stock on the New York Stock
Exchange under the symbol "YNR."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(3)..................... $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Managers (collectively, the
"Underwriters") against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $ which will be paid by the
Company.
(3) Certain non-management Selling Stockholders have granted to the U.S.
Underwriters an option, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 2,490,000 additional shares of Common Stock
at the Price to the Public less Underwriting Discounts and Commissions,
solely to cover over-allotments, if any. If the option is exercised in full,
the total Price to the Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to the Selling Stockholders will be
$ , $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered hereby are being offered by the several
U.S. Underwriters when, as and if delivered to and accepted by the U.S.
Underwriters against payment therefor and subject to various prior conditions,
including their right to reject orders in whole or in part. It is expected that
delivery of share certificates representing the Common Stock will be made in New
York, New York on or about , 1998.
JOINT GLOBAL COORDINATORS AND JOINT BOOK-RUNNING MANAGERS
DONALDSON, LUFKIN & JENRETTE BEAR, STEARNS & CO. INC.
SECURITIES
CORPORATION
------------------------------
FURMAN SELZ
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[INTERNATIONAL COVER PAGE]
SUBJECT TO COMPLETION, DATED APRIL 20, 1998
PROSPECTUS
, 1998
16,600,000 SHARES
[YOUNG & RUBICAM INC. LOGO]
COMMON STOCK
Of the 16,600,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of Young & Rubicam Inc. ("Y&R" or the "Company") offered
hereby, 3,320,000 shares are initially being offered outside the United States
and Canada (the "International Offering") by the managers of the International
Offering named herein (the "International Managers") and 13,280,000 shares are
initially being offered in a concurrent offering in the United States and Canada
(the "U.S. Offering," and together with the International Offering, the
"Offerings") by the underwriters of the U.S. Offering named herein (the "U.S.
Underwriters"). The initial public offering price and the per share underwriting
discounts and commissions will be identical for each of the Offerings. Of the
16,600,000 shares of Common Stock offered hereby, 6,666,667 shares are being
sold by the Company and 9,933,333 shares are being sold by certain selling
stockholders (the "Selling Stockholders"). The Company will not receive any of
the proceeds from the sale of shares of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock offered pursuant to the Offerings will be between $21.00 and $24.00
per share. For information relating to the factors to be considered in
determining the initial public offering price, see "Underwriting."
Application has been made to list the Common Stock on the New York Stock
Exchange under the symbol "YNR."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
Total(3)..................... $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Managers (collectively, the
"Underwriters") against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $ which will be paid by the
Company.
(3) Certain non-management Selling Stockholders have granted to the U.S.
Underwriters an option, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 2,490,000 additional shares of Common Stock
at the Price to the Public less Underwriting Discounts and Commissions,
solely to cover over-allotments, if any. If the option is exercised in full,
the total Price to the Public, Underwriting Discounts and Commissions,
Proceeds to the Company and Proceeds to the Selling Stockholders will be
$ , $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered hereby are being offered by the several
International Managers when, as and if delivered to and accepted by the
International Managers against payment therefor and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of share certificates representing the Common Stock will
be made in New York, New York on or about , 1998.
JOINT GLOBAL COORDINATORS AND JOINT BOOK-RUNNING MANAGERS
DONALDSON, LUFKIN & JENRETTE BEAR, STEARNS INTERNATIONAL LIMITED
INTERNATIONAL
------------------------------
FURMAN SELZ
GOLDMAN SACHS INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
<PAGE> 5
[PHOTOGRAPH OF A MAGAZINE OPEN TO A PAGE CONTAINING A PRINT ADVERTISEMENT FOR
YOUNG & RUBICAM INC.]
[FOLD-OUT PAGE]
[PHOTOGRAPH OF KEYS OF COMPUTER KEYBOARD VERY CLOSE-UP PREDOMINANTLY IN GREEN. A
QUESTION MARK, SEMICOLON, COLON AND COMMA ARE IDENTIFIABLE.]
[FOLD-OUT PAGE]
[PHOTOGRAPH OF PRINTING PRESS ROLLER OF TYPEWRITTEN NUMBERS AND SYMBOLS VERY
CLOSE-UP PREDOMINANTLY IN PURPLE. THE NUMBERS 3, 4, 5, 6, 7, 8 AND 9 AND A PLUS
SIGN ARE REPEATED IN ROWS ON THE PAGE.]
<PAGE> 6
This Prospectus, information included in future filings by the Company with
the United States Securities and Exchange Commission (the "Commission"), and
information contained in written material, press releases and oral statements
issued by or on behalf of the Company contain, or may contain, statements that
constitute forward-looking statements. These statements appear in a number of
places in this Prospectus and include statements regarding the intent, belief or
current expectations of the Company or its officers (including statements
preceded by, followed by or that include forward-looking terminology such as
"may," "will," "should," "believes," "expects," "anticipates," "estimates,"
"continues" or similar expressions or comparable terminology, including the
negative thereof) with respect to various matters. These forward-looking
statements include statements in the "Business -- Industry Overview,"
" -- Industry Trends" and " -- Strategy" sections of this Prospectus relating to
trends in the advertising and marketing and communications industries, including
with respect to anticipated advertising expenditures (and the growth thereof) in
the world's advertising markets, as well as statements relating to the Company's
performance in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" sections of this Prospectus. It is
important to note that the Company's actual results could differ materially from
those anticipated in these forward-looking statements depending on, among other
important factors, (i) revenues received from clients, including pursuant to
incentive compensation arrangements entered into by the Company with certain
clients, (ii) gains or losses of clients and client business and projects, as
well as changes in the marketing and communications budgets of clients, (iii)
the overall level of economic activity in the principal markets in which the
Company conducts business and other trends affecting the Company's financial
condition or results of operations, (iv) the impact of competition in the
marketing and communications industry and (v) the Company's liquidity and
financing plans. All forward-looking statements in this Prospectus are based on
information available to the Company on the date hereof. In addition, the
matters set forth under the caption "Risk Factors" in the Prospectus constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements.
Information regarding worldwide advertising expenditures, historical and
projected growth in advertising expenditures and comparative rankings of the
size of Young & Rubicam Inc., its affiliates, subsidiaries and operating units
has been obtained from industry sources, principally Advertising Age,
McCann-Erickson Report, O'Dwyer's PR Services Report, Med Ad News and Design
Week. All information regarding comparative size rankings is based on 1996
billings or revenues.
References in this Prospectus to the years 1993, 1994, 1995, 1996 and 1997
are, unless the context otherwise requires, to the Company's fiscal years ended
December 31.
Young & Rubicam, Y&R, Young & Rubicam Advertising, Y&R Advertising,
Wunderman Cato Johnson, WCJ, The Chapman Agency, The Bravo Group,
Burson-Marsteller, Marsteller Advertising, Cohn & Wolfe, Landor Associates,
Sudler & Hennessey, BrandAsset Valuator, Brand Dialogue, The Media Edge and The
Mead Point Group are trademarks of the Company. Other trademarks referenced
herein are trademarks of their respective legal owners.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERINGS,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's consolidated financial
statements and notes thereto (the "Consolidated Financial Statements"),
appearing elsewhere in this Prospectus. Except as otherwise indicated herein,
the information in this Prospectus (i) assumes an initial public offering price
of $22.50 per share of Common Stock, the mid-point of the range set forth on the
cover page of this Prospectus, (ii) reflects a stock dividend of 14 shares of
Common Stock payable for each share of Common Stock outstanding as of the date
of effectiveness of the Registration Statement of which this Prospectus is a
part, payable on such date (the "Stock Split"), (iii) reflects the
effectiveness, upon the closing of the Offerings, of an Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws of Young & Rubicam
Inc. and (iv) assumes that the U.S. Underwriters' over-allotment option is not
exercised. Unless otherwise indicated, all references to the "Company" and "Y&R"
refer to Young & Rubicam Inc., its predecessors and its consolidated
subsidiaries, including Young & Rubicam L.P.
THE COMPANY
Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world. Since its founding 75 years ago, Y&R
has evolved from a single New York-based advertising agency to a diversified
global marketing and communications company operating in 128 cities in 76
countries worldwide as of December 31, 1997. The Company operates through such
internationally recognized market leaders as Young & Rubicam Advertising
(full-service advertising), Wunderman Cato Johnson (direct marketing and sales
promotion), Burson-Marsteller (perception management and public relations),
Landor Associates (branding consultation and design services) and Sudler &
Hennessey (healthcare communications). Y&R's revenues in 1997 were approximately
$1.4 billion, having grown at a compound annual rate of 12.9% from 1995 to 1997.
Through multi-disciplinary, client-focused teams, Y&R provides clients with
global access to fully integrated marketing and communications solutions. Among
Y&R's approximately 5,500 client accounts are a number of large multinational
organizations, including AT&T, Citibank, Colgate-Palmolive, Ford and Philip
Morris. Y&R has maintained long-standing relationships with many of its clients,
with the average length of relationship for the top 20 clients exceeding 20
years.
Y&R's mission is to be its clients' most valued business partner in
building, leveraging, protecting and managing clients' brands for both
short-term results and long-term growth. Consistent with its mission, Y&R has
developed an organizational and management structure designed to meet the
diverse needs of its large global clients as well as the more specialized needs
of its other clients. The Company's strategy combines this organizational and
management structure with the aggressive pursuit of new business opportunities
and continued investment in Y&R's business, personnel and superior consumer
knowledge.
In late 1992, Y&R created the Key Corporate Account ("KCA") program to
enhance the coordination of services sought by clients from both a global
coverage as well as an integrated solutions perspective. KCAs are large global
client accounts that, as a group, contribute the greatest share of Y&R's
revenues and profits, and are served on a multinational basis by two or more of
Y&R's businesses. Y&R currently designates 42 of its client accounts as KCAs.
Revenues from the KCAs, as a group, increased by 14.6% in 1997, and accounted
for approximately 45.5% and 46.1% of consolidated revenues in 1996 and 1997,
respectively. In order to further strengthen client relationships and reward Y&R
for meeting or exceeding certain performance targets, Y&R is working with KCAs
to adopt incentive compensation arrangements that align Y&R's compensation with
its performance and its clients' business performance.
As part of Y&R's client focus, Peter A. Georgescu, Chairman and Chief
Executive Officer of Y&R, John P. McGarry, Jr., President of Y&R, Edward H.
Vick, Chief Operating Officer of Y&R and the Chairman and Chief Executive
Officer of Young & Rubicam Advertising, and Thomas D. Bell, Jr., Executive Vice
President of Y&R and President and Chief Executive Officer of Burson-Marsteller,
all retain ongoing responsibilities for individual KCAs in addition to their
managerial roles.
4
<PAGE> 8
INDUSTRY TRENDS
The marketing and communications industry encompasses a wide range of
services used to develop and deliver messages to both broad and targeted
audiences through multiple communications channels. Several significant trends
are changing the dynamics of the marketing and communications industry,
including the following:
Growth in United States Marketing and Communications Markets. Advertising
expenditures in the United States have continued to grow, increasing from
approximately $140 billion in 1993 to approximately $175 billion in 1996.
Growth in International Marketing and Communications Markets. Since 1986,
non-U.S. advertising expenditures have grown more rapidly than U.S.
expenditures, and according to industry sources, have increased from
approximately 44% of worldwide expenditures in 1986 to approximately 55% in
1996.
Investment in Brand Development. Over the last several years, advertisers
have focused on the image or brand identity of their organizations, products and
services in an effort to differentiate themselves from competitors and increase
brand loyalty.
Demand for Integrated Service Offerings. Demand has increased for globally
integrated marketing and communications solutions as companies seek consistent
and effective delivery of their messages through multiple communications
channels and across a variety of geographic markets.
Increased Emphasis on Targeted Marketing. The desire of companies to reach
their target audiences and quantify the effectiveness of their communications
has resulted in greater demand for customized direct marketing methods, such as
database marketing, infomercials, in-store promotions and interactive programs.
STRATEGY
Y&R's strategy consists of the following key components:
Increase Penetration of Key Corporate Accounts. Y&R believes that
significant opportunities exist to increase its share of KCA marketing and
communications expenditures by leveraging its global network to provide
integrated services to KCAs. In recent years, Y&R has successfully increased its
share of the marketing and communications expenditures of certain KCAs. KCAs
also have increased their use of multiple services offered by Y&R over the same
period. During 1997, Y&R's 20 largest clients used the capabilities of an
average of five of the Company's marketing and communications services.
Develop New Client Relationships. The Company believes that there are
significant opportunities for future revenue and profit growth by providing
services to new clients in targeted industry sectors and to those clients
seeking to build and maintain global, regional and local brands. Y&R has
successfully used its integrated and global approach as an effective tool in
winning new business.
Leverage Existing Global Network. With a worldwide presence in 76
countries, the Company believes that it is well positioned to continue to
benefit from the trend towards the globalization of client marketing and
communications needs and the consolidation of such needs with a single
international service provider.
Capitalize on Existing Capabilities. Y&R intends to continue the
development of its existing capabilities into more visible and accessible client
services. For example, Y&R recently launched a new unit, Brand Dialogue, by
combining the existing interactive capabilities of Young & Rubicam Advertising
and Wunderman Cato Johnson in the United States, Latin America, Europe and
Asia/Pacific.
Utilize Superior Consumer Knowledge and Brand Insights. To assist its
clients in building, leveraging, protecting and managing their brands, Y&R has
developed and is maintaining extensive knowledge of consumer brand perceptions.
For example, Y&R has developed BrandAsset Valuator ("BAV"), a proprietary
database that reflects the perceptions of over 95,000 consumers in 32 countries
on five continents. The Company believes that BAV is the first global consumer
study that provides an empirically derived model for how brands gain and lose
their strength over time.
5
<PAGE> 9
Cultivate Creative Excellence. Y&R intends to continue emphasizing the
importance of creative marketing and communications. Y&R has created numerous
memorable marketing and communications programs for clients, including "The
Softer Side of Sears," "Everybody Needs a Little KFC," "It's All Within Your
Reach" for AT&T, "The Document Company" for Xerox and "Be All That You Can Be"
for the United States Army, as well as identity and design assignments,
including the creation of corporate identities, for Lucent Technologies,
Netscape and the 2002 Salt Lake City Olympics.
Improve Operating Efficiencies. The Company believes that opportunities
exist to improve operating efficiencies in order to expand margins and increase
future profitability. For example, Y&R has implemented initiatives which have
both improved productivity and reduced compensation expense as a percentage of
consolidated revenues.
Expand Capabilities Through Acquisitions. In order to add new
capabilities, enhance its existing capabilities and expand the geographic scope
of its operations, Y&R regularly evaluates and intends to pursue appropriate
acquisition opportunities.
THE RECAPITALIZATION
From the time of its founding until 1996, Y&R was wholly owned by its
employees. In December 1996, Y&R consummated a recapitalization (the
"Recapitalization"). The purpose of the Recapitalization was to realign the
ownership of the Company with those senior employees who would most actively
lead Y&R's future growth, to establish an equity-based incentive program to
motivate current and future employees and to enhance Y&R's ability to make
strategic investments in people, services and products. In connection with the
Recapitalization, predecessor companies of Y&R acquired, canceled or exchanged
all outstanding equity units, issued new shares of Common Stock and granted
certain restricted stock awards and options to acquire shares of Common Stock to
approximately 325 employees. In addition, at the time of the consummation of the
Recapitalization, Hellman & Friedman Capital Partners III, L.P., H&F Orchard
Partners III, L.P. and H&F International Partners III, L.P. (collectively, the
"H&F Investors"), and six other investors not affiliated with the Company
(together with the H&F Investors, the "Recapitalization Investors") and certain
employees and former employees of Y&R contributed an aggregate of $242 million
to the Company in exchange for shares of Common Stock and options to acquire
additional shares of Common Stock.
The Company's principal executive office is located at 285 Madison Avenue,
New York, New York 10017, and its telephone number is (212) 210-3000.
6
<PAGE> 10
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by:
The Company.......................... 6,666,667 shares
The Selling Stockholders............. 9,933,333 shares
--------------------
Total........................... 16,600,000 shares
Common Stock offered:
U.S. Offering........................ 13,280,000 shares
International Offering............... 3,320,000 shares
--------------------
Total........................... 16,600,000 shares
Common Stock to be outstanding after the
Offerings............................... 66,228,322 shares(1)
</TABLE>
Dividend Policy................ The Company expects to commence the
declaration and payment of a regular
quarterly cash dividend in the last quarter
of 1998. See "Dividend Policy."
Use of Proceeds................ The net proceeds to be received by the
Company from the Offerings are estimated to
be approximately $139,500,000 after deducting
underwriting discounts and commissions and
estimated offering expenses payable by the
Company. The Company intends to use such net
proceeds to repay a portion of the borrowings
outstanding under the term loan portion of
its existing credit facilities. See
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Liquidity and Capital
Resources." The Company will not receive any
of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders. See
"Use of Proceeds."
Proposed New York Stock
Exchange Symbol................ "YNR"
- ---------------------------
(1) As of the date hereof, the number of shares of Common Stock outstanding
excludes (i) an aggregate of 28,844,880 shares reserved for issuance upon
the exercise of outstanding options under the Young & Rubicam Holdings Inc.
Management Stock Option Plan (under which no additional awards will be made)
and the Young & Rubicam Inc. 1997 Incentive Compensation Plan (collectively,
the "Stock Option Plans") at a weighted average exercise price of $6.98 per
share and (ii) an aggregate of 2,598,105 shares reserved for issuance upon
the exercise of outstanding options issued to certain of the
Recapitalization Investors at a weighted average exercise price of $7.67 per
share. The number of shares of Common Stock outstanding includes an
aggregate of 9,231,105 shares of Restricted Stock (as defined herein)
allocated to employees as of the date of consummation of the Offerings. See
"Management -- Executive Compensation" and "Capitalization." All of such
shares are subject to 180-day lock-up agreements following the Offerings.
See "Shares Eligible for Future Sale."
RISK FACTORS
Prior to making an investment in the Common Stock offered hereby,
prospective purchasers of the Common Stock should take into account the specific
risks set forth under "Risk Factors" as well as the other information set forth
in this Prospectus.
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<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $1,085,494 $1,222,139 $ 1,382,740
Compensation expense, including employee
benefits(1)...................................... 672,026 730,261 836,150
General and administrative expenses(1).............. 356,523 391,617 463,936
Recapitalization-related charges(2)................. -- 315,397 --
Other operating charges(2).......................... 31,465 17,166 11,925
---------- ---------- -----------
Operating expenses............................... 1,060,014 1,454,441 1,312,011
---------- ---------- -----------
Income (loss) from operations....................... 25,480 (232,302) 70,729
Net income (loss)................................... 820 (238,311) (23,938)
Basic and diluted loss per common share(3).......... $ (.51)
Weighted average shares outstanding(3).............. 46,949,355
Supplemental loss per common share(4)............... $ (.37)
OTHER OPERATING DATA:
EBITDA(1)(5)........................................ $ 72,972 $ 147,221 $ 139,375
Net cash provided by operating activities........... 79,809 178,064 224,511
Net cash used in investing activities............... 45,821 76,094 67,142
Net cash used in financing activities............... 50,025 12,614 98,667
Capital expenditures................................ 42,096 51,792 51,899
International revenues as a % of total
revenues(6)...................................... 54.7% 53.3% 52.2%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(10) AS ADJUSTED(11)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets(7)..................................... $1,528,019 $1,528,019 $1,613,176
Total debt(8)....................................... 351,051 351,051 211,551
Mandatorily redeemable equity securities(9)......... 508,471 -- --
Total (deficit) equity.............................. (661,714) (153,243) 71,414
</TABLE>
- ------------------------------
(1) For a discussion of charges included in compensation expense, including
employee benefits, and general and administrative expenses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
(2) For a discussion of Recapitalization-related and other operating charges,
see Notes 4 and 6 to the Consolidated Financial Statements.
(3) Basic net loss per common share for 1997 was computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. The weighted average number of common shares outstanding excludes
11,086,950 shares of Common Stock held by the Restricted Stock Trust (as
defined herein), as such shares vest upon the consummation of an initial
public offering, or the six-month anniversary thereof, a condition which
was not satisfied at December 31, 1997. Diluted net loss per common share
for 1997 was computed in the same manner as basic net loss per common share
since the inclusion of potential common shares would be antidilutive.
At December 31, 1997, the Company had outstanding options to purchase
31,013,205 shares of Common Stock, with a weighted average exercise price
of $6.84, that could potentially dilute basic earnings per share in the
future. These options were excluded from the computation of diluted net
loss per common share because the effect for 1997 would be antidilutive. In
addition, at December 31, 1997, a maximum of 11,086,950 shares of Common
Stock held by the Restricted Stock Trust would vest and be dilutive as a
result of the consummation of the Offerings. See "Management -- Executive
Compensation -- The Restricted Stock Plan and Trust Agreement" and Notes 3,
15 and 21 to the Consolidated Financial Statements.
Earnings per share for 1995 and 1996 cannot be computed because the
Company's capital structure prior to the Recapitalization consisted of both
common shares and limited partnership units in predecessor entities. See
Note 4 to the Consolidated Financial Statements.
(4) The supplemental loss per common share was computed by dividing the
supplemental loss of $19,587 by the supplemental common shares of
53,616,022. The supplemental loss of $19,587 has been computed by adjusting
the historical net loss for 1997 to reflect the following: (i) additional
interest cost, net of the related tax benefit, of $1,410 (computed
utilizing an interest rate and statutory tax rate of 7.0% and 41.0%,
respectively) associated with the $161,700 of Recapitalization-related
borrowings under the Company's existing credit facilities, which occurred
on March 18, 1997, as if such borrowings had occurred as of January 1, 1997
and (ii) the reduction in interest cost, net of tax, of $5,761 (computed
utilizing an interest rate and statutory tax rate of 7.0% and 41.0%,
respectively), associated with $139,500 of the net proceeds of the
Offerings to the Company, which is expected to be utilized to
8
<PAGE> 12
repay a portion of the outstanding borrowings under the term loan portion
of the Company's existing credit facilities, as if the debt repayment had
occurred as of January 1, 1997.
The supplemental shares of 53,616,022 were computed by adding the 6,666,667
shares of Common Stock offered by the Company to the 46,949,355 weighted
average shares outstanding as of December 31, 1997. See "Capitalization."
Based upon an assumed initial public offering price of $22.50, the
consummation of the Offerings will give rise to a non-recurring, non-cash,
pre-tax charge of $207,700 ($122,543 net of the related tax benefit
assuming a statutory tax rate of 41.0%) arising from the vesting of the
aggregate of 9,231,105 shares of Restricted Stock allocated to employees as
of the date of the consummation of the Offerings. The determination of
supplemental loss for 1997 does not give effect to this charge due to its
non-recurring nature. See "Management -- Executive Compensation -- The
Restricted Stock Plan and Trust Agreement" and Note 15 to the Consolidated
Financial Statements.
(5) EBITDA is defined as income (loss) from operations before depreciation and
amortization, other non-cash charges and Recapitalization-related charges.
EBITDA is presented because it is a widely accepted financial indicator and
is generally consistent with the definition used for covenant purposes
contained in the Company's existing credit facilities; however, EBITDA may
not be comparable to other registrants' calculation of EBITDA or similarly
titled items. EBITDA should not be considered as an alternative to net
income (loss) as a measure of operating results in accordance with
generally accepted accounting principles or as an alternative to cash flows
as a measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
EBITDA for 1996 and 1997 is before $11,096 and $11,925, respectively, of
non-cash charges primarily related to impairment write-downs which are
included in other operating charges. See Notes 4 and 6 to the Consolidated
Financial Statements.
(6) International revenues include all revenues earned outside the United
States.
(7) Total assets as of December 31, 1997 (actual, pro forma and pro forma as
adjusted) include net deferred tax assets of $157,024, $75,135 of which
relate to net operating loss ("NOL") carryforwards of approximately
$140,409 for U.S. tax purposes and approximately $69,231 for foreign tax
purposes. See Note 9 to the Consolidated Financial Statements.
(8) Total debt includes current and non-current loans and installment notes.
See Notes 13 and 14 to the Consolidated Financial Statements.
(9) From the date of consummation of the Recapitalization and through the date
of consummation of the Offerings, all outstanding shares of Common Stock,
exclusive of shares of Common Stock held in the Restricted Stock Trust, are
redeemable, subject to certain restrictions, at the option of the
stockholder. Accordingly, all such shares of Common Stock have been
recorded at their redemption values and classified as Mandatorily
Redeemable Equity Securities in the Company's historical balance sheets at
December 31, 1996 and 1997, respectively. See Notes 2, 15 and 16 to the
Consolidated Financial Statements.
(10) The pro forma December 31, 1997 balance sheet reflects the termination of
the redemption feature and subsequent reclassification of Mandatorily
Redeemable Equity Securities, as discussed in Note (9) above, to
stockholders' deficit. See "Capitalization" and Notes 2, 15 and 16 to the
Consolidated Financial Statements.
(11) The pro forma as adjusted balance sheet reflects the following: (i) an
increase in total assets of $85,157, resulting from the tax benefits
arising from the compensation charge associated with the vesting of the
Restricted Stock as further described in Note (4) above; (ii) a decrease in
total debt resulting from the sale by the Company of 6,666,667 shares of
Common Stock in the Offerings and the application of $139,500 of the net
proceeds to the Company to repay a portion of the outstanding borrowings
under the term loan portion of the Company's existing credit facilities;
and (iii) a $224,657 increase in total equity resulting from the $139,500
net proceeds to the Company from the Offerings and $85,157 resulting from
the vesting of Restricted Stock upon consummation of the Offerings as
discussed in (i) above. See "Capitalization."
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<PAGE> 13
RISK FACTORS
A prospective investor should consider carefully all of the information
contained in this Prospectus before deciding whether to purchase the Common
Stock offered hereby and, in particular, the following factors.
RECENT HISTORY OF NET LOSSES
The Company reported a net loss for 1996 and 1997 of $238.3 million and
$23.9 million, respectively. In addition, the Company expects to report a net
loss for 1998 resulting from charges relating to the Offerings. The Company
expects to recognize a non-cash compensation charge of $207.7 million in
connection with the vesting of the Restricted Stock upon consummation of the
Offerings. The Company also expects to enter into a new revolving credit
facility to become effective upon completion of the Offerings, and as a result
expects to write off approximately $7.4 million, which represents the
unamortized portion of capitalized charges relating to the Company's existing
$700 million senior secured credit facilities as of March 31, 1998 (the "Credit
Facilities"), which will be repaid and replaced with net proceeds to the Company
from the Offerings and borrowings under the new revolving credit facility.
COMPETITION
The marketing and communications industry is highly competitive. Y&R's
principal competitors are large multinational marketing and communications
companies, as well as numerous smaller agencies that operate in one or more
countries or local markets. Y&R must compete with such other companies and
agencies to maintain existing client relationships and to obtain new clients and
assignments. Some clients, such as U.S. governmental agencies, require agencies
to compete for business at mandatory intervals. Principal competitive factors
include an agency's creative reputation, knowledge of media, financial controls,
geographical coverage and diversity, relationships with clients and quality and
breadth of services. Recently, traditional advertising agencies have also been
competing with major consulting firms which have developed practices in
marketing and communications, and with smaller companies such as systems
integrators, database marketing and modeling companies and telemarketers, which
are offering technological solutions to marketing and communications issues
faced by clients.
Representation of a client does not necessarily mean that all advertising
or public relations for that client is handled by one agency. Many large
multinational companies are served by a number of agencies within the marketing
and communications industry. In many cases, clients' conflicts policies or
desires to be served by multiple agencies result in one or more global agency
networks representing a client only for a portion of its marketing and
communications needs or only in particular geographic areas. In addition, the
ability of agencies within marketing and communications organizations to acquire
new clients or additional assignments from existing clients may be limited by
the conflicts policy followed by many clients not to permit agencies to perform
similar services for competing products or companies. Y&R's principal
international competitors are holding companies for more than one global
advertising agency network, which, in some situations, may permit separate
agency networks within such holding companies to perform services for competing
products or for products of competing companies. The Company has one global
advertising agency network, and accordingly Y&R's ability to compete for new
advertising assignments and, to a lesser extent, other marketing and
communications assignments, may be limited by these conflicts policies. Industry
practices in other areas of the marketing and communications business reflect
similar concerns with respect to client relationships. See
"Business -- Competition."
TREND TOWARDS CONSOLIDATION OF GLOBAL ACCOUNTS WITH GLOBAL AGENCIES
The Company believes that large multinational companies will seek to
consolidate their accounts with one organization that can fulfill their
marketing and communications needs worldwide. There can be no assurance that the
Company will continue to benefit from this trend towards consolidation of global
accounts. In addition, this trend towards consolidation of global accounts
requires companies seeking to compete effectively in the international marketing
and communications industry to make significant investments in additional
offices and personnel around the world and in new and improved technology for
linking such offices
10
<PAGE> 14
and people. Y&R's international network of employees and offices are linked by
computer networks which require significant capital expenditures for
maintenance, expansion and upgrades. To the extent that Y&R's competitors may
have broader geographic scope or greater financial resources to invest in
additional offices, personnel or technology, such competitors may be better able
than Y&R to take advantage of an opportunity for the consolidation of a global
account. In such event, Y&R's prospects, business, financial condition and
results of operations could be adversely affected.
CONCENTRATION OF REVENUES FROM A LIMITED NUMBER OF LARGE CLIENTS
A relatively small number of clients contributes a significant percentage
of Y&R's consolidated revenues. In 1997, Y&R's 20 largest clients contributed
approximately 40.5% of consolidated revenues, its three largest clients
contributed approximately 18.6% of consolidated revenues and its largest client,
Ford Motor Company, contributed approximately 10.0% of consolidated revenues.
Based upon Y&R's strategy of increasing its penetration of existing large
clients, it is possible that Y&R's dependence on revenues from such clients will
increase in the future. Most of Y&R's agreements with U.S.-based clients are
cancelable on 90 days' notice, and its agreements with non-U.S. clients
typically are cancelable on 90 to 180 days' notice. In addition, clients
generally are able to reduce marketing and communications spending or cancel
projects at any time for any reason. There can be no assurance that any of Y&R's
clients will continue to utilize Y&R and its services to the same extent, or at
all, in the future. A significant reduction in the marketing and communications
spending by, or the loss of one or more of, Y&R's largest clients, if not
replaced by new client accounts or an increase in business from existing
clients, would have a material adverse effect on Y&R's prospects, business,
financial condition and results of operations. See "Business."
CLIENT TURNOVER; DEVELOPMENT OF NEW CLIENTS
The success of a marketing and communications organization depends on its
continuing ability to attract and retain clients. Y&R has approximately 5,500
client accounts worldwide. Although historically Y&R has had long-term
relationships with many of its largest clients, clients may move their
advertising and other communications assignments from agency to agency, or may
divide their assignments among two or more agencies, with relative ease. In
addition, the perception management and public relations business, as well as
the branding consultation and design business, are principally project-based and
require new assignments in order to maintain and increase revenues. As is
typical in the marketing and communications industry, Y&R has lost or resigned
client accounts and assignments for a variety of reasons, including conflicts
with newly acquired clients. Although typically Y&R has been able to replace
such client and revenue losses with new clients and assignments, there can be no
assurance that Y&R will continue to be successful in replacing clients or in
replacing revenues when a client significantly reduces the amount of work given
to Y&R. The failure to maintain existing clients or attract new clients could
have a material adverse effect on Y&R's prospects, business, financial condition
and results of operations. See "Business."
CYCLICAL INDUSTRY
The marketing and communications industry is cyclical because it is subject
to downturns in general economic conditions and changes in client business and
marketing budgets. There can be no assurance that the Company's prospects,
business, financial condition and results of operations would not be materially
adversely affected by a downturn in general economic conditions in one or more
markets or changes in client business and marketing budgets. See "Business."
CURRENCY RISK
The Company's Consolidated Financial Statements are denominated in U.S.
dollars. Y&R derived approximately 52.2% of its revenues from operations outside
of the United States in 1997. Currency fluctuations may give rise to translation
gains or losses when financial statements of foreign operating units are
translated into U.S. dollars. Significant strengthening of the U.S. dollar
against other major foreign currencies could have a material adverse effect on
Y&R's results of operations. With limited exceptions, Y&R does not
11
<PAGE> 15
actively hedge its foreign currency exposure. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
CONTROL OF Y&R
Substantially all of Y&R's Common Stock is owned by employee equityholders
(the "Management Investors") and the Recapitalization Investors. See
"Management." All Common Stock held at any time by Management Investors is
deposited in a voting trust (the "Management Voting Trust") which is controlled
by eight members of Y&R's senior management, in their capacities as voting
trustees (the "Voting Trustees"). Upon consummation of the Offerings, the
Management Voting Trust will hold voting power over approximately 53.8% of the
outstanding shares of Common Stock (assuming the exercise of all currently
vested options). As a result, the Management Voting Trust will be able to
exercise substantial control over any matters requiring the vote of
stockholders, including the election of Directors, which could delay or prevent
a change in control of the Company. Furthermore, the vote of Peter A. Georgescu
(or any other person duly elected Chief Executive Officer of Y&R with the prior
approval of the Management Voting Trust) will bind the Management Voting Trust
unless he (or his successor) is outvoted by the vote of six of the other Voting
Trustees. As a result of the foregoing, Peter A. Georgescu (or any such
successor) will be able to exercise a significant degree of control over
business decisions affecting Y&R. The Management Voting Trust will remain in
existence following consummation of the Offerings but will terminate no later
than 24 months after the consummation of the Offerings. See "Description of
Capital Stock -- The Management Voting Trust Agreement." In the event that,
following the termination of the Management Voting Trust, management of the
Company continues to own collectively a significant percentage of the
outstanding shares of Common Stock, management acting together would be able to
exercise a significant degree of control over business decisions affecting Y&R.
Upon consummation of the Offerings, the H&F Investors are expected to
beneficially own an aggregate of approximately 35.1% of the outstanding shares
of Common Stock (assuming the exercise of all currently vested options). As a
result of their stock ownership, the H&F Investors currently are, and upon
consummation of the Offerings will be, able to influence matters requiring the
vote of stockholders, including the election of Directors. In addition, pursuant
to the Amended Stockholders' Agreement (as defined herein), the H&F Investors
will have the right to nominate and have elected two members of the Company's
Board of Directors (the "Board" or the "Company Board") for so long as they
continue to hold, in the aggregate, at least 10% of the Outstanding Shares (as
defined in the Amended Stockholders' Agreement), and one member of the Board for
so long as they continue to hold, in the aggregate, at least 5% of the
Outstanding Shares. Should the Management Voting Trust and the H&F Investors act
together, they would be able to elect the members of the Board and exercise a
controlling influence over the business and affairs of the Company. In addition,
the Management Voting Trust and the H&F Investors could, acting together, delay
or prevent a change in control of the Company. See "-- Certain Anti-Takeover
Effects" and "Description of Capital Stock -- The Stockholders' Agreement."
DEPENDENCE ON KEY PERSONNEL
The Company's ability to maintain its competitive position is dependent on
the services of its senior management. The loss of the services of one or more
members of senior management could have a material adverse effect on the
Company. In addition, the success of Y&R has been, and will continue to be,
highly dependent upon the skills of its creative, research, media and account
personnel and practice group specialists, and their relationships with clients.
Employees generally are not subject to contracts of employment and are,
therefore, typically able to move within the industry with relative ease.
Although the Management Voting Trust Agreement (as defined herein) and certain
stock option and restricted stock agreements contain non-competition and
non-solicitation covenants, there can be no assurance that such provisions will
be effective in helping Y&R retain qualified personnel or that Y&R would not be
adversely affected by the failure to retain such personnel.
If Y&R were unable to continue to attract and retain additional key
personnel, or if it were unable to retain and motivate its existing key
personnel, its prospects, business, financial condition and results of
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<PAGE> 16
operations would be materially adversely affected. See "Management" and
"Description of Capital Stock -- The Management Voting Trust Agreement."
RISKS OF MULTINATIONAL OPERATIONS
The Company conducts business in various developing countries in Asia,
Latin America, Eastern Europe and Africa, where the systems and bodies of
commercial law and trade practices arising thereunder are evolving. Commercial
laws in such countries are often vague, arbitrary, contradictory, inconsistently
administered and retroactively applied. Under such circumstances, it is
difficult for the Company to determine with certainty at all times the exact
requirements of such local laws. If the Company consistently were unable to
remain in compliance with local laws in such developing countries, it could have
a material adverse impact on Y&R's prospects, business, results of operations
and financial condition. In addition, the global nature of the Company's
operations poses various challenges to the Company's management and its
financial, accounting and other systems which, if not satisfactorily met, could
have a material adverse impact on the Company's prospects, business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
TERMS OF CERTAIN INDEBTEDNESS
The Company's Credit Facilities contain certain financial and operating
covenants and require the Company to achieve or maintain certain financial
ratios and net worth requirements, and restrict the Company's ability to incur
additional indebtedness, sell assets, redeem equity, pay cash dividends, make
acquisitions and take other specified actions. The Company's obligations under
the Credit Facilities are secured by a security interest in certain domestic
assets, including its headquarters building in New York, all of the capital
stock of the direct and indirect domestic subsidiaries of the Company and 66.7%
of the capital stock of the Company's first-tier non-U.S. subsidiaries. The net
proceeds to the Company from the Offerings are expected to be used to repay a
portion of the borrowings outstanding under the term loan portion of the Credit
Facilities. The Company expects to enter into a $400 million unsecured revolving
credit facility (the "New Facility") to become effective upon the consummation
of the Offerings, and has received an executed commitment letter for an
aggregate of $150 million of the $400 million total from two commercial banks.
The New Facility is expected to contain certain financial and operating
restrictions and covenant requirements. Consummation of the New Facility is
subject to execution of definitive documentation and a number of other closing
conditions, and there can be no assurance that the Company will be successful in
consummating such Facility.
Outstanding borrowings under the Credit Facilities, which aggregated $330.6
million at December 31, 1997, bear interest at rates that fluctuate with changes
in certain prevailing market interest rates. Any increase in interest rates
would adversely affect Y&R's net income and the cash flow available after debt
service to fund operations and expansion. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ACQUISITION STRATEGY RISKS
Y&R's business strategy includes increasing its share of clients' marketing
expenditures by adding to or enhancing its existing marketing and communications
capabilities, and expanding its geographic reach. Y&R intends to implement this
strategy in part by making acquisitions. There can be no assurance that the
Company will be successful in identifying appropriate acquisition candidates or
consummating acquisitions on terms satisfactory to Y&R, or that any newly
acquired companies will be successfully integrated into Y&R's existing global
network. The Company may use Common Stock (which could result in dilution to
purchasers of Common Stock offered hereby) or may incur indebtedness (which may
be long-term), expend cash or use a combination thereof for all or part of the
consideration to be paid in future acquisitions. While the Company regularly
evaluates potential acquisition opportunities, it has no present commitments,
agreements or understandings with respect to any material acquisition. See
"Business."
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<PAGE> 17
THIRD PARTY LIABILITY
Y&R from time to time may be, or may be joined as, a defendant in
litigation brought against its clients by third parties, including, without
limitation, claims brought by such clients' competitors, regulatory bodies or
consumers, alleging that advertising claims made with respect to such client's
products or services are false, deceptive or misleading, that such clients'
products are defective or injurious or that marketing and communications
materials created for such clients infringe on the proprietary rights of third
parties. If, in such circumstances, Y&R is not insured under the terms of the
insurance policies with its insurers or is not indemnified under the terms of
its agreements with such clients (or such indemnification is unavailable) with
respect to such claims, then the damages, costs, expenses or attorneys' fees
arising from any such claims could have an adverse effect on Y&R's prospects,
business, results of operations and financial condition. In addition, Y&R's
contracts with clients sometimes require it to indemnify clients for claims
brought by competitors or others claiming that advertisements or other
communications infringe on intellectual property rights. Although Y&R maintains
an insurance program, including insurance for advertising agency liability,
there can be no assurance that such insurance will be available, or will be
sufficient to cover any claim if available, in the event a significant adverse
claim is made. In the opinion of management, none of the existing claims and
legal actions to which the Company currently is a party is expected to have a
material adverse effect on the Company.
YEAR 2000 RISK
The Company is conducting a comprehensive review of its computer systems to
identify all software applications that could be affected by the inability of
many existing computer systems to process time-sensitive data accurately beyond
the year 1999 (referred to as the "Year 2000" issue). The Company intends to
modify or replace all affected systems for compliance with the Year 2000 issue
and is also monitoring the adequacy of the processes and progress of third-party
vendors of systems that may be affected by the Year 2000 issue. Y&R is dependent
on third-party computer systems and applications, particularly with respect to
such critical tasks as accounting, billing and buying, planning and paying for
media, as well as on its own computer systems. While Y&R believes its process is
designed to be successful, because of the complexity of the Year 2000 issue and
the interdependence of organizations using computer systems, there can be no
assurance that Y&R's efforts, or those of third parties with whom Y&R interacts,
will be satisfactorily completed in a timely fashion. Failure to satisfactorily
address the Year 2000 issue could have a material adverse effect on Y&R's
prospects, business, financial condition and results of operations. The costs of
the Company's Year 2000 project have not been determined but are not expected to
have a material adverse effect on the Company. However, there can be no
assurance that Y&R will not experience cost overruns or delays in connection
with its plan for replacing or modifying systems, which could have a material
adverse effect on Y&R's prospects, business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance."
DIVIDEND POLICY
Although the Company intends to commence the declaration and payment of a
regular quarterly cash dividend in the last quarter of 1998, the Company's
ability to pay dividends will depend upon, among other factors, the Company's
results of operations, financial condition and capital requirements. In
addition, the covenants under the Credit Facilities currently prohibit Y&R from
the declaration and payment of cash dividends. The terms of the New Facility,
which the Company expects to enter into upon consummation of the Offerings, are
expected to permit the payment of cash dividends except in the event of a
continuing default under the credit agreement. Any cash dividend is therefore
contingent upon the consummation of the New Facility, which is subject to
execution of definitive documentation and a number of other closing conditions,
and there can be no assurance that the Company will be successful in
consummating such Facility. See "Dividend Policy."
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<PAGE> 18
BENEFIT TO EXISTING STOCKHOLDERS
The initial public offering price of the shares of Common Stock to be sold
in the Offerings is substantially in excess of the net tangible book value per
share, which results in a benefit to existing stockholders of the Company. See
"-- Immediate and Substantial Dilution" and "Dilution." Consummation of the
Offerings will result in the vesting of the Company's Restricted Stock, which
will provide a substantial benefit to management stockholders who have been
allocated shares of Restricted Stock. In addition, consummation of the Offerings
will result in the elimination of the Company's right to repurchase shares of
Common Stock held by Management Investors upon their termination of employment.
See "The Company -- The Recapitalization" and "Description of Capital
Stock -- The Stockholders' Agreement."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of the Common Stock is substantially in
excess of the net tangible book value per share. As a result, purchasers of
Common Stock in the Offerings will experience immediate and substantial dilution
of $23.18 per share. See "Dilution."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market for the
Common Stock will develop or will continue if it develops. The initial public
offering price of the Common Stock will be determined by negotiations between
the Company and representatives of the Underwriters and may not be indicative of
the market price of the Common Stock following the Offerings. See
"Underwriting." The market price of the Common Stock could be subject to
significant fluctuations in response to various factors and events, including
the liquidity of the market for the Common Stock, differences between the
Company's actual financial or operating results and those expected by investors
and analysts, changes in analysts' recommendations or projections, marketing and
communications budgets of clients, new statutes or regulations or changes in
interpretations of existing statutes and regulations affecting the Company's
business, changes in general economic or market conditions and broad market
fluctuations.
POSSIBLE ADVERSE IMPACT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Following the Offerings, the Company will have 66,228,322 shares of Common
Stock outstanding. Of these, 20,239,045 shares will be freely transferable by
persons other than "affiliates" of the Company without restriction or further
registration under the Securities Act. The remaining 45,989,277 outstanding
shares of Common Stock will be "restricted securities" within the meaning of
Rule 144 under the Securities Act or securities issued and sold pursuant to
Regulation S under the Securities Act and subject to transfer restrictions.
Following the Offerings and subject to certain 180-day lock-up agreements
described herein, certain of the Recapitalization Investors will have demand and
piggyback registration rights with respect to an aggregate of 22,199,002 shares
of Common Stock. In addition, beginning 90 days after the date of this
Prospectus, such shares will be eligible for sale in the public market without
registration under the Securities Act, subject to compliance with the resale
volume limitations and other restrictions of Rule 144 under the Securities Act.
Subject to certain 180-day lock-up agreements described herein, and beginning 90
days after the date of this Prospectus, shares of Common Stock held by
Management Investors will be eligible for sale in the public market without
registration under the Securities Act, subject to compliance with the resale
volume limitations and other restrictions of Rule 144 under the Securities Act.
Future sales of the Common Stock, or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock. See
"Shares Eligible for Future Sale" and "Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Company's Charter") and the Company's Amended and Restated
By-Laws (the "Company's By-Laws"), which will become effective upon consummation
of the Offerings, and of the Delaware General Corporation Law
15
<PAGE> 19
(the "DGCL") may have the effect of delaying, deterring or preventing a change
in control of the Company not approved by the Company Board. These provisions
include (i) a classified Board, (ii) a requirement that no action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, (iii) a requirement that special meetings of
stockholders be called only by the Chairman of the Board or the Company Board,
(iv) advance notice requirements for stockholder proposals and nominations, (v)
limitations on the ability of stockholders to amend, alter or repeal certain
provisions of the Company's Charter and the Company's By-Laws, (vi)
authorization for the Company Board to issue without stockholder approval
preferred stock with such terms as the Board may determine and (vii)
authorization for the Company Board to consider the interests of clients and
other customers, creditors, employees and other constituencies of the Company
and its subsidiaries and the effect upon communities in which the Company and
its subsidiaries do business, in evaluating proposed corporate transactions.
With certain exceptions, Section 203 of the DGCL ("Section 203") imposes certain
restrictions on mergers and other business combinations between the Company and
any holder of 15% or more of the Company's Common Stock (other than the H&F
Investors and their permitted transferees, who have been exempted from these
restrictions by the Company Board). In addition, the Company has adopted a
stockholder rights plan that will become effective upon consummation of the
Offerings (the "Rights Plan") under which the H&F Investors and their permitted
transferees will have the benefit of certain exceptions. The Rights Plan is
designed to protect stockholders in the event of an unsolicited offer and other
takeover tactics which, in the opinion of the Company Board, could impair the
Company's ability to represent stockholder interests. The provisions of the
Rights Plan may render an unsolicited takeover of the Company more difficult or
less likely to occur or might prevent such a takeover.
These provisions of the Company's Charter and the Company's By-Laws, the
DGCL and the Rights Plan, together with the control of 53.8% of the outstanding
shares of Common Stock by the Management Voting Trust upon consummation of the
Offerings (assuming the exercise of all currently vested options) could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company, although such proposals, if made, might be considered
desirable by a majority of the Company's stockholders. Such provisions could
also make it more difficult for third parties to remove and replace the members
of the Company Board. Moreover, these provisions could diminish the
opportunities for a stockholder to participate in certain tender offers,
including tender offers at prices above the then-current market price of the
Company's Common Stock, and may also inhibit increases in the market price of
the Company's Common Stock that could result from takeover attempts or
speculation. In addition, certain options issued to employees of the Company
contain change in control provisions that could have the effect of delaying,
deterring or preventing a change in control of the Company. See
"Management -- Executive Compensation -- 1997 ICP -- Acceleration of Vesting"
and "Description of Capital Stock -- Anti-Takeover Effects of Certain Provisions
of the Charter, the By-Laws, the Rights Plan and Delaware Law."
16
<PAGE> 20
THE COMPANY
GENERAL
Since its founding 75 years ago by John Orr Young, an account executive,
and Raymond Rubicam, a copywriter, Y&R has evolved from a single New York-based
advertising agency to a diversified global marketing and communications
organization. In its early years, the Company grew its core advertising business
by either opening additional offices in the United States and abroad, or by
acquiring established local agencies and fully integrating them into the Company
under the Y&R name. By the early 1970s, the Company had established a network of
approximately 40 Young & Rubicam Advertising agency offices in the United States
and 22 other countries.
In 1973, Y&R began to expand its capabilities beyond traditional general
advertising by acquiring well-established leaders in other marketing and
communications disciplines. Y&R began this diversification with its acquisitions
of Wunderman Ricotta & Kline (the predecessor to Wunderman Worldwide), a direct
marketing firm, and Sudler & Hennessey, a healthcare communications specialist.
In 1976, the Company added the sales promotion firm, Cato Johnson Associates,
which was merged with Wunderman Worldwide in 1992 to form Wunderman Cato
Johnson. Y&R continued implementing its diversification strategy with its
acquisitions of Burson-Marsteller, a public relations company, in 1979 and
Landor Associates, a branding consultation and strategic design firm, in 1989.
Y&R has been successful in integrating the diverse capabilities of these
companies, which the Company believes enables it to better serve clients'
marketing and communications needs on a global basis.
The Company's principal executive office is located at 285 Madison Avenue,
New York, New York 10017, and its telephone number is (212) 210-3000.
THE RECAPITALIZATION
From the time of its founding until 1996, Y&R was wholly owned by its
employees. In December 1996, Y&R consummated the Recapitalization. The purpose
of the Recapitalization was to realign the ownership of the Company with those
senior employees who would most actively lead Y&R's future growth, to establish
an equity-based incentive program to motivate current and future employees and
to enhance its ability to make strategic investments in people, services and
products. In connection with the Recapitalization, predecessor companies of Y&R
acquired for cash, canceled or exchanged all then outstanding equity and
equity-based compensation units, including shares of common stock, limited
partnership interests, options to acquire shares of common stock and limited
partnership interests, and growth participation units (collectively, the
"Predecessor Units"). In place of the Predecessor Units, the Company issued new
shares of Common Stock and granted certain restricted stock awards and options
to acquire shares of Common Stock to approximately 325 employees. In addition,
at the time of consummation of the Recapitalization, an aggregate of $242
million was contributed to the Company in exchange for an aggregate of
31,566,345 shares of Common Stock and options to acquire an additional aggregate
of 2,598,105 shares of Common Stock. The Recapitalization Investors contributed
an aggregate of $231.7 million in exchange for 30,228,195 shares of Common Stock
and options to purchase an additional 2,598,105 shares of Common Stock and are
selling an aggregate of 7,831,473 shares of Common Stock in the Offerings, and
55 Management Investors contributed an aggregate of $10.3 million in exchange
for 1,338,150 shares of Common Stock and no options, of which 223,065 shares of
Common Stock were received by four Management Investors who are selling an
aggregate of 443,205 shares of Common Stock in the Offerings. See "Principal and
Selling Stockholders."
Upon consummation of the Recapitalization, the H&F Investors were granted
registration rights as well as the right to nominate and have elected three
members of the Company Board and to designate jointly with the Management Voting
Trust two additional members of the Company Board. See "Risk Factors -- Control
of Y&R," "Management -- Executive Compensation" and "-- Officers and Directors,"
"Shares Eligible for Future Sale" and "Description of Capital Stock -- The
Management Voting Trust Agreement."
In connection with the Recapitalization, the Company entered into the $700
million Credit Facilities, a portion of the proceeds of which were used to
prepay the Company's indebtedness under its previous credit facilities.
Recapitalization-related borrowings under the Credit Facilities totalled $361.7
million, $200.0
17
<PAGE> 21
million of which was borrowed on December 12, 1996 and $161.7 million of which
was borrowed on March 18, 1997.
At the time of the Recapitalization, Y&R adopted certain incentive
compensation plans, including the Young & Rubicam Holdings Inc. Management Stock
Option Plan (the "Management Stock Option Plan") and the Young & Rubicam
Holdings Inc. Restricted Stock Plan (the "Restricted Stock Plan"), designed to
attract, retain and motivate key employees. The Management Stock Option Plan
provides for the grant of options to purchase Common Stock. At the time of the
Recapitalization, non-qualified options to purchase 16,823,565 shares of Common
Stock of Y&R were granted to certain members of Y&R management in consideration
of their surrender for cancellation of all or a portion of their outstanding
options to purchase equity units of predecessor companies of Y&R (the "Rollover
Options"). The Rollover Options were immediately vested and exercisable upon
grant. Each Rollover Option has an exercise price of $1.92 per share. In
addition to the Rollover Options, immediately following the closing of the
Recapitalization, non-qualified options with exercise prices of $7.67 per share
with respect to 5,200,590 shares of Common Stock were granted to certain key
employees of Y&R (the "Closing Options"). Each Closing Option became exercisable
immediately upon grant with respect to 40% of the shares subject thereto and
will become exercisable (i) on the third anniversary of its grant date with
respect to 30% of such shares and (ii) on the fifth anniversary of its grant
date with respect to the remaining 30% of such shares. See
"Management -- Executive Compensation -- Management Stock Option Plan."
Pursuant to the Restricted Stock Plan, Y&R issued a total of 11,086,950
shares of Common Stock to a trust (the "Restricted Stock Trust") established by
Y&R for allocation to key employees of Y&R. Of such amount, as of the date of
consummation of the Offerings, 9,231,105 shares of Common Stock will have been
allocated to employees pursuant to the Restricted Stock Plan ("Restricted
Stock"). The Restricted Stock Plan provides that such shares will vest upon the
six-month anniversary of the consummation of the Offerings, subject to the power
of the Board of Directors to accelerate the vesting and distribution date to the
consummation of the Offerings. The Board of Directors has so accelerated the
vesting and distribution date, subject to the ability of the holders to sell
such number of shares of Restricted Stock in the Offerings as is necessary to
fund the personal tax liabilities associated with the vesting and distribution
thereof. In addition, in the event the Restricted Stock does not vest upon
consummation of the Offerings, the Restricted Stock will vest upon the earliest
to occur of the six-month anniversary of the consummation of the Offerings,
certain change of control events and certain other events described in the
Restricted Stock Plan, provided that in all cases each such employee is then
still employed by Y&R. Certain of such shares of Restricted Stock will be placed
in a deferral trust upon vesting thereof and the holders will have such shares
distributed to them from such deferral trust at specified times in the future.
See "Management -- Executive Compensation."
All shares of Common Stock (including all shares of Common Stock issued
upon the exercise of options) held by current or former members of Y&R
management and all shares of Common Stock held in the Restricted Stock Trust are
required to be deposited in the Management Voting Trust, the Voting Trustees of
which have the power to vote all shares of Common Stock held by it. The voting
rights of the Management Voting Trust are exercised by eight members of Y&R
senior management in their capacities as Voting Trustees. The Management Voting
Trust will remain in existence following consummation of the Offerings but will
terminate no later than 24 months after the consummation of the Offerings. See
"Shares Eligible for Future Sale" and "Description of Capital Stock -- The
Management Voting Trust Agreement."
18
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the Offerings, assuming an initial
public offering price of $22.50 per share, the midpoint of the range set forth
on the cover page of this Prospectus (after deducting applicable underwriting
discounts and commissions and estimated offering expenses payable by the
Company), are estimated to be approximately $139.5 million. The Company intends
to use such net proceeds to repay a portion of the borrowings outstanding under
the term loan portion of the Credit Facilities. The Company will not receive any
of the proceeds from the sale of shares of Common Stock by the Selling
Stockholders. As of December 31, 1997, there was an aggregate of $330.6 million
outstanding under the term loan, which bore interest at a rate of 6.875% per
annum. The term loan portion of the Credit Facilities is repayable in quarterly
installments which commenced on September 30, 1997 with final maturity on March
31, 2003. The proceeds of the term loan portion of the Credit Facilities were
received by the Company in December 1996 and March 1997 and were used by the
Company primarily to prepay indebtedness, to repurchase equity units from
certain employees and to repay certain expenses in connection with the
Recapitalization.
DIVIDEND POLICY
Since the consummation of the Recapitalization, the Company has not
declared or paid any cash or other dividends on its Common Stock (other than the
Stock Split). The Company expects to commence the declaration and payment of a
regular quarterly cash dividend in the last quarter of 1998. However, any
determination to pay dividends will be at the discretion of the Company Board
and will depend upon, among other factors, the Company's results of operations,
financial condition, capital requirements and contractual restrictions pursuant
to the Company's Credit Facilities. The covenants under the Company's existing
Credit Facilities currently prohibit Y&R from declaring and paying cash
dividends; any cash dividend is therefore contingent upon a renegotiation or
refinancing of the existing Credit Facilities in order to remove such
restriction. The Company has received a commitment letter in respect of the New
Facility, which the Company expects to enter into effective upon the
consummation of the Offerings. The New Facility, which would replace the Credit
Facilities, is expected to contain certain financial and operating restrictions
and covenant requirements and to permit the payment of cash dividends except in
the event of a continuing default under the credit agreement. The New Facility
is subject to execution of definitive documentation and a number of other
closing conditions, and there can be no assurance that the Company will be
successful in consummating such Facility. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
19
<PAGE> 23
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the Company's consolidated cash and cash
equivalents, current portion of installment notes and loans payable and
capitalization as of December 31, 1997 on (i) an actual basis; (ii) a pro forma
basis giving effect to the termination of the redemption feature and subsequent
reclassification of the Mandatorily Redeemable Equity Securities to
stockholders' deficit upon consummation of the Offerings; and (iii) a pro forma
as adjusted basis giving further effect to the sale of 6,666,667 shares of
Common Stock offered by the Company hereby and the application of the estimated
net proceeds therefrom as described in "Use of Proceeds" and the non-recurring,
non-cash, after-tax compensation charge resulting from the vesting of Restricted
Stock.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 160,263 $ 160,263 $ 160,263
========= ========= =========
Current portion of installment notes and loans payable...... 13,996 13,996 13,996
========= ========= =========
Long-term debt:
Installment notes payable................................. 6,503 6,503 6,503
Loans payable:
Term loan facility(1).................................. 299,000 299,000 159,500
Revolving credit facility.............................. 31,552 31,552 31,552
--------- --------- ---------
Total long-term debt.............................. 337,055 337,055 197,555
--------- --------- ---------
Mandatorily Redeemable Equity Securities:
Common Stock, $.01 par value, 250,000,000 shares
authorized; 50,658,180 shares issued and outstanding
(actual) and no shares issued and outstanding (pro
forma and pro forma as adjusted)(2).................... 508,471 -- --
--------- --------- ---------
Stockholders' deficit:
Cumulative Preferred Stock:
Money Market Preferred Stock -- variable dividend;
liquidating value of $7.67 per share; one-tenth of
one vote per share; 10,000,000 shares authorized; 87
shares issued and outstanding (actual, pro forma and
pro forma as adjusted)............................... -- -- --
Cumulative Participating Junior Preferred
Stock -- $ dividend; liquidating value of
$1.00 per share; 100 votes per share; 2,500,000
shares authorized (pro forma as adjusted); no shares
issued and outstanding (pro forma as adjusted)(3).... -- -- --
Common Stock, $.01 par value, 250,000,000 shares
authorized (actual and pro forma); 250,000,000 shares
authorized (pro forma as adjusted); 11,086,950 shares
issued and outstanding (actual); 61,745,130 shares
issued and outstanding (pro forma) and 66,555,952
shares issued and outstanding (pro forma as
adjusted)(2)(4)(5)..................................... 111 617 665
Capital surplus(2)(5)..................................... 23,613 531,578 741,991
Accumulated deficit(6).................................... (522,866) (522,866) (645,409)
Cumulative translation adjustment......................... (16,577) (16,577) (16,577)
Pension liability adjustment.............................. (706) (706) (706)
--------- --------- ---------
Subtotal.................................................. (516,425) (7,954) 79,964
Common stock in treasury.................................... (8,550) (8,550) (8,550)
Unearned compensation-Restricted Stock(5)................... (136,739) (136,739) --
--------- --------- ---------
Total stockholders' (deficit) equity.............. (661,714) (153,243) 71,414
--------- --------- ---------
Total capitalization.............................. $ 183,812 $ 183,812 $ 268,969
========= ========= =========
</TABLE>
20
<PAGE> 24
- ------------------------------
(1) The pro forma as adjusted column reflects the application of $139,500 of
estimated net proceeds to the Company from the Offerings to repay a portion
of the borrowings outstanding under the term loan portion of the Credit
Facilities.
(2) From the date of consummation of the Recapitalization and through the date
of consummation of the Offerings, all outstanding shares of Common Stock,
exclusive of shares of Common Stock held in the Restricted Stock Trust, are
redeemable, subject to certain restrictions, at the option of the
stockholder. Accordingly, all such shares of Common Stock have been recorded
at their redemption values and classified as Mandatorily Redeemable Equity
Securities in the Company's historical balance sheets at December 31, 1996
and 1997, respectively. The pro forma December 31, 1997 balance sheet
reflects the reclassification of the $508,471 carrying value of Mandatorily
Redeemable Equity Securities to stockholders' deficit in connection with the
termination of the redemption feature upon consummation of the Offerings, of
which $506 is attributable to the par value of the 50,658,180 common shares
and the remaining $507,965 is attributable to capital surplus. See Notes 2,
15 and 16 to the Consolidated Financial Statements.
(3) Reflects the authorization of 2,500,000 shares of Cumulative Participating
Junior Preferred Stock which is effective upon the closing of the Offerings.
See "Description of Capital Stock -- Rights Plan."
(4) Excludes 31,013,205 shares of Common Stock issuable upon exercise of options
outstanding at a weighted average exercise price of $6.84 at December 31,
1997. See "Management -- Executive Compensation."
(5) Pro forma as adjusted common stock and capital surplus reflect an increase
of $48 and $210,413, respectively, for the following: (i) a $139,500
increase resulting from the issuance of 6,666,667 newly issued shares of
Common Stock in the Offerings (of the $139,500 net increase in stockholders'
equity, $67 is attributable to Common Stock for the par value of the
6,666,667 shares issued with the remaining $139,433 increasing capital
surplus); (ii) a $207,700 increase resulting from the vesting of the
9,231,105 shares of Restricted Stock (based upon an assumed initial public
offering price of $22.50 per share) allocated to employees as of the date of
consummation of the Offerings (of the $207,700 aggregate increase to Common
Stock and capital surplus, $92 is attributable to Common Stock for the par
value of the 9,231,105 shares vested and $207,608 is attributable to capital
surplus); and (iii) the elimination of the unearned compensation included as
a component of stockholders' equity resulting from recognition of the
Restricted Stock compensation charge (discussed in Note (6) below) in
connection with the vesting of such awards upon consummation of the
Offerings (this charge results in a $111 decrease in Common Stock (par value
of the 11,086,950 shares of Common Stock held by the Restricted Stock Trust
outstanding at December 31, 1997) and a decrease in capital surplus of
$136,628).
(6) Reflects the vesting of the aggregate 9,231,105 shares of Restricted Stock
allocated to employees as of the consummation of the Offerings and the
resulting non-recurring, non-cash, after-tax compensation charge estimated
at $122,543 (at an assumed initial public offering price of $22.50 per
share) as an increase in the accumulated deficit herein. The charge to
compensation expense will occur upon consummation of the Offerings. See
"Management -- Executive Compensation -- The Restricted Stock Plan and Trust
Agreement" and Note 15 to the Consolidated Financial Statements.
21
<PAGE> 25
DILUTION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As of December 31, 1997, after giving effect to the termination of the
redemption feature of the Mandatorily Redeemable Equity Securities upon the
consummation of the Offerings, the Company had a pro forma deficit in net
tangible book value of $269,880, or $4.37 per share of Common Stock based upon
61,745,130 pro forma shares of Common Stock outstanding. The deficit in pro
forma net tangible book value per share is determined by dividing the pro forma
deficit in net tangible book value of the Company (total tangible assets less
total liabilities) on such date by the number of pro forma shares of Common
Stock outstanding as of such date. After giving effect to the sale by the
Company of the 6,666,667 shares of Common Stock offered hereby and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company, the Company's pro forma as adjusted deficit in net
tangible book value as of December 31, 1997 would have been $45,223 or $.68 per
share of Common Stock. This represents an immediate decrease in the deficit in
the pro forma net tangible book value of $3.69 per share to existing
stockholders and immediate dilution of $23.18 per share to new investors
purchasing shares of Common Stock in the Offerings. The following table
illustrates dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $22.50
Pro forma deficit in net tangible book value per share
before the Offerings................................... $4.37
Decrease in deficit in pro forma net tangible book value
per share attributable to new investors................ $3.69
-----
Pro forma as adjusted deficit in net tangible book value per
share after the Offerings................................. $ .68
------
Dilution per share to new investors......................... $23.18
======
</TABLE>
The following table sets forth, as of the date of this Prospectus, a
comparison of the number of shares of Common Stock owned by the existing
stockholders and the new investors, the total consideration paid and the average
price per share paid by the Company's existing stockholders and new investors
purchasing shares of Common Stock from the Company in the Offerings.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............... 59,561,655 90% $273,695 65% $ 4.60
New investors(1)....................... 6,666,667 10 150,000 35 22.50
----------- --- -------- ---
Total........................ 66,228,322 100% $423,695 100%
=========== === ======== ===
</TABLE>
- ------------------------------
(1) Sales of Common Stock by the Selling Stockholders in the Offerings will
reduce the number of shares of Common Stock held by existing stockholders to
49,628,322, or approximately 75% of the total shares of Common Stock
outstanding after the Offerings and will increase the number of shares held
by new investors to 16,600,000, or approximately 25% of the total shares of
Common Stock outstanding after the Offerings. See "Principal and Selling
Stockholders."
The foregoing tables exclude (i) an aggregate of 28,844,880 shares of
Common Stock reserved for issuance upon exercise of outstanding options under
the Stock Option Plans and (ii) an aggregate of 2,598,105 shares reserved for
issuance upon the exercise of outstanding options issued to certain of the
Recapitalization Investors. See "Management -- Executive
Compensation -- Management Stock Option Plan" and "-- 1997 ICP."
22
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected consolidated balance sheet data and consolidated
statement of operations data as of and for the years 1993 through 1997 have been
derived from the Company's audited annual consolidated financial statements,
including the consolidated balance sheets at December 31, 1996 and 1997 and the
related consolidated statements of operations and of cash flows for the three
years ended December 31, 1997 and the notes thereto appearing elsewhere in this
Prospectus. The selected consolidated financial data set forth below should be
read in conjunction with, and are qualified in their entirety by reference to,
the Consolidated Financial Statements and related notes thereto appearing
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $905,770 $959,275 $1,085,494 $1,222,139 $1,382,740
Compensation expense, including employee
benefits(1)................................... 583,723 594,322 672,026 730,261 836,150
General and administrative expenses(1).......... 312,083 323,087 356,523 391,617 463,936
Recapitalization-related charges(2)............. -- -- -- 315,397 --
Other operating (income) charges(2)............. (11,714) 4,507 31,465 17,166 11,925
-------- -------- ---------- ---------- ----------
Operating expenses............................ 884,092 921,916 1,060,014 1,454,441 1,312,011
-------- -------- ---------- ---------- ----------
Income (loss) from operations................... 21,678 37,359 25,480 (232,302) 70,729
Interest income................................. 10,646 12,100 9,866 10,269 8,454
Interest expense................................ (17,958) (23,027) (27,441) (28,584) (42,879)
-------- -------- ---------- ---------- ----------
Income (loss) before income taxes............... 14,366 26,432 7,905 (250,617) 36,304
Income tax provision (benefit).................. 8,583 12,998 9,130 (20,611) 58,290
-------- -------- ---------- ---------- ----------
5,783 13,434 (1,225) (230,006) (21,986)
Equity in net income (loss) of unconsolidated
companies..................................... 102 4,740 5,197 (9,837) 342
Minority interest in net (income) loss of
consolidated subsidiaries..................... (1,271) (2,742) (3,152) 1,532 (2,294)
-------- -------- ---------- ---------- ----------
Income after taxes and before accounting
changes....................................... 4,614 15,432 820 (238,311) (23,938)
Cumulative effect of accounting changes (net of
tax benefit of $3,400)........................ (5,100) -- -- -- --
-------- -------- ---------- ---------- ----------
Net (loss) income............................... $ (486) $ 15,432 $ 820 $ (238,311) $ (23,938)
======== ======== ========== ========== ==========
Basic and diluted loss per common share(3)...... $ (.51)
Weighted average shares outstanding(3).......... 46,949,355
Supplemental loss per common share(4)........... $ (.37)
OTHER OPERATING DATA:
EBITDA(1)(5).................................... $ 59,282 $ 77,662 $ 72,972 $ 147,221 $ 139,375
Net cash provided by operating activities....... 15,426 43,314 79,809 178,064 224,511
Net cash used in investing activities........... 34,226 49,941 45,821 76,094 67,142
Net cash (provided by) used in financing
activities.................................... (41,644) 30,705 50,025 12,614 98,667
Capital expenditures............................ 25,241 33,196 42,096 51,792 51,899
International revenues as a % of total
revenues(6)................................... 51.7% 53.6% 54.7% 53.3% 52.2%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------------
1997 1997
1993 1994 1995 1996 ACTUAL PRO FORMA(11)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(7).... $100,519 $ 72,651 $ 27,827 $ (196,509) $ (106,169) $ (106,169)
Total assets(8)................. 998,808 1,118,846 1,226,581 1,598,812 1,528,019 1,528,019
Total debt(9)................... 197,929 256,032 230,831 267,238 351,051 351,051
Mandatorily Redeemable Equity
Securities(10)................ -- -- -- 363,264 508,471 --
Total equity (deficit).......... 123,661 69,982 (55,485) (480,033) (661,714) (153,243)
</TABLE>
23
<PAGE> 27
- ------------------------------
(1) For a discussion of charges included in compensation expense, including
employee benefits, and general and administrative expenses, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
(2) For a discussion of Recapitalization-related and other operating charges,
see Notes 4 and 6 to the Consolidated Financial Statements.
(3) Basic net loss per common share for 1997 was computed by dividing the net
loss by the weighted average number of common shares outstanding during the
period. The weighted average number of common shares outstanding excludes
11,086,950 shares of Common Stock held by the Restricted Stock Trust, as
such shares vest upon the consummation of an initial public offering, or
the six-month anniversary thereof, a condition which was not satisfied at
December 31, 1997. Diluted net loss per common share for 1997 was computed
in the same manner as basic net loss per common share since the inclusion
of potential common shares would be antidilutive.
At December 31, 1997, the Company had outstanding options to purchase
31,013,205 shares of Common Stock with a weighted average exercise price of
$6.84 that could potentially dilute basic earnings per share in the future.
These options were excluded from the computation of diluted net loss per
common share because the effect for 1997 would be antidilutive. In
addition, at December 31, 1997, a maximum of 11,086,950 shares of Common
Stock held by the Restricted Stock Trust would vest and be dilutive as a
result of the consummation of the Offerings. See "Management -- Executive
Compensation -- The Restricted Stock Plan and Trust Agreement" and Notes 3,
15 and 21 to the Consolidated Financial Statements.
Earnings per share for 1995 and 1996 cannot be computed because the
Company's capital structure prior to the Recapitalization consisted of both
common shares and limited partnership units in predecessor entities. See
Note 4 to the Consolidated Financial Statements.
(4) The supplemental loss per common share was computed by dividing the
supplemental loss of $19,587 by the supplemental shares of 53,616,022. The
supplemental loss of $19,587 has been computed by adjusting the historical
net loss for 1997 to reflect the following: (i) additional interest cost,
net of the related tax benefit of $1,410 (computed utilizing an interest
rate and statutory tax rate of 7.0% and 41.0% respectively), associated
with the $161,700 of Recapitalization-related borrowings under the
Company's Credit Facilities, which occurred on March 18, 1997, as if such
borrowings had occurred as of January 1, 1997 and (ii) the reduction in
interest cost, net of tax, of $5,761 (computed utilizing an interest rate
and statutory tax rate of 7.0% and 41.0% respectively) associated with
$139,500 of the net proceeds of the Offerings to the Company, which is
expected to be utilized to repay a portion of the outstanding borrowings
under the term loan portion of the Company's Credit Facilities, as if the
debt repayment had occurred as of January 1, 1997.
The supplemental shares of 53,616,022 were computed by adding the 6,666,667
shares of Common Stock offered by the Company to the 46,949,355 weighted
average shares outstanding as of December 31, 1997. See "Capitalization."
Based upon an assumed initial public offering price of $22.50, the
consummation of the Offerings will give rise to a non-recurring, non-cash,
pre-tax charge of $207,700 ($122,543 net of the related tax benefit
assuming a statutory tax rate of 41.0%) arising from the vesting of the
aggregate of 9,231,105 shares of Restricted Stock allocated to employees as
of the date of the consummation of the Offerings. The determination of
supplemental loss for 1997 does not give effect to this charge due to its
non-recurring nature. See "Management -- Executive Compensation -- The
Restricted Stock Plan and Trust Agreement" and Note 15 to the Consolidated
Financial Statements.
(5) EBITDA is defined as income (loss) from operations, before depreciation and
amortization, other non-cash charges and Recapitalization-related charges.
EBITDA is presented because it is a widely accepted financial indicator and
is generally consistent with the definition used for covenant purposes
contained in the Company's existing credit facilities; however, EBITDA may
not be comparable to other registrants' calculation of EBITDA or similarly
titled items. EBITDA should not be considered as an alternative to net
income (loss) as a measure of operating results in accordance with
generally accepted accounting principles or as an alternative to cash flows
as a measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
EBITDA for 1996 and 1997 are before $11,096 and $11,925, respectively, of
non-cash charges primarily related to impairment write-downs which are
included in other operating charges. See Notes 4 and 6 to the Consolidated
Financial Statements.
(6) International revenues include all revenues earned outside the United
States.
(7) Working capital deficit as of December 31, 1996 includes approximately
$161,700 of accruals related to the Recapitalization which were paid in
1997 through long-term borrowings. Working capital deficit as of December
31, 1997 is the result of improved collection of accounts receivable and
use of cash to repay short-term borrowings under the Company's Credit
Facilities during 1997. See the Consolidated Statements of Cash Flows and
Note 4 to the Consolidated Financial Statements.
(8) Total assets as of December 31, 1997 (actual and pro forma) include net
deferred tax assets of $157,024, $75,135 of which relate to NOL
carryforwards of approximately $140,409 for U.S. tax purposes and
approximately $69,231 for foreign tax purposes. See Note 9 to the
Consolidated Financial Statements.
(9) Total debt includes current and non-current loans and installment notes.
See Notes 13 and 14 to the Consolidated Financial Statements.
(10) From the date of consummation of the Recapitalization and through the date
of consummation of the Offerings, all outstanding shares of Common Stock,
exclusive of shares of Common Stock held in the Restricted Stock Trust, are
redeemable, subject to certain restrictions, at the option of the
stockholder. Accordingly, all such shares of Common Stock have been
recorded at their redemption values and classified as Mandatorily
Redeemable Equity Securities in the Company's historical balance sheets at
December 31, 1996 and 1997, respectively. See Notes 2, 15 and 16 to the
Consolidated Financial Statements.
(11) The pro forma December 31, 1997 balance sheet reflects the termination of
the redemption feature and subsequent reclassification of Mandatorily
Redeemable Equity Securities, as discussed in Note (10) above, to
stockholders' equity. See "Capitalization" and Notes 2, 15 and 16 to the
Consolidated Financial Statements.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements.
OVERVIEW
Y&R is the fifth largest marketing and communications organization in the
world, with integrated services in advertising, direct marketing and sales
promotion, perception management and public relations, branding consultation and
design services, and healthcare communications. Y&R's revenues were
approximately $1.4 billion in 1997, having grown at a compound annual rate of
12.9% from 1995 to 1997.
Y&R's revenues consist principally of commissions and fees received by the
Company from its clients. Commissions are derived using a negotiated percentage
of an advertiser's media and production spending through Y&R. Fees are based on
hours spent and costs incurred by agency staff plus a negotiated mark-up.
Commission revenue is recognized primarily when media placements appear on
television, on radio or in print, and when labor and production costs are
billed. Fee revenue is recognized when services are rendered.
Y&R has also implemented certain incentive-oriented compensation
arrangements with several clients to further strengthen client relationships and
reward Y&R for superior performance. These incentive arrangements create a range
of compensation which could result in either higher or lower revenues and
operating margins than a more traditional commission or fee arrangement.
Incentive levels are determined with reference to agreed upon operating,
performance and other benchmarks, with respect to both clients' businesses as
well as Y&R's performance. Although incentive arrangements did not materially
impact Y&R's revenues in 1997, management believes that additional clients may
request that Y&R institute incentive compensation arrangements in the future.
Y&R's revenues are diversified across geographic regions, various sectors
of the economy and among many clients. In 1997, approximately 47.8% of Y&R's
revenues were derived from its U.S. operations, with approximately 34.2% coming
from its European operations and the rest divided among its operations in Latin
America, Australia/New Zealand, Asia, Canada and Africa. For the years 1995,
1996 and 1997, the Company's revenue from any one country, other than the United
States, has not exceeded 10% of the Company's consolidated revenues. The United
Kingdom, Germany, Brazil, France, Australia, the Netherlands, Italy, Canada and
Switzerland represent the Company's largest sources of revenues by country
(other than the United States).Y&R represents clients in various industries,
including automotive, consumer packaged goods, financial services, food and
beverage, government services and telecommunications. Y&R's revenues are
diversified across its approximately 5,500 client accounts, with the largest
client, Ford Motor Company, and the top 20 clients accounting for approximately
10.0% and 40.5%, respectively, of revenues in 1997.
Y&R has two principal categories of operating expenses: compensation
expense and general and administrative expenses. Y&R's largest expense is
compensation, which includes the salaries, bonuses and benefits of all
employees, as well as fees paid to freelance contractors. General and
administrative expenses principally consist of facilities' costs, depreciation,
amortization, new business costs, travel expenses and professional fees.
From the time of its founding until 1996, Y&R was wholly owned by its
employees. As further described in Note 4 to the Consolidated Financial
Statements, in December 1996, Y&R consummated the Recapitalization, which
resulted in the recording of a pre-tax charge of $315.4 million in 1996. In
connection with the Recapitalization, the Company issued Restricted Stock. Based
upon an assumed initial offering price of $22.50, the consummation of the
Offerings will give rise to a non-recurring, non-cash, pre-tax charge of $207.7
million ($122.5 million net of the related tax benefit assuming a statutory tax
rate of 41.0%) from the vesting of an aggregate of 9,231,105 shares of
Restricted Stock allocated to employees as of the date of consummation of the
Offerings.
25
<PAGE> 29
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
derived from the Company's consolidated statements of operations and the
percentages of revenue represented by such items. Totals may not add due to
rounding.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
% OF % OF % OF
1995 REVENUES 1996 REVENUES 1997 REVENUES
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $1,085.5 100.0% $1,222.1 100.0% $1,382.7 100.0%
Compensation expense, including employee
benefits.............................. 672.0 61.9% 730.3 59.8% 836.2 60.5%
General and administrative expenses..... 356.5 32.8% 391.6 32.0% 463.9 33.6%
Recapitalization-related charges........ -- 0.0% 315.4 25.8% -- 0.0%
Other operating charges................. 31.5 2.9% 17.2 1.4% 11.9 0.9%
------- --------- ------- --------- ------- ---------
Income (loss) from operations........... 25.5 2.3% (232.3) (19.0%) 70.7 5.1%
Net income (loss)....................... $ 0.8 0.1% ($238.3) (19.5%) ($ 23.9) (1.7%)
======= ========= ======= ========= ======= =========
EBITDA.................................. $ 73.0 6.7% $ 147.2 12.0% $ 139.4 10.1%
</TABLE>
1997 COMPARED TO 1996
Consolidated worldwide revenues for 1997 increased by 13.1% to $1,382.7
million from $1,222.1 million in 1996. Consolidated U.S. revenues for 1997
increased by 15.8% to $661.3 million from $571.1 million in 1996. Consolidated
international revenues for 1997 increased by 10.8% to $721.4 million from $651.0
million in 1996. Of the worldwide revenue increase, 13.6% was due to organic
growth (including net new business gains and higher net revenues from existing
clients) and 3.0% was due to the acquisition of majority interests in
investments previously accounted for under the equity method. Such increases
were partially offset by a 3.5% decline related to a strengthening (on average)
of the U.S. dollar against foreign currencies. New business was generated from
new client accounts such as Campbell's Soup, Citibank, Merck and United
Airlines.
Compensation expense for 1997 increased by 14.5% to $836.2 million from
$730.3 million in 1996. Compensation expense for 1997 increased as a percentage
of revenues to 60.5% from 59.8% in 1996. The growth in compensation expense was
generally in line with revenue growth and also included a $12.3 million charge
primarily for deferred compensation awards granted to senior executives in 1997.
General and administrative expenses for 1997 increased by 18.5% to $463.9
million from $391.6 million in 1996. General and administrative expenses
increased as a percentage of revenues to 33.6% in 1997 from 32.0% in 1996. The
higher rate of growth in general and administrative expenses compared to
revenues was primarily attributable to a $25.5 million write-off of accounts
receivable, costs billable to clients and other capitalized costs recorded in
1997 with respect to the operations of Burson-Marsteller in Europe and Asia. The
write-offs in Europe were primarily related to Burson-Marsteller's
implementation of a new management information system in 1997 which resulted in
delayed and inaccurate billing of certain clients and necessitated the creation
of additional reserves against accounts receivable and costs billable to
clients. The write-offs in Asia were attributable to the Company's evaluation of
Burson-Marsteller's recent operating performance in Asia and the determination
that Burson-Marsteller was unlikely to collect certain accounts receivable and
costs billable to clients. As a result of its analysis of the circumstances
which led to these write-offs, the Company has made management changes at
Burson-Marsteller in Europe and Asia and implemented additional financial
control and reporting requirements for these operations, including strengthening
controls and procedures regarding regional billing and collection practices.
In 1997, the Company had income from operations of $70.7 million compared
to a loss from operations of $232.3 million in 1996, primarily due to the
Recapitalization-related charges of $315.4 million. Income from operations in
1997 included $47.6 million of depreciation expense, $9.1 million of goodwill
amortization and $11.9 million of other operating charges for asset impairment
write-downs principally related to certain
26
<PAGE> 30
operations in the United States, Africa, Latin America and Europe. As a result,
EBITDA for 1997 was $139.4 million.
Net interest expense (interest expense net of interest income) increased by
$16.1 million in 1997 compared to 1996. The increase was primarily due to higher
average borrowing levels in 1997 as a result of the Recapitalization in December
1996. The net proceeds to the Company from the Offerings are expected to be used
to repay a portion of the borrowings under the term loan portion of the Credit
Facilities. Therefore, the Company expects to have lower average borrowing
levels in 1998.
The effective income tax rate for 1997 was 160.6%. The primary difference
between the U.S. statutory tax rate and Y&R's effective tax rate in 1997
resulted from incremental foreign taxes arising from losses outside the United
States which provided little or no tax benefit. The effective income tax rate
for 1996 was a benefit of 8.2%. This reflects the tax benefit from the
Recapitalization-related charges partially offset by foreign income taxed at
rates greater than the U.S. statutory rate. See Note 9 to the Consolidated
Financial Statements.
Net income of unconsolidated companies was $0.3 million in 1997 compared to
a loss of $9.8 million in 1996. A $9.3 million charge to write down an
Australian equity investment was recorded in 1996.
Minority interest in net loss of consolidated subsidiaries increased $3.8
million in 1997 compared to 1996, primarily reflecting the minority interest
share of charges for asset impairment write-downs relating to an Italian
operation in 1996.
Net loss for 1997 was $23.9 million compared to a net loss of $238.3
million in 1996, primarily as a result of charges recorded in connection with
the Recapitalization.
1996 COMPARED TO 1995
Consolidated worldwide revenues for 1996 increased by 12.6% to $1,222.1
million from $1,085.5 million in 1995. Consolidated U.S. revenues for 1996
increased by 16.0% to $571.1 million from $492.3 million in 1995. Consolidated
international revenues for 1996 increased by 9.7% to $651.0 million from $593.2
million in 1995. Of the worldwide revenue increase, 12.9% was attributable to
organic growth (including net new business gains and higher net revenues from
existing clients) and 0.7% was due to businesses acquired. Such increases were
partially offset by a 1.0% decline related to a strengthening (on average) of
the U.S. dollar against foreign currencies. New business was generated from new
client accounts such as Blockbuster Video, Equal, Ericsson, H&R Block and
Novell.
Compensation expense for 1996 increased by 8.7% to $730.3 million from
$672.0 million in 1995. Compensation expense decreased as a percentage of
revenues to 59.8% in 1996 from 61.9% in 1995. Such decrease primarily reflects
productivity improvements resulting from selected staff reductions in connection
with a productivity improvement plan implemented by the Company at the end of
1995.
General and administrative expenses for 1996 increased by 9.8% to $391.6
million from $356.5 million in 1995. General and administrative expenses
decreased as a percentage of revenues to 32.0% in 1996 from 32.8% in 1995,
primarily due to improved cost controls.
Recapitalization-related expenses of $315.4 million were incurred in 1996,
primarily related to the cancellation of the Company's former equity-based
compensation and stock option plans. See Note 4 to the Consolidated Financial
Statements.
In 1996, the Company recorded a $17.2 million charge for asset impairment
write-downs for certain European and Latin American operations. In 1995, the
Company recorded a restructuring charge of $24.4 million in connection with a
productivity improvement plan and charges of $7.1 million, primarily to dispose
of certain non-strategic European agencies.
In 1996, the Company had a loss from operations of $232.3 million compared
to income from operations of $25.5 million in 1995. The loss from operations of
$232.3 million in 1996 included $42.0 million of depreciation expense, $11.0
million of goodwill amortization, $315.4 million of Recapitalization-related
27
<PAGE> 31
charges and $11.1 million of non-cash, non-recurring operating charges
principally for asset impairment write-downs for certain operations in Europe
and Latin America. As a result, EBITDA for 1996 was $147.2 million.
Net interest expense (interest expense net of interest income) increased by
$0.7 million in 1996 compared to 1995. The increase was primarily due to $2.9
million in prepayment penalties relating to the repayment, in connection with
the Recapitalization, of $100 million of 7.01% senior notes and $40 million of
8.75% senior notes. Excluding these prepayment penalties, net interest expense
in 1996 decreased by $2.2 million versus 1995, resulting from lower average
interest rates combined with lower average borrowing levels in 1996. See Note 4
to the Consolidated Financial Statements.
The effective income tax rate for 1996 was a benefit of 8.2%. This reflects
the tax benefit for the Recapitalization-related charges partially offset by
foreign income taxed at rates greater than the U.S. statutory rate. The
effective income tax rate for 1995 was 115.5%. The primary difference between
the statutory tax rate and Y&R's effective tax rate in 1995 resulted from
foreign income taxed at rates greater than the U.S. statutory rate. See Note 9
to the Consolidated Financial Statements.
Net loss of unconsolidated companies was $9.8 million in 1996 compared to
income of $5.2 million in 1995. A $9.3 million charge to write down an
Australian equity investment as well as lower earnings reported by the Company's
joint ventures with Dentsu, Inc. contributed to the net loss in 1996.
Minority interest in net loss of consolidated subsidiaries decreased $4.7
million in 1996 compared to 1995, reflecting the minority interest share of
charges for asset impairment write-downs relating to an Italian operation in
1996.
Net loss for 1996 was $238.3 million compared to net income of $0.8 million
in 1995, primarily as a result of charges recorded in connection with the
Recapitalization.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its working capital, capital
expenditures, acquisitions and equity repurchases from cash generated from
operations and third party borrowings.
Cash and cash equivalents at December 31, 1997 increased by 45.5% to $160.3
million from $110.2 million at December 31, 1996. For 1997, the Company
generated operating cash flows of $224.5 million which represented a 26.1%
increase in operating cash flows versus 1996. The Company achieved an
improvement in net cash flow from operating activities due, in part, to
increased focus on cash flow management, including improvements in the timing of
billings and the relationship between the collection of accounts receivable and
the payment of obligations to media and other suppliers. Operating cash flows
and third-party borrowings were used for capital expenditures, acquisition
requirements and equity repurchases.
Investing activities in 1997 included $51.9 million for capital
expenditures and $11.3 million for acquisitions. The majority of capital
expenditures were for technology-related purchases, while the remaining
expenditures were for leasehold improvements, furniture and equipment. The $11.3
million for acquisitions primarily consisted of increases in investments in
equity affiliates in the United States, Europe, Latin America and Australia/New
Zealand. Capital expenditures are estimated to be approximately $72.5 million
for 1998 primarily for real estate and information technology, with the increase
over 1997 primarily related to leasehold improvements in London and New York.
In December 1996, Y&R consummated the Recapitalization. Pursuant to the
Recapitalization, all of the Company's outstanding equity and equity-related
units and options to purchase such units were either acquired for cash
consideration or cancelled and exchanged for new equity interests or options to
purchase new equity interests. The Recapitalization was financed by $242 million
contributed by the Recapitalization Investors and by borrowings under the Credit
Facilities. The Credit Facilities consist of a six and one-half year $400
million term loan and a six and one-half year $300 million revolving credit
facility. The Company's obligations under the Credit Facilities are secured by a
security interest in certain domestic assets, including its headquarters
building in New York, all of the capital stock of the direct and indirect
domestic subsidiaries of the Company and 66.7% of the capital stock of the
Company's first-tier non-U.S. subsidiaries. As a result of
28
<PAGE> 32
the timing of Recapitalization-related payments, net cash used in financing
activities increased from $12.6 million in 1996 to $98.7 million in 1997.
At December 31, 1997, the Company had $330.6 million in outstanding
indebtedness under the Credit Facilities. The Company expects to fund its
payments of principal and interest under the Credit Facilities with internally
generated funds and from various external sources including additional
financings and the sale of Common Stock by the Company in the Offerings.
At December 31, 1997, the Company recorded a net deferred tax asset of
$157.0 million, $75.1 million of which related to net operating loss ("NOL")
carryforwards of approximately $140.4 million for U.S. tax purposes which expire
in the year 2012 and approximately $69.2 million of NOL carryforwards for
foreign tax purposes with carryforward periods ranging from one year to an
indefinite time. The available net deferred tax assets principally resulted from
compensation payments made in connection with the Recapitalization. Based upon
an assumed initial public offering price of $22.50, the consummation of the
Offerings will give rise to a non-recurring, non-cash, pre-tax charge of $207.7
million, which will generate additional tax benefits to the Company estimated at
$85.2 million.
As required by the Credit Facilities, the Company has entered into interest
rate exchange agreements with off-balance sheet risk in order to reduce its
exposure to changes in interest rates on its variable rate long-term debt. As of
December 31, 1997, the Company had obtained interest rate protection agreements
with respect to $275.0 million of indebtedness, which effectively changed the
Company's interest rate under the Credit Facilities to fixed rate borrowings.
The interest rate protection agreements mature at various times through 2001.
The Company's Consolidated Financial Statements are denominated in U.S.
dollars. In 1997, Y&R derived approximately 52.2% of its revenues from
operations outside of the United States. Currency fluctuations may give rise to
translation gains or losses when financial statements of foreign operating units
are translated into U.S. dollars. Significant strengthening of the U.S. dollar
against other major foreign currencies could have a material adverse effect on
Y&R's results of operations. Most of the Company's revenues are billed in the
same currency as the costs incurred to support the revenues, thereby reducing
exposure to currency fluctuations. The Company typically does not hedge foreign
currency profits into U.S. dollars, believing that over time the costs of a
hedging program would outweigh any benefit of greater predictability in the
Company's U.S. dollar-denominated profits. However, the Company selectively
hedges some positions where management believes it is economically beneficial to
do so, and bases its foreign subsidiary capitalization, debt and dividend
policies on minimizing currency risk. The Company also seeks, through pricing
and other means, to anticipate and avoid economic currency losses.
Management believes cash flows from operations coupled with availability
under the New Facility are adequate to support its short-term cash requirements
for capital expenditures, repayment of debt and maintenance of working capital.
The Company anticipates that future cash flows from operations plus funds from
various external sources including the New Facility and additional financings
will be adequate to support the long-term cash requirements as presently
contemplated.
The Company expects to prepay certain non-negotiable subordinated payment
obligations of approximately $15.2 million on June 30, 1998 using available cash
or borrowings under the New Facility. The non-negotiable subordinated payment
obligations were incurred by the Company in connection with the termination of
employment of certain former employee stockholders. Such payment obligations are
repayable at the Company's election in four annual installments and bear
interest at a rate equal to the applicable United States federal rate in effect
under Section 1274(d) of the Internal Revenue Code of 1986, as amended.
The Company expects to commence the declaration and payment of a regular
quarterly cash dividend in the last quarter of 1998. However, any determination
to pay dividends will be at the discretion of the Company Board and will depend
upon, among other factors, the Company's results of operations, financial
condition, capital requirements and contractual restrictions pursuant to the
Company's Credit Facilities. The covenants under the Company's existing Credit
Facilities currently prohibit Y&R from declaring and paying cash dividends; any
cash dividend is therefore contingent upon a renegotiation or refinancing of the
existing Credit
29
<PAGE> 33
Facilities in order to remove such restriction. The Company has received a
commitment letter in respect of the New Facility which would replace the Credit
Facilities and the Company expects to enter into the New Facility effective upon
the consummation of the Offerings. The New Facility is expected to contain
certain financial and operating restrictions and covenant requirements, and is
expected to permit the payment of cash dividends except in the event of a
continuing default under the credit agreement. The New Facility is subject to
execution of definitive documentation and a number of other closing conditions,
and there can be no assurance that the Company will be successful in
consummating the New Facility.
SEASONALITY
The Company's revenues generally reflect the media buying patterns of
advertisers and are concentrated in the second and fourth quarters of the year.
YEAR 2000 COMPLIANCE
The Company is conducting a comprehensive review of its computer systems to
identify all software applications that could be affected by the inability of
many existing computer systems to process time-sensitive data accurately beyond
the year 1999 (referred to as the "Year 2000" issue). The Company intends to
modify or replace all affected systems for compliance with the Year 2000 issue.
The Company is also monitoring the adequacy of the processes and progress of
third-party vendors of systems that may be affected by the Year 2000 issue. Y&R
is dependent on third-party computer systems and applications, particularly with
respect to such critical tasks as accounting, billing and buying, planning and
paying for media, as well as on its own computer systems. While Y&R believes its
process is designed to be successful, because of the complexity of the Year 2000
issue and the interdependence of organizations using computer systems, it is
possible that Y&R's efforts, or those of third parties with whom Y&R interacts,
will not be satisfactorily completed in a timely fashion. Failure to
satisfactorily address the Year 2000 issue could have a material adverse effect
on Y&R's prospects, business, financial condition and results of operations.
The costs of Y&R's Year 2000 project have not been determined but are not
expected to have a material adverse effect on the Company. However, there can be
no assurance that Y&R will not experience cost overruns or delays in connection
with its plan for replacing or modifying systems, which could have a material
adverse effect on Y&R's prospects, business, financial condition and results of
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), were issued. In February 1998, Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" -- ("SFAS 132"), was issued. The Company
anticipates that the adoption of SFAS 130, SFAS 131 and SFAS 132 will not have a
significant effect on its 1998 financial statements. See Note 2 to the
Consolidated Financial Statements.
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BUSINESS
GENERAL
Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world. Since its founding 75 years ago, Y&R
has evolved from a single New York-based advertising agency to a diversified
global marketing and communications company operating in 128 cities in 76
countries worldwide as of December 31, 1997. The Company operates through such
internationally recognized market leaders as Young & Rubicam Advertising
(full-service advertising), Wunderman Cato Johnson (direct marketing and sales
promotion), Burson-Marsteller (perception management and public relations),
Landor Associates (branding consultation and design services) and Sudler &
Hennessey (healthcare communications), along with smaller complementary business
units, including The Bravo Group (multi-cultural marketing and communications),
Brand Dialogue (digital interactive branding and digital commerce), The Chapman
Agency (direct marketing) and The Media Edge (media planning, buying and
placement services). Y&R's revenues in 1997 were approximately $1.4 billion,
having grown at a compound annual rate of 12.9% from 1995 to 1997.
Through multi-disciplinary, client-focused teams, Y&R provides clients with
global access to fully integrated marketing and communications solutions. Among
Y&R's approximately 5,500 client accounts are a number of large multinational
organizations, including AT&T, Citibank, Colgate-Palmolive, Ford and Philip
Morris. Y&R has maintained long-standing relationships with many of its clients,
with the average length of relationship for the top 20 clients exceeding 20
years.
Y&R's mission is to be its clients' most valued business partner in
building, leveraging, protecting and managing clients' brands for both
short-term results and long-term growth. Consistent with its mission, Y&R has
developed an organizational and management structure designed to meet the
diverse needs of its large global clients as well as the more specialized needs
of its other clients. The Company's strategy combines this organizational and
management structure with the aggressive pursuit of new business opportunities
and continued investment in Y&R's business, personnel and superior consumer
knowledge. Y&R further seeks to fulfill its mission by providing clients with
superior creative services and extensive research capabilities, including access
to Y&R's proprietary research tool, BrandAsset Valuator.
In late 1992, Y&R created the Key Corporate Account ("KCA") program to
enhance the coordination of services sought by clients from both a global
coverage as well as an integrated solutions perspective. KCAs are large global
client accounts that, as a group, contribute the greatest share of Y&R's
revenues and profits, and are served on a multinational basis by two or more of
Y&R's businesses. Y&R currently designates 42 of its client accounts as KCAs.
Revenues from the KCAs, as a group, increased by 14.6% in 1997, and accounted
for approximately 45.5% and 46.1% of consolidated revenues in 1996 and 1997,
respectively. In order to further strengthen client relationships and reward Y&R
for meeting or exceeding certain performance targets, Y&R is working with KCAs
to adopt incentive compensation arrangements that align Y&R's compensation with
its performance and its clients' business performance.
As part of Y&R's client focus, Peter A. Georgescu, Chairman and Chief
Executive Officer of Y&R, John P. McGarry, Jr., President of Y&R, Edward H.
Vick, Chief Operating Officer of Y&R and Chairman and Chief Executive Officer of
Young & Rubicam Advertising, and Thomas D. Bell, Jr., Executive Vice President
of Y&R and President and Chief Executive Officer of Burson-Marsteller, all
retain ongoing responsibilities for individual KCAs in addition to their
managerial roles.
INDUSTRY OVERVIEW
The marketing and communications industry encompasses a wide range of
services used to develop and deliver messages to both broad and targeted
audiences through multiple communication channels. The industry includes
traditional advertising services as well as other marketing and communications
services such as direct marketing and sales promotion, public relations,
branding consultation and design services, new media marketing and other
specialized services.
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Traditional advertising services include the development and planning of
marketing and branding campaigns; the creative design and production of
advertisements; the planning and buying of time and/or space in a variety of
media, including broadcast and cable television, radio, newspapers, general
interest/ specialty magazines, billboards and the internet; and the provision of
consumer, product and other market research to clients on an ongoing basis.
According to industry sources, growth in advertising expenditures has
accelerated in recent years following the economic recession in the early 1990s,
and worldwide advertising expenditures totaled approximately $387 billion in
1996. Industry sources have predicted that worldwide advertising spending will
grow approximately 6% in 1998.
Direct marketing and sales promotion incorporate a broad range of services,
including direct mail and direct response television advertising (using
toll-free 800 numbers), inbound and outbound telemarketing and database
marketing. Sales promotion includes the planning, design and implementation of
merchandising and sales promotions as well as design and implementation of
targeted interactive campaigns. Industry sources have estimated a growth rate in
1998 of approximately 10% for both direct marketing and sales promotion.
Perception management and public relations address clients' external
corporate or brand positioning, public image and relations with key external
constituencies. Functions provided by public relations firms include corporate
communications, public affairs, lobbying, crisis management, issue advertising
and internal, consumer grassroots communications.
Branding consultation and design services encompass a range of services to
create, build and revitalize clients' brands. Among these services are corporate
identity, package design, retail design and branded environments, verbal
branding and nomenclature systems, corporate literature and interactive
branding.
New media marketing services include interactive marketing campaigns and
strategic consulting services, the design of internet websites, banners and home
pages, the development of corporate intranets and digital commerce applications.
INDUSTRY TRENDS
Several significant trends are changing the dynamics of the marketing and
communications industries, including the following:
GROWTH IN UNITED STATES MARKETING AND COMMUNICATIONS MARKETS. According to
industry sources, advertising expenditures in the United States have continued
to grow, increasing from approximately $140 billion in 1993 to approximately
$175 billion in 1996. In industries such as telecommunications, where regulatory
developments have encouraged increased competition among industry participants,
a growing number of companies have sought to establish and enhance their brand
images through comprehensive marketing and communications programs. In the
healthcare industry, recent regulatory changes that eased restrictions on
direct-to-consumer communications by pharmaceutical companies have also resulted
in significant additional marketing and communications expenditures.
GROWTH OF INTERNATIONAL MARKETING AND COMMUNICATIONS MARKETS. The
globalization of markets and the deregulation of certain sectors of
international markets have led to growth in demand for marketing and
communications services by large corporate clients. An increasing number of
companies are expanding globally and, where appropriate, are seeking consistent
brand images and market positions for their products throughout the world. At
the same time, however, companies continue to rely on their marketing and
communications advisors to tailor their regional and local marketing approach to
the demands, tastes and desires of the local marketplace. As international
markets have expanded, particularly the markets in the Asia/Pacific and Latin
American regions, non-U.S. advertising expenditures have grown more rapidly than
U.S. expenditures. According to industry sources, non-U.S. advertising
expenditures have increased from approximately 44% of worldwide expenditures in
1986 to approximately 55% in 1996.
INVESTMENT IN BRAND DEVELOPMENT. In the 1980s, many advertisers focused
their marketing campaigns on promotional advertising that emphasized price
competition, often reducing brand loyalty. Over the last several years, however,
advertisers have focused on the image or brand identity of their organizations,
products and services in an effort to differentiate themselves from competitors
and increase brand loyalty. This
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emphasis on brand development has increased the demand for delivery of
consistent messages and, as a result, companies are seeking marketing and
communications organizations which are able to coordinate resources across
multiple disciplines, geographies and media.
DEMAND FOR INTEGRATED SERVICE OFFERINGS. Increasingly, certain clients are
turning to large marketing and communications organizations to provide
integrated services across multiple disciplines. Such clients are seeking
integrated services to ensure a consistent brand presence and maximize the
effectiveness of their messages around the world, better coordinate their
marketing activities and simplify and strengthen their relationships with their
marketing partners. The demand for globally-integrated services has led to the
creation of a small number of global marketing and communications companies,
including Y&R, which strive to provide their clients with a full range of
services in each of the local markets in which their clients operate. In
addition, a substantial number of clients continue to require access to
specialized service providers. Y&R has over 20 years of experience in organizing
its companies to address this client need.
INCREASED EMPHASIS ON TARGETED MARKETING. The desire of companies to reach
their target audiences and quantify the effectiveness of their communications
has resulted in greater demand for customized direct marketing methods, such as
database marketing, infomercials, in-store promotions and interactive programs.
These techniques enable companies to quantify the success of their campaigns and
monitor the return on investment of their marketing expenditures through such
mechanisms as response rate tracking. The desire to create more targeted
marketing has been enhanced by the emergence of new media which permits more
interactive methods of customizing and delivering messages. In certain
developing economies, the technology infrastructure is improving, indicating
increased potential for database marketing and communications.
STRATEGY
Y&R's strategy consists of the following key components:
INCREASE PENETRATION OF KEY CORPORATE ACCOUNTS. Y&R believes that
significant opportunities exist to increase its share of KCA marketing and
communications expenditures by leveraging its global network to provide
integrated services to KCAs. Y&R has successfully increased its share of the
marketing and communications expenditures of certain KCAs over the past few
years. For example, Y&R has significantly expanded its relationship with Ford,
winning new assignments in Brazil, Germany, Canada and the United States for
Young & Rubicam Advertising, Wunderman Cato Johnson, Landor Associates and Brand
Dialogue. KCAs also have increased their use of multiple services offered by Y&R
over the same period. During 1997, Y&R's 20 largest clients used the
capabilities of an average of five of the Company's marketing and communications
services.
Y&R has implemented a team concept for certain KCAs which utilize
advertising, direct marketing and other marketing and communications services
offered by Y&R. Each client team aligns Y&R employees from separate disciplines
within the Company around KCAs and offers incentives to these employees to
provide the highest quality service to the client without regard to Y&R's own
internal corporate structure. In addition, Y&R seeks to improve KCA satisfaction
by retaining independent consultants to conduct third-party audits with clients
which measure Y&R's performance on a variety of criteria. Y&R intends to use
this objective information to identify strengths, weaknesses and opportunities
within KCA relationships.
DEVELOP NEW CLIENT RELATIONSHIPS. The Company believes that there are
significant opportunities for future revenue and profit growth by providing
services to new clients in targeted industry sectors and to those clients
seeking to build and maintain global, regional and local brands. Y&R has
successfully used its integrated and global approach as an effective tool in
winning new business. Y&R's win of the global Citibank account in August 1997
exemplifies the success of this strategy. Management believes that the
acquisition of this new business was due, in part, to Y&R's ability to
coordinate advertising and direct marketing activities for Citibank around the
world. The Company believes that Citibank consolidated its advertising and
direct marketing accounts with Y&R in order to establish a consistent brand
identity around the world. In addition to Citibank, during the last 18 months,
Y&R has won new business from clients including United Airlines and Campbell's
Soup, both of whom were designated as KCAs.
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LEVERAGE EXISTING GLOBAL NETWORK. With a worldwide presence in 76
countries (including 14 countries where Y&R is represented by non-equity
affiliations with local partners), the Company believes that it is well
positioned to continue to benefit from the trend towards the globalization of
client marketing and communications needs and the consolidation of such needs
with a single international service provider. For example, in late 1995,
Colgate-Palmolive consolidated its global advertising with Y&R, enabling
Colgate-Palmolive to replace multiple campaigns created by various local
agencies with a single campaign coordinated by Y&R's global network, while
providing substantial cost savings to Colgate-Palmolive.
CAPITALIZE ON EXISTING CAPABILITIES. Y&R intends to continue the
development of its existing capabilities into more visible and accessible client
services. For example, in 1997, Y&R launched a new unit, Brand Dialogue, to
serve its clients in the areas of digital interactive branding and digital
commerce and in the development and implementation of various interactive
strategies, including website design, creation and production. To create this
integrated unit, Y&R combined the existing interactive capabilities of Young &
Rubicam Advertising and Wunderman Cato Johnson in the United States, Latin
America, Europe and Asia/ Pacific. Management believes that Brand Dialogue
represents a growth opportunity for Y&R, and the Company intends to make
significant investments in new and emerging technologies to capitalize on these
opportunities.
In addition, in July 1997, the Company consolidated the United States media
planning, buying and placement capabilities of Young & Rubicam Advertising,
Wunderman Cato Johnson and The Media Edge (a media company acquired by Y&R in
1996) under The Media Edge name. With this consolidation, Y&R created a major
United States media agency with approximately $3 billion in media billings,
thereby enhancing its ability to negotiate effectively and secure discounts for
media purchases on behalf of its clients. The Company believes that The Media
Edge will provide a variety of media alternatives in various markets to existing
and future clients. Y&R plans to continue to identify and leverage strengths and
capabilities that can provide further differentiation for the Company and that
can evolve into businesses that generate incremental revenues and profits.
UTILIZE SUPERIOR CONSUMER KNOWLEDGE AND BRAND INSIGHTS. To assist its
clients in building, leveraging, protecting and managing their brands, Y&R has
developed and is maintaining extensive knowledge of consumer brand perceptions.
In 1994, Y&R launched BrandAsset Valuator ("BAV"), a proprietary database of
consumer perceptions for building and managing brands. In its first two phases,
in 1994 and the second half of 1997, the BAV project involved the gathering of
information on approximately 10,000 brands, including over 9,000 local and
regional brands and 550 global brands. BAV provides an understanding of how
consumers evaluate brands, how brands evolve over time and how brands are
managed successfully. The Company believes that BAV, in which the Company has
made significant investments over the past five years, is the first global
consumer study that provides an empirically derived model for how brands gain
and lose their strength. The Company further believes that BAV, which reflects
the perceptions of over 95,000 consumers in 32 countries in the Americas,
Europe, Asia, Australia and Africa, is the most extensive database of
information concerning consumer perceptions of brands. Management believes that
Y&R's comprehensive research capabilities, including BAV, have become a
significant factor in attracting new clients and winning new assignments from
existing clients. The Company plans to continue to invest in BAV, and believes
that knowledge of consumers' changing perceptions of brands will continue to
provide Y&R with a significant competitive advantage.
CULTIVATE CREATIVE EXCELLENCE. Y&R intends to continue emphasizing the
importance of creative marketing and communications. The creative leadership of
Y&R has been recognized over the years through the receipt of various industry
awards, including Cannes Lions and Clio Awards for excellence in television and
print advertising, EFFIES (awards for effective advertising) and a number of
other awards for direct marketing and design services. Y&R also has created
numerous memorable marketing and communications programs for clients, including
"The Softer Side of Sears," "Everybody Needs a Little KFC," "It's All Within
Your Reach" for AT&T, "The Document Company" for Xerox, and "Be All That You Can
Be" for the United States Army, as well as identity and design assignments,
including the creation of corporate identities, for Lucent Technologies,
Netscape and the 2002 Salt Lake City Olympics.
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IMPROVE OPERATING EFFICIENCIES. The Company believes that opportunities
exist to further improve operating efficiencies in order to expand margins and
increase future profitability. For example, Y&R has implemented initiatives
which have both improved productivity and reduced compensation expense as a
percentage of consolidated revenues.
EXPAND CAPABILITIES THROUGH ACQUISITIONS. In order to add new
capabilities, enhance its existing capabilities and expand the geographic scope
of its operations, Y&R regularly evaluates and intends to pursue appropriate
acquisition opportunities. Management believes that significant opportunities
exist to expand its businesses. Historically, in order to expand capabilities
beyond traditional advertising, Y&R has acquired well-established leaders in
other marketing and communications disciplines. More recently, the Company has
acquired smaller niche agencies or companies to enhance existing capabilities or
expand geographic coverage.
OPERATIONS
The Company's operations are aligned under two senior executives. Young &
Rubicam Advertising and Wunderman Cato Johnson, along with the smaller
complementary business units, Brand Dialogue, The Bravo Group, The Chapman
Agency and The Media Edge, report to Edward H. Vick, Chief Operating Officer of
the Company, as well as Chairman and Chief Executive Officer of Young & Rubicam
Advertising. As appropriate, Young & Rubicam Advertising and Wunderman Cato
Johnson work in partnership to service those clients who demand integrated
advertising and direct marketing capabilities. Burson-Marsteller, Landor
Associates, Sudler & Hennessey and Cohn & Wolfe report to Thomas D. Bell, Jr.,
Executive Vice President of the Company, as well as President and Chief
Executive Officer of Burson-Marsteller.
YOUNG & RUBICAM ADVERTISING. Young & Rubicam Advertising is one of the
world's leading full-service consumer advertising agencies, offering expertise
in creative development, consumer research and marketing, and media buying and
planning. In 1996, Young & Rubicam Advertising was ranked by industry sources as
the ninth largest advertising agency based in the United States.
Young & Rubicam Advertising has had a number of recent new business wins.
In August 1997, Citibank consolidated its worldwide advertising and direct
marketing business with Y&R. In addition, since 1995, Young & Rubicam
Advertising has won substantial new business from Colgate-Palmolive, United
Airlines and Campbell's Soup. In June 1997, Young & Rubicam Advertising extended
its long-term relationship with the United States Army, an account which is
subject to a government-mandated review every five years. In October 1997, Young
& Rubicam Advertising won the assignment to develop a campaign for Census 2000,
the first unified, paid advertising campaign undertaken by the United States
Bureau of the Census. Young & Rubicam Advertising also continues to expand
relationships with existing clients, including creating AT&T's corporate
branding campaign, and together with Wunderman Cato Johnson, developing the
campaign for the launches of Sears' Home Services Division, the Navigator
sport-utility vehicle for Ford's Lincoln-Mercury division in the United States
and the Puma, Ka and Galaxy automobiles for Ford in selected international
markets.
Young & Rubicam Advertising has long been involved in various public
interest and public service efforts. Young & Rubicam Advertising handles public
service accounts for The National Urban League, The United Negro College Fund
and, through its work with the Ad Council, is launching a series of programs to
benefit children throughout the United States and, separately, to assist
battered women.
Young & Rubicam Advertising operates in 91 cities in 61 countries
worldwide, in the Americas, Europe and Africa. Young & Rubicam Advertising
services clients through the Dentsu, Young & Rubicam Partnerships across
Asia/Pacific.
DENTSU, YOUNG & RUBICAM PARTNERSHIPS. The Dentsu, Young & Rubicam
Partnerships ("DY&R") are a network of full-service advertising agencies that
provide Young & Rubicam Advertising with access to major markets across the
Asia/Pacific region. DY&R was created as a joint venture between Y&R and Dentsu,
Inc. ("Dentsu") in 1991. In 1996, Dentsu ranked as the fourth largest marketing
and communications organization in the world and the largest marketing and
communications organization based in Asia/Pacific. DY&R is a series of local
ventures in which Y&R typically has a 50% interest, and is jointly managed and
operated by
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Y&R and Dentsu. To maximize local brand equity and minimize conflicts, DY&R
operates under different brand names and management in each of its three
regions -- Asia, Australia/New Zealand and the United States. DY&R primarily
services major clients of Dentsu and Y&R in Asia, including Y&R's KCAs, but also
has its own local clients in each region. In Asia/Pacific, DY&R has recently won
regional business from Fuji and Citibank and has been awarded additional work
from Ford, Sony, Ericsson and Cadbury-Schweppes in specific markets. DY&R
operates in 27 cities in 16 countries across Asia/Pacific and the United States,
where it operates as The Lord Group.
WUNDERMAN CATO JOHNSON. Wunderman Cato Johnson ("WCJ") is one of the
world's leading behavior-driven marketing and communications companies.
Behavior-driven marketing and communications are designed to assist clients in
producing immediate sales and building brand and customer equity. WCJ addresses
its clients' marketing objectives through direct marketing, sales promotion,
television commercials and infomercials, customer loyalty programs, relationship
marketing programs, database development and management, merchandising,
entertainment and sports marketing, lead generation and new product launches.
WCJ focuses on converting "consumers" to "customers" and mass markets to
individual relationships. WCJ seeks to motivate behavior by focusing on
identifying and acquiring the most valuable customer prospects for clients,
building loyalty among its clients' most profitable customers and managing the
customer's interactions with the brand, the trade and the sales force.
WCJ provides services to KCAs such as AT&T, DuPont, Ford, Taco Bell and the
United States Postal Service. Recent new business projects include the creation
of a global promotion for Ericsson, and, together with Young & Rubicam
Advertising, the launches of the Sears Home Services Division and the Navigator
for Ford's Lincoln-Mercury division.
WCJ was created by the 1992 merger of Wunderman Worldwide, a direct
marketing company acquired by Y&R in 1973, and Cato Johnson Associates, a sales
promotion company acquired by Y&R in 1976. Headquartered in New York, WCJ
operates in 49 cities in 32 countries worldwide. WCJ also has major database
facilities in Europe and Latin America.
OTHER CAPABILITIES. Brand Dialogue specializes in digital interactive
branding and digital commerce. Brand Dialogue's primary offerings consist of:
(i) web advertising, including the design, creation and production of worldwide
websites, banners, home pages and comprehensive interactive campaigns; (ii)
digital commerce applications; (iii) the development of corporate intranets to
improve communications and productivity within and among a defined set of users;
and (iv) interactive marketing consulting services. Brand Dialogue has obtained
new business from both existing Y&R KCAs and other clients, as well as new
clients. During 1997, Brand Dialogue won notable and varied assignments from
clients such as AT&T, Citibank, Ford, United Airlines, the United States Postal
Service and Xerox.
The Bravo Group ("Bravo") creates multi-cultural marketing and
communications programs targeted to the fast-growing U.S. Hispanic community.
Bravo's multi-disciplinary services include advertising, promotion and event
marketing, public relations, research and direct marketing. Bravo provides
services for selected KCAs including American Home Products-Whitehall, AT&T,
Campbell's Soup, Clorox, Kraft and the United States Postal Service.
The Chapman Agency ("Chapman") is a specialized direct marketing agency
which provides a range of services in the United States primarily to the
telecommunications, financial services, technology and healthcare industries.
Chapman focuses on communications designed to build individual relationships
with individual customers, and works with its clients to maximize customer
profitability and build enduring brands over time. Chapman is also involved in
both the development and application of database marketing and communications
techniques. Chapman provides services to Bristol-Myers Squibb, Dow Jones, DuPont
and SmithKline Beecham.
The Media Edge provides integrated media planning, buying and placement
services for both Young & Rubicam Advertising and WCJ. In addition, The Media
Edge provides planning and buying of both traditional and direct response media.
Management believes that The Media Edge is positioned to act as an independent
full-service media provider, offering a range of media-related services to
clients other than those of Young & Rubicam Advertising and WCJ, as well as to
smaller independent advertising and communica-
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tions agencies. The Company believes that these capabilities will enable The
Media Edge to take advantage of opportunities presented by the trend of clients
separating media responsibility assignments from other advertising services.
During 1997, The Media Edge won significant new business, including a number of
agency of record assignments (a preferred media provider designation) and media
research and modeling assignments, from clients such as International Distillers
and Vintners (Grand Metropolitan), Monsanto, Ore-Ida (Heinz), and Revlon. In
addition, The Media Edge recently expanded its relationship with Sears and
retained its long-term relationship with the Irish Tourist Board.
BURSON-MARSTELLER. Burson-Marsteller is one of the world's leading
international perception management, public relations and public affairs
companies. It provides a comprehensive range of perception management
capabilities to its clients, including issues analysis, crisis management,
consumer and business marketing and research, corporate communications, investor
relations and public affairs advocacy. The perception management process begins
with a statement of the desired business results and then identifies current and
targeted perceptions, as well as different approaches to create the desired
mindset with key audiences.
Burson-Marsteller believes a shift is occurring in the perception
management and public relations field, away from a focus on executional delivery
based upon a client's specific instructions and towards a more consultative and
interactive relationship. To that end, in 1996 and 1997, Burson-Marsteller
implemented a client-focused practice structure in the United States. This
client-focused practice structure has replaced the traditional geographic
organizational model in the United States and helps ensure the firm's
professional client teams have the experience and insight required to provide
clients with the in-depth capabilities and knowledge to meet their needs. In
Europe and Asia, Burson-Marsteller intends to maintain a primarily geographic
organizational model and to implement, where feasible, elements of a
client-focused practice structure. Burson-Marsteller's functional and industry
practice areas currently include corporate, healthcare, marketing, advertising,
media, public affairs, strategic consulting and technology. Burson-Marsteller's
resources include three kinds of specialists: (i) industry specialists who are
experienced in specific fields; (ii) practice specialists who are experienced in
specific perception management, public relations and public affairs disciplines;
and (iii) creative and media specialists who are skilled in using a variety of
techniques and different technologies to deliver messages with impact.
Burson-Marsteller serves as counselor to a diverse body of clients ranging
from major corporations, business associations and professional organizations to
governmental bodies and non-profit institutions. During the last 18 months,
Burson-Marsteller has undertaken significant assignments for Qualcomm, Sun
Microsystems and Unilever. In addition, Burson-Marsteller has expanded and
strengthened relationships with existing clients such as Andersen Consulting,
Johnson & Johnson and Philip Morris.
Burson-Marsteller was founded in 1953 and was acquired by Y&R in 1979.
Burson-Marsteller is head-quartered in New York and operates in 46 cities in 36
countries around the world. The Burson-Marsteller network also includes Black,
Kelly, Scruggs & Healey Inc., a lobbying and public affairs firm based in
Washington D.C., Marsteller Advertising, which specializes in corporate,
business-to-business and issues advertising campaigns, with offices in New York,
Chicago, Pittsburgh and London, and The Mead Point Group, a small, strategic
consulting firm located in Greenwich, Connecticut.
LANDOR ASSOCIATES. Landor Associates ("Landor") is one of the world's
leading branding consultancies and strategic design firms. Landor creates,
builds and revitalizes clients' brands and helps position these brands for
continued success. Landor's branding and identity consultants, designers and
researchers work with clients on a full range of branding and identity projects,
including corporate identity, packaging and brand identity systems, retail
design and branded environments, interactive branding and design, verbal
branding and nomenclature systems, corporate literature, brand extensions and
new brand development.
Landor has broad international experience across various industries, and
clients include automobile manufacturers, banks and financial institutions,
commercial airlines, communications and information companies, consumer
products, entertainment industry concerns, hotels, major industrials, packaged
goods companies and petroleum retailers.
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Landor has gained substantial new business momentum during the last 18
months, and has been awarded corporate identity assignments for the 2002 Salt
Lake City Olympics, Lucent Technologies and Delta Airlines; package design
assignments for Frito-Lay and Kellogg's; and branded environment assignments for
Taco Bell, Pizza Hut and Sears. In addition, Landor has expanded relationships
with existing clients. During 1996, Landor was retained by Coors Beer (as sole
supplier) to design packaging, and more recently this assignment expanded to
include verbal branding. In addition, during 1997, Landor worked to develop the
name and corporate identity for Visteon, a Ford subsidiary that supplies
component parts to the automotive industry.
Landor was founded in 1941 and was acquired by Y&R in 1989. Landor is
headquartered in San Francisco and operates in 15 cities in 11 countries
worldwide, including multidisciplinary consulting and design studios in New
York, Seattle, Mexico City, Hamburg, London, Paris, Hong Kong and Tokyo.
SUDLER & HENNESSEY. Sudler & Hennessey ("S&H") is one of the world's
leading healthcare communications firms, developing strategic promotional and
educational programs for a wide spectrum of healthcare brands. S&H creates
advertising, direct marketing and sales promotion programs for prescription
drugs and over-the-counter medications. In addition, S&H provides strategic
consultancy and communications support in the areas of managed care, medical
devices and equipment, nutrition, veterinary medicine and general healthcare.
Communications programs produced by S&H on behalf of its largely pharmaceutical
industry client base are directed to a wide range of healthcare professionals as
well as patients and their support networks.
S&H's medical education division, IntraMed, develops continuing educational
programming on behalf of its pharmaceutical and consumer care clients. These
educational efforts bring credible third-party support to healthcare
professionals as well as patient educational communications.
The healthcare communications industry experienced significant growth
during 1997, due both to a dramatic increase in direct-to-consumer healthcare
communications and numerous new product introductions. S&H has capitalized on
this growth, winning significant new business around the world, including
product launch assignments from Abbott Laboratories, Merck, Roche and Zeneca.
S&H was founded in 1941 and was acquired by Y&R in 1973. S&H is
headquartered in New York and operates in 16 cities in 11 countries in North
America, Europe and Asia/Pacific.
COHN & WOLFE. Cohn & Wolfe is a full-service public relations firm that
provides creative, results-driven services to its clients. Cohn & Wolfe helps
its clients establish and communicate corporate and brand identity, launch new
products and expand sales. Areas of expertise include consumer marketing, sports
publicity and issues management, as well as healthcare, information technology
and business-to-business communications. Current clients include Eli Lilly,
Reebok, Deloitte & Touche, SmithKline Beecham, Phillip Morris, Sony, NEC and the
United States Postal Service.
Cohn & Wolfe was founded in 1970 and was acquired by Burson-Marsteller in
1984. Cohn & Wolfe operates in 12 cities in 11 countries in North America,
Europe and Australia.
COMPETITION
The marketing and communications industry is highly competitive. Y&R's
principal competitors in the advertising, direct marketing and perception
management and public relations businesses are large multinational marketing and
communications companies, as well as numerous smaller agencies that operate only
in the United States or in one or more countries or local markets. Y&R must
compete with such other companies and agencies to maintain existing client
relationships and to obtain new clients and assignments. Some clients, such as
U.S. governmental agencies, require agencies to compete for business at
mandatory intervals. Principal competitive factors include an agency's creative
reputation, knowledge of media, financial controls, geographical coverage and
diversity, relationships with clients and quality and breadth of services.
Recently, traditional advertising agencies have also been competing with major
consulting firms which have developed practices in marketing and communications,
and with smaller companies such as systems integrators, database marketing and
modeling companies and telemarketers, which offer technological solutions to
marketing and communications issues faced by clients. In addition, the trend
towards consolidation of global accounts requires companies seeking to compete
effectively in the international marketing and
38
<PAGE> 42
communications industry to make significant investments in additional offices
and personnel around the world and in new and improved technology for linking
such offices and people.
United States clients typically may cancel contracts with agencies upon 90
days' notice, and non-U.S. clients typically also may cancel contracts with
agencies on 90 to 180 days' notice. However, Y&R believes that clients may find
it increasingly difficult to terminate relationships with agencies which
represent their brands on a global basis because of the complexity of
coordinating creative, media and non-media services. In addition, clients
generally remain able to move from one agency to another with relative ease. As
is typical in the marketing and communications industry, Y&R has lost or
resigned client accounts and assignments for a variety of reasons, including due
to conflicts with newly acquired clients. Although Y&R typically has replaced
such losses with new clients and assignments, there can be no assurance that Y&R
will continue to be successful in replacing clients that may leave Y&R or in
replacing revenues when a client significantly reduces the amount of work given
to Y&R.
Representation of a client does not necessarily mean that all advertising
or public relations for that client are handled by one agency. Many large
multinational companies are served by a number of agencies within the marketing
and communications industry. In many cases, clients' conflicts policies or
desire to be served by multiple agencies result in one or more global agency
networks representing a client only for a portion of its marketing and
communications needs or only in particular geographic areas. In addition, the
ability of agencies within marketing and communications organizations to acquire
new clients or additional assignments from existing clients may be limited by
the conflicts policy followed by many clients not to permit agencies to perform
similar services for competing products or companies. Y&R's principal
international competitors are holding companies for more than one global
advertising agency network, which, in some situations, may permit separate
agency networks within such holding companies to perform services for competing
products or for products of competing companies. The Company has one global
advertising agency network, and accordingly, Y&R's ability to compete for new
advertising assignments and, to a lesser extent, other marketing and
communications assignments may be limited by these conflicts policies. Industry
practices in other areas of the marketing and communications business reflect
similar concerns with respect to client relationships.
REGULATION
The regulation of advertising takes several forms. The primary source of
governmental regulation in the United States is the Federal Trade Commission
("FTC") which is charged with administering the Federal Trade Commission Act
(the "FTC Act"). The FTC Act covers a wide range of practices involving false,
misleading and unfair advertising. In the event of violations of federal laws
and regulations, the FTC may seek cease and desist orders, may impose monetary
penalties and may require other remedies. The Federal Food and Drug
Administration, the Federal Communications Commission and other agencies also
have regulatory authority that affects the advertising business. In addition,
many state and local governments have adopted statutes and regulations similar
in scope to the FTC Act and the regulations thereunder.
Self-regulatory activities have become significant in the advertising
business. The Council of Better Business Bureaus has created the National
Advertising Division and the National Advertising Review Board which review and
process possible violations of proper business conduct through advertising. The
national television networks and various other media have also adopted strict
and extensive regulations governing the advertising that they will accept for
broadcast or publication. Trade associations in certain industries publish
advertising guidelines for their members and, in addition, various consumer
groups have been and continue to be powerful advocates of increased regulation
of advertising.
Advertising is also subject to regulation in countries other than the
United States in which Y&R and its affiliates do business. Y&R has developed
internal review procedures to help ensure that its work product, as well as that
of its affiliates, is in compliance with standards of accuracy, fair disclosure
and ethical proprieties, including those established by federal, state and local
laws and regulations and the pre-clearance procedures of the broadcast media.
In addition, as an international organization Y&R is subject to the Foreign
Corrupt Practices Act (the "FCPA"). The FCPA imposes civil and criminal fines
and penalties on companies and individuals which violate its anti-bribery and
other provisions.
39
<PAGE> 43
EMPLOYEES
Y&R has approximately 13,000 employees (including part-time employees)
worldwide. None of Y&R's U.S. employees are covered by collective bargaining
agreements. Management believes that the Company's relations with employees are
good.
PRINCIPAL PROPERTIES
Y&R owns its headquarters office building at 285 Madison Avenue, New York,
New York. Y&R has granted a mortgage on such property to the lenders under the
Credit Facilities. Y&R leases other offices and space for its facilities in New
York City and elsewhere throughout the world. The following table sets forth
certain information relating to Y&R's principal properties:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION USE FOOTAGE EXPIRATION
<S> <C> <C> <C>
285 Madison Avenue, Young & Rubicam Advertising, Brand 370,000 N/A (owned)
New York, New York Dialogue and corporate headquarters
230 Park Avenue South, Burson-Marsteller, Chapman, Bravo and 340,500 1/22/06
New York, New York Landor
Gallus Park, Young & Rubicam Advertising, WCJ, 154,000 4/26/04
Frankfurt, Germany Burson-Marsteller and Sudler &
Hennessey
Greater London House, Young & Rubicam Advertising, WCJ and 80,000 5/31/13
London, U.K. Sudler & Hennessey
200 Renaissance Center, Young & Rubicam Advertising and WCJ 96,000 11/30/99
Detroit, Michigan
675 Avenue of the Americas, WCJ 92,500 6/30/03
New York, New York
49-59 Avenue Andre Morizet, Young & Rubicam Advertising and WCJ 65,000 12/31/98
Paris, France
One South Wacker Drive, Young & Rubicam Advertising, WCJ and 63,000 11/30/99
Chicago, Illinois Landor
100 First Plaza, Young & Rubicam Advertising, WCJ, 63,000 5/11/03
San Francisco, California Burson-Marsteller and Bravo
1801 K Street N.W., Burson-Marsteller and Cohn & Wolfe 60,000 10/31/06
Washington, D.C.
295 Madison Avenue, Young & Rubicam Advertising 51,500 12/31/03
New York, New York
</TABLE>
Y&R's planned capital expenditures for 1998 include expenditures for
leasehold improvements of facilities which, when completed, are expected to
result in a configuration of owned and leased facilities which Y&R believes will
be adequate for its current and anticipated purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LEGAL PROCEEDINGS
Y&R is involved from time to time in various claims and legal actions
incident to its operations, both as plaintiff and defendant. In the opinion of
management, none of these existing claims is expected to have a material adverse
effect on the Company.
40
<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and Directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Peter A. Georgescu..... 58 Chief Executive Officer of the Company and Chairman of the
Board
Alan J. Sheldon........ 56 Vice Chairman and Managing Director of the Company
John P. McGarry, Jr.... 58 President of the Company
Edward H. Vick......... 53 Chief Operating Officer of the Company, Chairman and Chief
Executive Officer of Young & Rubicam Advertising and
Director
Thomas D. Bell, Jr. ... 48 Executive Vice President of the Company, President and Chief
Executive Officer of Burson-Marsteller and Director
Stephanie W.
Abramson............. 53 Executive Vice President and General Counsel of the Company
Michael J. Dolan....... 51 Vice Chairman and Chief Financial Officer of the Company and
Director
F. Warren Hellman...... 63 Director
Philip U.
Hammarskjold......... 33 Director
Richard S. Bodman...... 60 Director
Alan D. Schwartz....... 47 Director
John F. McGillicuddy... 67 Director
</TABLE>
The business address of each of the Company's executive officers is 285
Madison Avenue, New York, New York 10017. The business address of Messrs.
Hellman and Hammarskjold is One Maritime Plaza, San Francisco, California 94111.
The business address of Mr. Schwartz is 245 Park Avenue, New York, New York
10167. The business address of Mr. Bodman is c/o AT&T Ventures, Chevy Chase
Metro Building, 2 Wisconsin Circle, Suite 610, Chevy Chase, Maryland 20815-7003.
The business address of Mr. McGillicuddy is 270 Park Avenue, 32nd Floor, New
York, New York 10017.
PETER A. GEORGESCU Mr. Georgescu has been Chairman and Chief Executive
Officer of Young & Rubicam Inc. since 1994. He has been a Director of the
Company since 1980. Mr. Georgescu's career at Y&R spans 34 years with top
management experience both in the United States and Europe. Prior to becoming
Chairman, Mr. Georgescu was President of the Company for four years. Mr.
Georgescu joined Young & Rubicam New York in 1963 as a trainee and has held
various positions in research, account management and marketing in New York,
Chicago and Amsterdam. Mr. Georgescu is a member of the Board of Directors of
Briggs and Stratton Company.
ALAN J. SHELDON Mr. Sheldon has been Vice Chairman and Managing Director
of Young & Rubicam Inc. since July 1996. Mr. Sheldon was a Director of the
Company from 1988 to February 1998. From 1994 to 1996, he was Chief Operating
Officer of Young & Rubicam Advertising. Mr. Sheldon was also Chief Financial
Officer of Young & Rubicam Europe from 1993 to 1994, after serving as Executive
Vice President and General Manager of Young & Rubicam Inc. since 1990. Mr.
Sheldon joined Y&R in 1968 in Corporate Finance and subsequently served in
several senior positions at Y&R and Young & Rubicam Advertising.
JOHN P. MCGARRY, JR. Mr. McGarry has been President of the Company since
April 1996. Prior to assuming his present post, he held several positions at Y&R
including Chairman and Chief Executive Officer of Young & Rubicam Advertising,
President and Chief Executive Officer of Young & Rubicam Advertising North
America, President and Chief Executive Officer of Young & Rubicam USA, and
President of Young & Rubicam New York. Mr. McGarry joined Y&R in 1965.
EDWARD H. VICK Mr. Vick has been Chief Operating Officer of the Company
since November 1997 and Chairman and Chief Executive Officer of Young & Rubicam
Advertising since April 1996. He has been a Director of the Company since
February 1998. Mr. Vick joined Young & Rubicam New York as its President and
Chief Executive Officer in February 1994. He began his career with Benton &
Bowles and was a Senior
41
<PAGE> 45
Vice President of Ogilvy & Mather. From 1985 to 1991, he was President of
Ammirati & Puris and, in 1991, was President and Chief Executive Officer of
Levine, Huntley, Vick and Beaver. In 1992, Mr. Vick came to Y&R as President and
Chief Executive Officer of Landor.
THOMAS D. BELL, JR. Mr. Bell has been Executive Vice President of the
Company since 1995 and President and Chief Executive Officer of
Burson-Marsteller since 1995. He has been a Director of the Company since
February 1998. From 1994 to 1995, Mr. Bell served as Vice Chairman of Gulfstream
Aerospace Corporation. Prior thereto, Mr. Bell was Vice Chairman and Chief
Operating Officer of Burson-Marsteller from 1991 to 1994. Before initially
joining Burson-Marsteller in 1989, Mr. Bell held senior positions in business
and government. Mr. Bell is a member of the Board of Directors of Gulfstream
Aerospace Corporation, Lincoln National Corporation and Lincoln Life & Annuity
of New York.
STEPHANIE W. ABRAMSON Ms. Abramson has been Executive Vice President and
General Counsel of the Company since 1995. Ms. Abramson was a Director of the
Company from 1995 until February 1998. From 1980 until joining Y&R in 1995, she
was a partner with Morgan, Lewis & Bockius LLP.
MICHAEL J. DOLAN Mr. Dolan has been Vice Chairman and Chief Financial
Officer and a Director of the Company since July 1996. Prior thereto, from 1991
to 1996, he was President and Chief Executive Officer of the joint venture,
Snack Ventures Europe, between PepsiCo Foods International ("PFI") and General
Mills. Mr. Dolan also served PFI as Senior Vice President, Operations. From 1987
to 1991, Mr. Dolan was with Peter Kiewet Sons, Inc. ("PKS"), a construction and
mining conglomerate. While at PKS, he served as Corporate Executive Vice
President for Continental Can Company when it was acquired and restructured by
PKS.
F. WARREN HELLMAN Mr. Hellman has been a Director of the Company since
December 1996. Mr. Hellman is Chairman of Hellman & Friedman LLC ("Hellman &
Friedman"), a private investment company he founded in 1984. Prior thereto, Mr.
Hellman was President and a Director of Lehman Brothers, as well as head of its
Investment Banking Division, and Chairman of Lehman Corporation (a closed-end
investment company). Mr. Hellman serves on the Company Board as a representative
of the H&F Investors. Mr. Hellman is a member of the Board of Directors of Levi
Strauss & Co., Franklin Resources, Inc., Il Fornaio (America) Corp., MobileMedia
Corporation and PowerBar Inc., as well as a number of private and venture-backed
companies.
PHILIP U. HAMMARSKJOLD Mr. Hammarskjold has been a Director of the Company
since December 1996. Mr. Hammarskjold is a Managing Director of Hellman &
Friedman. Prior to joining Hellman & Friedman in 1992, Mr. Hammarskjold was
employed by Dominquez Barry Samuel Montagu in Australia and by Morgan Stanley &
Co. in New York. Mr. Hammarskjold serves on the Company Board as a
representative of the H&F Investors. Mr. Hammarskjold is a member of the Board
of Directors of The Covenant Group, Inc.
RICHARD S. BODMAN Mr. Bodman has been a Director of the Company since
April 1998. Mr. Bodman has been Managing General Partner of AT&T Ventures, LLC
("AT&T Ventures"), a company which manages a venture capital pool investing in
early stage businesses related to telecommunications and information technology
since May 1996. Prior to joining AT&T Ventures, from 1990 until May 1996, Mr.
Bodman was Senior Vice President for Corporate Strategy & Development and a
member of the Management Executive Committee of AT&T. Mr. Bodman is a member of
the Board of Directors of Reed Elsevier plc, Tyco International, Inc. and ISS
Group.
ALAN D. SCHWARTZ Mr. Schwartz has been a Director of the Company since
December 1996. Mr. Schwartz is Executive Vice President and Head of the
Investment Banking Department at Bear, Stearns & Co. Inc. He is also a member of
the Executive Committee of the parent company, The Bear Stearns Companies Inc.
Mr. Schwartz joined Bear Stearns in 1976. Mr. Schwartz is a member of the Board
of Directors of Unique Casual Restaurants, Inc.
JOHN F. MCGILLICUDDY Mr. McGillicuddy has been a Director of the Company
since May 1997. Mr. McGillicuddy was the Chairman and Chief Executive Officer of
Chemical Banking Corporation from 1992 to 1993 and Chairman and Chief Executive
Officer of Manufacturers Hanover Corporation and
42
<PAGE> 46
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.
The Company intends that the Board will continue to be comprised of a
majority of Directors who are independent of management.
Upon the completion of the Offerings, the Board will be divided into three
classes, as nearly equal in number as is possible, serving staggered three-year
terms so that the Directors' initial terms will expire at the annual meetings of
the Company's stockholders held in 1999, 2000 and 2001, respectively. At each
annual meeting of the Company's stockholders, successors to the class of
Directors whose term expires at such meeting will be elected to serve for
three-year terms and until their successors are elected and qualified. Messrs.
Hellman, Schwartz and Vick will be Class I Directors, with terms expiring in
1999. Messrs. Dolan, Georgescu and Hammarskjold will be Class II Directors, with
terms expiring in 2000. Messrs. Bell, Bodman and McGillicuddy will be Class III
Directors, with terms expiring in 2001.
The H&F Investors will have the right to nominate and elect two members of
the Board for so long as they continue to hold in the aggregate at least 10% of
the Outstanding Shares (as defined in the Stockholders' Agreement) and one
member of the Board for so long as they continue to hold in the aggregate at
least 5% of the Outstanding Shares. See "Description of Capital Stock -- The
Stockholders' Agreement."
COMMITTEES
The Compensation Committee of Y&R consists of Messrs. Georgescu,
Hammarskjold and Schwartz, Chairman. The Compensation Committee reviews the
compensation of officers of Y&R and makes recommendations to the Board regarding
such compensation and reviews and administers the Restricted Stock Plan and the
Stock Option Plans. Following the consummation of the Offerings, the
Compensation Committee will be comprised entirely of Directors who are
independent of management.
The Audit Committee of Y&R consists of Messrs. Georgescu, McGillicuddy and
Hellman, Chairman. The Audit Committee is responsible for reviewing any
transactions (other than compensation arrangements) between Y&R and its
executive officers and Directors, the plans for and results of audits of Y&R,
and the results of any internal audits, compliance with any written policies and
procedures and the adequacy of Y&R's systems of internal accounting controls.
The Audit Committee also considers annually the qualifications of Y&R's
independent auditors. Following the consummation of the Offerings, the Audit
Committee will be comprised entirely of Directors who are independent of
management in accordance with New York Stock Exchange policy.
The Board may create such other committees as it may determine from time to
time.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Y&R's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws contain provisions indemnifying the Directors and executive
officers of Y&R to the fullest extent permitted by law. Section 102(b)(7) of the
Delaware General Corporation Law provides that Delaware corporations may include
in their certificates of incorporation a provision eliminating or limiting the
personal liability of Directors to the corporation or its stockholders for
monetary damages for breach of their fiduciary duty including acts constituting
gross negligence, except under certain circumstances, including breach of the
Director's duty of loyalty, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law or any transaction from
which the Director derived improper personal benefit. The Company's Amended and
Restated Certificate of Incorporation provides that Y&R's Directors are not
liable to it or its stockholders for monetary damages for breach of their
fiduciary duties, subject to the exceptions specified by Delaware law.
COMPENSATION OF DIRECTORS
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
43
<PAGE> 47
$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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------- -----------------------
RESTRICTED SECURITIES ALL
NAME AND STOCK UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) OPTIONS COMPENSATION(3)
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu................ 1997 $950,000 $598,500 -- -- $8,000
Chairman and Chief Executive
Officer, Young & Rubicam Inc.
Edward H. Vick.................... 1997 $700,000 $272,250 $740,000 172,500 $8,199
Chairman and Chief Executive
Officer, Young & Rubicam
Advertising
John P. McGarry, Jr. ............. 1997 $730,000 $297,000 -- -- $8,000
President, Young & Rubicam Inc.
Thomas D. Bell, Jr. .............. 1997 $575,000 $168,750 -- 176,550 $8,000
President and Chief Executive
Officer, Burson-Marsteller
Michael J. Dolan.................. 1997 $550,000 $198,000 $555,000 150,000 $2,190
Vice Chairman and Chief
Financial Officer, Young &
Rubicam Inc.
</TABLE>
- ------------------------------
(1) The named executive officers were awarded annual cash bonuses under the Key
Corporation Managers Bonus Plan, which bonuses were generally based on the
Company's achievement of target levels of operating profit and EBITA
(earnings before interest, taxes and amortization), each as defined in such
plan, as well as the achievement of individual objectives. The Company
intends to grant future annual cash bonuses under the 1997 ICP based on
substantially similar Company and individual performance criteria.
(2) The total number and value of shares of Restricted Stock held by the named
executive officers under the Restricted Stock Plan at December 31, 1997
(based on the value of the Common Stock as of December 31, 1997 as
determined by the Company Board, based upon the valuation opinion of an
independent investment bank, taking into account that prior to the
Offerings, the Company was privately held and that the shares were subject
to contractual transfer restrictions) are as follows: Mr.
Georgescu -- 430,440 shares ($5,308,760); Mr. Vick -- 339,405 shares
($4,185,995); Mr. McGarry -- 155,850 shares ($1,922,150); Mr.
Bell -- 284,790 shares ($3,512,410); and Mr. Dolan -- 305,865 shares
($3,772,335). The Company Board has elected to accelerate the vesting of the
Restricted Stock to the date on which the Offerings are consummated,
provided there is market demand for the sale by the Management Investors of
a sufficient number of shares of Restricted Stock as is necessary to fund
their personal tax liabilities associated with the vesting of the Restricted
Stock. Accordingly, assuming sufficient demand for such shares exists, all
Restricted Stock awarded to the named executive officers will vest and be
distributed to the recipients or a deferral trust, as the case may be, upon
the consummation of the Offerings. If the Restricted Stock does not vest
upon the consummation of the Offerings, then it will vest upon the earliest
of (i) the six-month anniversary of the consummation of the Offerings; (ii)
if occurring during the six-month period following the Offerings,
termination of employment without cause, voluntary termination of employment
with the Company's written approval, death, permanent disability or, in
certain cases, retirement from the Company; (iii) a change of control of the
Company; or (iv) the occurrence of any other event determined by the
Compensation Committee with the written consent of the Management Voting
Trust. Dividends on Restricted Stock are paid on the same basis as ordinary
dividends on the Common Stock and may be distributed to the holders of such
Restricted Stock. 60,000 shares and 45,000 shares of Restricted Stock,
respectively, of Messrs. Vick and Dolan's Restricted Stock awards were
granted to them in December 1997 and are required to be placed in a deferral
trust upon vesting thereof pursuant to the Deferred Compensation Plan. Such
deferral trust will hold the shares prior to their distribution to Messrs.
Vick and Dolan which will occur with respect to 33 1/3% of the shares on
January 15, 2001, with respect to an additional 33 1/3% of the shares on
January 15, 2002, and with respect to the remaining 33 1/3% of the shares on
January 15, 2003. Certain of the named executive officers have voluntarily
elected under the Deferred Compensation Plan to have their Restricted Stock
placed in a deferral trust upon vesting thereof, and to have such shares
distributed to them from such deferral trust at specified times in the
future.
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<PAGE> 48
(3) "All other compensation" for 1997 consisted of the Company's contribution
of: (i) $8,000 on behalf of each of the named executive officers (other than
Mr. Dolan) as matching contributions under the Young & Rubicam Employees'
Savings Plan ("Savings Plan") and (ii) an additional $199 and $2,190 on
behalf of Mr. Vick and Mr. Dolan, respectively, as matching contributions
under the Company's Education Incentive Plan (pursuant to which U.S.
employees may elect to have limited amounts of compensation, together with a
Company match, invested in a group annuity insurance contract for purposes
of meeting their children's future education costs). See "-- Savings Plan."
During 1997, stock option grants covering 11,469,150 shares in the
aggregate were awarded to 442 employees under the Company's Stock Option Plans.
The option grants in 1997 for the named executive officers are shown in the
following table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
----------------------------------------------------- --------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu.......... -- -- -- -- -- --
Edward H. Vick.............. 172,500(1) 1.5% $12.33 12/17/07 $1,337,973 $3,390,687
John P. McGarry, Jr......... -- -- -- -- -- --
Thomas D. Bell, Jr.......... 176,550(2) 1.5% $12.33 12/17/07 $1,369,387 $3,470,295
Michael J. Dolan............ 150,000(1) 1.3% $12.33 12/17/07 $1,163,455 $2,948,424
</TABLE>
- ------------------------------
(1) These represent non-qualified options granted under the 1997 ICP. Such
options have a ten-year term and will become exercisable with respect to
33 1/3% of the shares subject to any such option on December 31, 2000, with
respect to an additional 33 1/3% of such shares on December 31, 2001 and
with respect to the remaining 33 1/3% of such shares on December 31, 2002.
These options will become fully exercisable with respect to 100% of the
shares subject thereto upon a change in control of the Company (as defined
in the 1997 ICP) or termination of employment due to death or disability.
Upon termination of employment for any other reason, the portion of any such
option that was not exercisable at such time will expire.
(2) This represents a non-qualified option granted under the 1997 ICP. Such
option has a ten-year term and will become exercisable nine years and nine
months from the date of grant, unless Burson-Marsteller, Landor Associates,
Sudler & Hennessey and Cohn & Wolfe achieve a targeted operating profit
budget commitment for the year ending December 31, 1998, in which case it
will become exercisable with respect to 33 1/3% of the shares subject to
such option on December 31, 2000, with respect to an additional 33 1/3% of
such shares on December 31, 2001 and with respect to the remaining 33 1/3%
of such shares on December 31, 2002. This option will become fully
exercisable with respect to 100% of the shares subject thereto upon a change
in control of the Company (as defined in the 1997 ICP) or termination of
employment due to death or disability. Upon termination of employment for
any other reason, the portion of such option that was not exercisable at
such time will expire.
The exercise of options during 1997, number of options held and their value
at year-end for the named executive officers are shown in the following table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON VALUE -------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Peter A. Georgescu......... -- -- --/-- --/--
Edward H. Vick............. -- -- 895,245(1)/172,500(2) $9,325,469/--
John P. McGarry, Jr........ 241,110 $1,386,383 --/-- --/--
Thomas D. Bell, Jr. ....... -- -- 1,165,215(1)/176,550(3) $12,137,656/--
Michael J. Dolan........... -- -- 104,340(4)/306,525(5) $486,948/$730,422
</TABLE>
- ------------------------------
(1) This represents a Rollover Option granted under the Management Stock Option
Plan (see "-- Management Stock Option Plan").
(2) See footnote (1) to the option grant table on the preceding page.
45
<PAGE> 49
(3) See footnote (2) to the option grant table on the preceding page.
(4) This represents a Closing Option granted under the Management Stock Option
Plan (see "-- Management Stock Option Plan").
(5) This represents (i) with respect to 150,000 shares, a non-qualified option
granted under the 1997 ICP with the terms set forth in footnote (1) to the
option grant table on the preceding page and (ii) with respect to 156,525
shares, a Closing Option granted under the Management Stock Option Plan (see
"-- Management Stock Option Plan").
MANAGEMENT STOCK OPTION PLAN. At the time of the Recapitalization, the
Compensation Committee granted an aggregate of 16,823,565 Rollover Options to
certain members of management of Y&R in consideration of their surrender for
cancellation of all or a portion of their outstanding options to purchase equity
units of predecessor companies of Y&R, as well as an aggregate of 5,200,590
Closing Options pursuant to the Management Stock Option Plan. The Rollover
Options were immediately vested and exercisable upon grant. Each Rollover Option
has an exercise price of $1.92 per share of Common Stock subject to such
Rollover Option, with certain limited exceptions outside the United States, and
has a term of five years with respect to 50% of the shares subject thereto and a
term of seven years with respect to the other 50%. Each Closing Option became
exercisable immediately with respect to 40% of the shares subject thereto and
will become exercisable (i) on the third anniversary of its grant date with
respect to 30% of such shares and (ii) on the fifth anniversary of its grant
date with respect to the remaining 30% of such shares. The exercise price for
the Closing Options is $7.67 per share of Common Stock. Since the time of the
Recapitalization, the Compensation Committee granted an aggregate of 1,891,200
additional options with the same terms and conditions as the Closing Options
(such options, together with the Closing Options, the "Executive Options").
Through April 15, 1998, an aggregate of 754,185 Rollover Options were exercised
and the underlying shares repurchased by the Company and an aggregate of 426,870
Executive Options were forfeited, all in connection with the termination of the
employment of the option holder. In addition, through April 15, 1998, an
aggregate of 4,078,695 shares of Common Stock were issued upon exercise of
Rollover Options and an aggregate of 307,980 shares of Common Stock were issued
upon exercise of Executive Options.
Executive Options will not be exercisable after the expiration of ten years
from the date of grant of such Executive Option. Upon termination of employment
for any reason, all Rollover Options and all Executive Options that are then
exercisable will remain exercisable for 30 days and will then be canceled if not
exercised. All Executive Options that have not yet become exercisable will be
canceled immediately on termination of employment.
Among other powers, the Compensation Committee has the authority to
accelerate the right to exercise any or all of the Executive Options, provided
that with respect to the period during which the Recapitalization Investors own
at least 20% of the Outstanding Shares (the "Extended Consent Period"), such
action shall only be effective with the written consent of the Recapitalization
Investors unless such acceleration involves only the waiver of any terms or
conditions not expressly provided for by the Management Stock Option Plan.
No employee may be granted a Rollover Option or Executive Option under the
Management Stock Option Plan unless he or she is or becomes a party to the
Stockholders' Agreement and the Management Voting Trust Agreement, so long as
those agreements are in effect. The Rollover Options and Executive Options are
transferable only by will or intestate succession and upon such a transfer the
transferee must agree to be bound by the Management Stock Option Plan and to
execute any other agreement which the Compensation Committee may prescribe,
including any supplements to the Stockholders' Agreement and Management Voting
Trust Agreement
The Compensation Committee, with the written consent of the
Recapitalization Investors during the Extended Consent Period, and the
Management Voting Trust may at any time terminate the Management Stock Option
Plan or any Rollover Options or Executive Options then outstanding. Upon the
termination of an outstanding Rollover Option or Executive Option, Y&R would pay
cash consideration for each share underlying such Rollover Option or Executive
Option equal to the value of a share of Common Stock less the exercise price per
share and any applicable withholding taxes or other similar charges. The
Compensation Committee may amend the Management Stock Option Plan and the terms
and conditions of the Rollover Options and the Executive Options with the
written consent of the Recapitalization Investors (during the Extended Consent
Period with respect to any amendment accelerating the right to exercise any or
all of the Executive Options or any other amendment improving the terms of the
Rollover Options or Executive Options
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unless such acceleration or amendment involves the waiver or amendment of any
terms or conditions not expressly provided for by the Management Stock Option
Plan) and the Management Voting Trust, provided that no amendment may impair the
rights of a holder of a Rollover Option or Executive Option without such
holder's consent and that no amendment may increase the aggregate number of
shares of Common Stock which may be issued pursuant to Rollover Options and
Executive Options granted under the Management Stock Option Plan or change the
definition of employees eligible for grants without the approval of the
stockholders of Y&R. However, the Compensation Committee is authorized to make
certain adjustments to the Management Stock Option Plan and any outstanding
Rollover Options or Executive Options in the event of a change in the
capitalization of Y&R due to certain corporate events specified in the
Management Stock Option Plan.
Under U.S. tax law, the exercise of any Rollover Option or Executive Option
will be a taxable event for U.S. taxpayers, and Y&R will have withholding
obligations. For purposes of U.S. federal income tax, upon exercise, a holder
will be deemed to have received ordinary income in an amount equal to the
difference between the exercise price of the Rollover Option or Executive
Option, as the case may be, and the fair market value of the shares of Common
Stock received on exercise, and, generally, the Company will be entitled to a
tax deduction in an amount equal to the amount of ordinary income realized by
the holder. In order to exercise either a Rollover Option or Executive Option,
the employee will also need to pay the exercise price. Under the Management
Stock Option Plan, upon exercise of a Rollover Option or Executive Option, the
employee may pay the exercise price either in cash or, subject to the approval
of the Compensation Committee, by (i) delivering a number of shares of Common
Stock already owned by such employee with the appropriate value or (ii) a
recourse note to Y&R with such terms and conditions as the Compensation
Committee may require, including a pledge of the related shares. Further, upon
such exercise of a Rollover or Executive Option, the employee may pay the
withholding taxes or other similar charges which are incurred in connection with
such exercise by the same methods and subject to the same approvals as for the
payment of the exercise price or, in addition, subject to the approval of the
Compensation Committee, by having Y&R withhold a number of shares of Common
Stock of the appropriate value from those to be distributed upon such exercise.
Moreover, if the Compensation Committee consents, the employee may have a number
of shares of Common Stock either withheld from those to be distributed upon
exercise or delivered to Y&R with the appropriate value to satisfy the estimated
total taxes and charges that would be incurred by the employee as a result of
such exercise.
The Company has adopted a new incentive compensation plan that has
superseded the Management Stock Option Plan with respect to all future grants of
options. See "-- 1997 ICP" below.
THE RESTRICTED STOCK PLAN AND TRUST AGREEMENT. Pursuant to the Restricted
Stock Plan, upon consummation of the Recapitalization, Y&R issued a total of
11,086,950 shares of Common Stock to the Restricted Stock Trust. Common Stock
held in the Restricted Stock Trust may be granted as Restricted Stock by the
Compensation Committee pursuant to the Restricted Stock Plan. Immediately after
closing of the Recapitalization, the Compensation Committee allocated an
aggregate of 6,172,440 shares of Restricted Stock to certain key employees.
Since the time of the Recapitalization, the Compensation Committee has further
allocated an aggregate of 2,528,865 shares of Restricted Stock through December
31, 1997, including 1,832,235 shares of Restricted Stock in December 1997. An
aggregate of 254,385 shares of Restricted Stock has been forfeited since the
Recapitalization as a result of the termination of the employment of the
Restricted Stock grantee. In January 1998, the Compensation Committee allocated
an aggregate of 368,595 shares of Restricted Stock to members of senior
management, including to each of the named executive officers. Such allocations
were made to the recipients in lieu of target bonus increases and/or salary
increases in 1997 and 1998. In 1998, the Compensation Committee also allocated
an additional 415,590 shares of Restricted Stock under the Restricted Stock
Plan. Upon any such award, an account is established in the Restricted Stock
Trust for such employee and the appropriate number of shares of Restricted Stock
is allocated to such account.
The Company Board has elected to accelerate the vesting of the Restricted
Stock to the date on which the Offerings are consummated and the amounts held in
each such employee's account in the Restricted Stock Trust will be distributed
to such employees or to a deferral trust pursuant to the Deferred Compensation
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Plan on such date, provided there is market demand for the sale by the
Management Investors of a sufficient number of shares of Restricted Stock as is
necessary to fund their personal tax liabilities associated with the vesting of
the Restricted Stock. If the Restricted Stock does not vest upon the
consummation of the Offerings, then it will vest upon the earliest of (i) the
six-month anniversary of the consummation of the Offerings; (ii) if occurring
during the six-month period following the Offerings, termination of employment
without cause, voluntary termination of employment with the Company's written
approval, death, permanent disability or, in certain cases, retirement from the
Company; (iii) a change of control of the Company; or (iv) the occurrence of any
other event determined by the Compensation Committee with the written consent of
the Management Voting Trust. With respect to any award granted within six months
of a vesting event outlined above, the Compensation Committee may provide that
such award will not vest upon such vesting event. Restricted Stock awards may
also be subject to other conditions as may be prescribed by the Compensation
Committee in the agreement evidencing such awards.
Shares of Restricted Stock granted in December 1997 will vest as described
above, and recipients of such 1,832,235 shares of Restricted Stock, as a
condition to such grant, will be required to place such shares in a deferral
trust upon vesting (subject to the claims of the creditors of the Company in the
event of its insolvency) pursuant to the Deferred Compensation Plan. Such
deferral trust will hold the shares prior to their distribution to such
recipients which will occur with respect to 33 1/3% of the shares on January 15,
2001, with respect to an additional 33 1/3% of the shares on January 15, 2002
and with respect to the remaining 33 1/3% of the shares on January 15, 2003.
Upon termination of employment for any reason prior to vesting an employee
will forfeit all unvested Restricted Stock granted to him or her without
consideration on the date of such termination.
Dividends payable in cash with respect to Restricted Stock awarded to an
employee may be remitted to such employee (less any applicable withholding tax
or other similar changes) as the Compensation Committee, in its sole discretion,
may determine. Any non-cash dividend with respect to Restricted Stock shall
remain in the Restricted Stock Trust and shall be credited to the account of the
employee to whom any such Restricted Stock has been awarded. While the
Management Voting Trust Agreement is in effect, all Restricted Stock shall be
delivered to the Management Voting Trust and voted in accordance with the
provisions of the Management Voting Trust Agreement. After the Management Voting
Trust Agreement is no longer in effect, each employee who has been awarded
Restricted Stock shall be entitled to instruct the trustee of the Restricted
Stock Trust as to the voting of such Restricted Stock held in his account.
Restricted Stock as to which no voting instructions are received by the trustee
or which have not been granted to any employee shall be voted by the trustee pro
rata in accordance with the vote of the Restricted Stock which has been granted
as to which voting instructions have been given.
Among other powers, the Compensation Committee shall have the authority to
accelerate the vesting of all awards and the release of the related Restricted
Stock.
No employee may be granted an award of Restricted Stock under the
Restricted Stock Plan unless he or she is or becomes a party to the
Stockholders' Agreement and the Management Voting Trust Agreement, so long as
those agreements are in effect. Subject to the following sentence, Restricted
Stock granted to an employee and held in the Restricted Stock Trust is not
transferable and any attempt to transfer such Restricted Stock may lead to its
forfeiture without consideration. Restricted Stock which vests as a result of
the death of the employee during the six-month period after an initial public
offering may be transferred by will or intestate succession and upon such a
transfer the transferee must agree to be bound by the Restricted Stock Plan and
to execute any other agreement which the Compensation Committee may prescribe,
including any supplements to the Stockholders' Agreement and Management Voting
Trust Agreement.
The Compensation Committee, with the written consent of the Management
Voting Trust, may at any time terminate the Restricted Stock Plan or any awards
of Restricted Stock then outstanding. Upon the termination of the Restricted
Stock Plan or of an outstanding award of Restricted Stock, the Compensation
Committee may, with the written consent of the Management Voting Trust, either
declare that a vesting event has occurred and release Restricted Stock to
employees or cause Y&R to pay an amount in cash equal to the value of the
Restricted Stock subject to such terminated award minus any applicable
withholding taxes or
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other similar charges. Within two years of any such termination of the
Restricted Stock Plan, the Compensation Committee shall distribute any unawarded
Restricted Stock remaining in the Restricted Stock Trust to such employees as it
may designate. In no event shall any Restricted Stock revert to Y&R as a result
of the termination of the Restricted Stock Plan or any award of Restricted
Stock. The Compensation Committee may amend the Restricted Stock Plan and the
terms and conditions of any awards of Restricted Stock with the written consent
of the Management Voting Trust, provided that no amendment may impair the rights
of a holder of any such award without such holder's consent. However, the
Compensation Committee is authorized to make certain adjustments to the
Restricted Stock Plan and any outstanding awards of Restricted Stock in the
event of a change in the capitalization of Y&R due to certain corporate events
specified in the Restricted Stock Plan.
Under U.S. tax law, the vesting and distribution of the Restricted Stock
will be a taxable event for U.S. taxpayers, and Y&R will have withholding
obligations. For purposes of U.S. federal income tax, an award holder will be
deemed to have received ordinary income in an amount equal to the fair market
value of the shares of Common Stock received and, generally, the Company will be
entitled to a tax deduction in an amount equal to the amount of ordinary income
realized by the award holder. Under the Restricted Stock Plan, upon the vesting
and receipt of Restricted Stock, the employee may pay the withholding taxes or
other similar charges either in cash or, subject to the approval of the
Compensation Committee, by (i) delivering a number of shares of Common Stock
already owned by such employee with the appropriate value, (ii) a recourse note
to Y&R with such terms and conditions as the Compensation Committee may require,
including a pledge of the related shares or (iii) having a number of shares of
Restricted Stock of the appropriate value withheld from those to be distributed.
Moreover, if the Compensation Committee consents, the employee may have a number
of shares of Common Stock either withheld from those to be distributed or
delivered to Y&R with the appropriate value to satisfy the estimated total taxes
and charges that would be incurred by the employee as a result of such vesting
and distribution.
The Company has adopted a new incentive compensation plan that has amended
and restated the Restricted Stock Plan with respect to all grants made
subsequent to March 31, 1998. See "-- 1997 ICP" below. In order to assist the
Company and its affiliates in meeting various cash compensation obligations of
the Company and its affiliates, the Company has amended the agreement governing
the Restricted Stock Trust to provide for cash distributions to be made from the
Restricted Stock Trust to pay salaries and for the benefit of participants in
various annual bonus programs as the Compensation Committee may direct, and to
permit the trustee of the Restricted Stock Trust to require the Company to
purchase unallocated shares of Common Stock held therein such that proceeds from
the sale are sufficient to make such salary and bonus payments. Pursuant to such
amendment, the Company will repurchase the remaining 1,855,845 unallocated
shares of Common Stock in the Restricted Stock Trust upon the consummation of
the Offerings.
1997 ICP. In December 1997, the Company adopted the 1997 Incentive
Compensation Plan (the "1997 ICP"). The 1997 ICP has superseded the Management
Stock Option Plan and has amended and restated the Restricted Stock Plan (the
Management Stock Option Plan and the Restricted Stock Plan (prior to such
amendment and restatement), the "Preexisting Plans"), although all awards
granted prior to the adoption of the 1997 ICP, and any grants of Restricted
Stock made after such adoption but on or prior to March 31, 1998, will remain
outstanding in accordance with their terms and be subject to the terms of the
Preexisting Plans.
The Board believes that attracting and retaining key employees is essential
to the Company's growth and success. In addition, the Board believes that the
long-term success of the Company is enhanced by a competitive and comprehensive
compensation program, which may include tailored types of incentives designed to
motivate and reward such persons for outstanding service, including awards that
link compensation to applicable measures of the Company's performance and the
creation of stockholder value. Such awards should enable the Company to attract
and retain key employees and enable such persons to acquire and/or increase
their proprietary interest in the Company and thereby align their interests with
the interests of the Company's stockholders. In addition, the Board believes
that the Compensation Committee should be given as much flexibility as possible
to provide for annual and long-term incentive awards contingent on performance.
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The Company granted non-qualified options to employees to purchase an
aggregate of 9,577,950 shares of Common Stock in December 1997 under the 1997
ICP. Such options have an exercise price equal to $12.33 per share, which
represents the fair market value of the Common Stock as of the date of grant
(which takes into account that prior to the Offerings, the Company was privately
held and that the shares were subject to contractual transfer restrictions, but
does not give effect to the applicable put and call provisions of the
Stockholders' Agreement). These options will expire if not exercised ten years
after the date of grant and will be fully exercisable with respect to 33 1/3% of
the shares subject to such option on December 31, 2000, with respect to an
additional 33 1/3% of such shares on December 31, 2001, and with respect to the
remaining 33 1/3% of such shares on December 31, 2002. Out of the options
granted in December 1997, options to purchase 975,600 and 176,550 shares of
Common Stock, respectively, granted to employees of Burson-Marsteller will not
become exercisable until nine years and nine months from the date of their
grant, unless Burson-Marsteller or the group of Burson-Marsteller, Landor
Associates, Sudler & Hennessey and Cohn & Wolfe, as the case may be, achieves a
targeted operating profit budget commitment for the year ending December 31,
1998, in which case the vesting schedule set forth in the previous sentence will
apply to such options. All of these options will become fully exercisable with
respect to 100% of the shares subject thereto upon a change in control of the
Company (as defined in the 1997 ICP) or termination of employment due to death
or disability. Upon termination of employment for any other reason, the portion
of any such option that was not exercisable at such time will expire.
The following is a description of the material features of the 1997 ICP.
Types of Awards. The terms of the 1997 ICP provide for grants of stock
options, stock appreciation rights ("SARs"), restricted stock, deferred stock,
other stock-related awards, and performance or annual incentive awards that may
be settled in cash, stock or other property ("Awards").
Shares Subject to the 1997 ICP; Annual Per-Person Limitations. Under the
1997 ICP, the total number of shares of the Common Stock reserved and available
for delivery to participants in connection with Awards is (i) 19,125,000, plus
(ii) the number of shares of Common Stock subject to awards under Preexisting
Plans that become available (generally due to cancellation or forfeiture) after
the effective date of the 1997 ICP; provided, however, that the total number of
shares of Common Stock with respect to which incentive stock options ("ISOs")
may be granted shall not exceed one million. Any shares of Common Stock
delivered under the 1997 ICP may consist of authorized and unissued shares or
treasury shares.
The 1997 ICP imposes individual limitations on the amount of certain Awards
in order to comply with Section 162(m) of the Internal Revenue Code (the
"Code"). Under these limitations, during any fiscal year the number of options,
SARs, shares of restricted stock, shares of deferred stock, shares of Common
Stock issued as a bonus or in lieu of other obligations, and other stock-based
Awards granted to any one participant must not exceed 200,000 shares for each
type of such Award, subject to adjustment in certain circumstances. In addition,
the maximum cash amount that may be earned as a final annual incentive award or
other annual cash Award in respect of any fiscal year by any one participant and
the maximum cash amount that may be earned as a final performance award or other
cash Award in respect of a performance period other than an annual period by any
one participant may not exceed $10 million. The Company intends for Awards
granted to "covered employees (as defined in Section 162(m)) under the 1997 ICP
to qualify as "performance-based compensation" (as defined in Section 162(m) and
regulations thereunder) for purposes of Section 162(m) to the extent such Awards
may otherwise be subject thereto.
The Compensation Committee is authorized to adjust the number and kind of
shares subject to the aggregate share limitations and annual limitations under
the 1997 ICP and subject to outstanding Awards (including adjustments to
exercise prices and number of shares of options and other affected terms of
Awards) in the event that a dividend or other distribution (whether in cash,
shares, or other property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event affects the
Common Stock so that an adjustment is determined by the Compensation Committee
to be appropriate. The Compensation Committee is also authorized to adjust
performance conditions and other terms and conditions of Awards in response to
these kinds of events or in response to changes in applicable laws, regulations,
or accounting principles or in view of
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any other circumstances deemed relevant by the Compensation Committee; provided
that no such adjustment may be made if and to the extent if would cause Awards
to "covered employees" intended to so qualify to fail to qualify as
"performance-based compensation" for purposes of Section 162(m) of the Code.
Eligibility. Executive officers and other officers and employees of the
Company or any affiliate, including any such person who may also be a director
of the Company, and each other person who provides services to the Company or
any affiliate shall be eligible to be granted Awards under the 1997 ICP. An
affiliate of the Company for this purpose includes any entity required to be
aggregated with the Company under Section 414 of the Code and any 10% owned
joint venture or partnership of the Company or an affiliate.
Administration. The 1997 ICP is administered by the Compensation Committee
except to the extent the Board elects to administer the 1997 ICP. Subject to the
terms and conditions of the 1997 ICP, the Compensation Committee is authorized
to select participants, determine the type and number of Awards to be granted
and the number of shares of Common Stock to which Awards will relate, specify
times at which Awards will be exercisable or settleable (including performance
conditions that may be required as a condition thereof), set other terms and
conditions of such Awards, prescribe forms of Award agreements, interpret and
specify rules and regulations relating to the 1997 ICP, and make all other
determinations that may be necessary or advisable for the administration of the
1997 ICP. The 1997 ICP provides that Compensation Committee members shall not be
personally liable, and shall be fully indemnified, in connection with any
action, determination, or interpretation taken or made in good faith under the
1997 ICP.
Stock Options and SARs. The Compensation Committee is authorized to grant
stock options, including both ISOs that can result in potentially favorable tax
treatment to the participant and non-qualified stock options (i.e., options not
qualifying as ISOs), and SARs entitling the participant to receive the excess of
the fair market value of a share of Common Stock on the date of exercise over
the grant price of the SAR. The exercise price per share subject to an option
and the grant price of an SAR is determined by the Compensation Committee, but
must not be less than the fair market value of a share of Common Stock on the
date of grant (except to the extent of in-the-money awards or cash obligations
surrendered by the participant at the time of grant). The maximum term of each
option or SAR, the times at which each option or SAR will be exercisable, and
provisions requiring forfeiture of unexercised options or SARs at or following
termination of employment generally is fixed by the Compensation Committee,
except no option or SAR may have a term exceeding ten years. Options may be
exercised by payment of the exercise price in cash, Common Stock, outstanding
Awards, or other property (possibly including notes or obligations to make
payment on a deferred basis) having a fair market value equal to the exercise
price, as the Compensation Committee may determine from time to time. Methods of
exercise and settlement and other terms of the SARs are determined by the
Compensation Committee.
Restricted and Deferred Stock. The Compensation Committee is authorized to
grant restricted stock and deferred stock. Restricted stock is a grant of Common
Stock which may not be sold or disposed of, and which may be forfeited in the
event of certain terminations of employment and/or failure to meet certain
performance requirements prior to the end of a restricted period as specified by
the Compensation Committee. A participant granted restricted stock generally has
all of the rights of a shareholder of the Company, including the right to vote
the shares and to receive dividends thereon, unless otherwise determined by the
Compensation Committee. An Award of deferred stock confers upon a participant
the right to receive shares or cash (or a combination) at the end of a specified
deferral period, subject to possible forfeiture of the Award in the event of
certain terminations of employment and/or failure to meet certain performance
requirements prior to the end of a specified period (which period need not
extend for the entire duration of the deferral period). Prior to settlement, an
Award of deferred stock carries no voting or dividend rights or other rights
associated with share ownership, although dividend equivalents may be granted,
as discussed below.
Dividend Equivalents. The Compensation Committee is authorized to grant
dividend equivalents conferring on participants the right to receive cash,
shares, other Awards, or other property equal in value to dividends paid on a
specific number of shares, or other periodic payments. Dividend equivalents may
be granted on a free-standing basis or in connection with another Award, may be
paid currently or on a deferred
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basis, and, if deferred, may be deemed to have been reinvested in additional
shares, Awards, or other investment vehicles specified by the Compensation
Committee.
Bonus Stock and Awards in Lieu of Cash Obligations. The Compensation
Committee is authorized to grant shares as a bonus free of restrictions, or to
grant shares or other Awards in lieu of obligations to pay cash or deliver other
property under the 1997 ICP or other plans or compensatory arrangements, subject
to such terms as the Compensation Committee may specify.
Other Stock-Based Awards. The 1997 ICP authorizes the Compensation
Committee to grant Awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to shares. Such Awards might
include convertible or exchangeable debt securities, other rights convertible or
exchangeable into shares, purchase rights for shares, Awards with value and
payment contingent upon performance of the Company or any other factors
designated by the Compensation Committee, and Awards valued by reference to the
book value of shares or the value of securities of or the performance of
specified affiliates. The Compensation Committee determines the terms and
conditions of such Awards, including consideration to be paid to exercise Awards
in the nature of purchase rights, the period during which Awards will be
outstanding, and forfeiture conditions and restrictions on Awards.
Performance Awards, Including Annual Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an Award, and the
timing thereof, may be subject to such performance conditions as may be
specified by the Compensation Committee (measurable over performance periods of
up to 10 years). In addition, the 1997 ICP authorizes specific annual incentive
awards, which represent a conditional right to receive cash, shares or other
Awards upon achievement of preestablished performance goals during a specified
one-year period. Performance awards and annual incentive awards granted to
persons the Compensation Committee expects will, for the year in which a
deduction arises, be among the Chief Executive Officer and four other most
highly compensated executive officers, will, if so intended by the Compensation
Committee, be subject to provisions that should qualify such Awards as
"performance-based compensation" not subject to the limitation on tax
deductibility by the Company under Code Section 162(m).
The performance goals to be achieved as a condition of payment or
settlement of a performance award or annual incentive award will consist of (i)
one or more business criteria and (ii) a targeted level or levels of performance
with respect to each such business criteria as specified by the Committee. In
the case of performance awards intended to meet the requirements of Code Section
162(m), the business criteria used must be one of those specified in the 1997
ICP, although for other participants the Compensation Committee may specify any
other criteria. The business criteria specified in the 1997 ICP are: (1)
earnings per share; (2) increase in revenues; (3) cash flow; (4) cash flow
return on investment; (5) return on net assets, return on assets, return on
investment, return on capital, return on equity; (6) economic value added; (7)
operating margin; (8) net income, net income before taxes, operating profits,
earnings before interest, taxes and amortization, earnings before interest,
taxes, depreciation and amortization; (9) total shareholder return; (10) ratio
of staff cost to revenues or gross margin; and (11) any of the above goals as
compared to the performance of a published or special index deemed applicable by
the Compensation Committee including, but not limited to, the Standard & Poor's
500 Stock Index or a group of comparator companies.
In granting annual incentive or performance awards, the Compensation
Committee shall establish a performance goal or goals and may establish unfunded
award "pools," the amounts of which will be based upon the achievement of such
performance goal or goals using one or more of the business criteria described
in the preceding paragraph. During the first 90 days of a fiscal year or
performance period, the Compensation Committee will determine who will
potentially receive annual incentive or performance awards for that fiscal year
or performance period, either out of the pool or otherwise, and the amounts
potentially payable with respect thereto. After the end of each fiscal year or
performance period, the Compensation Committee will determine the amount, if
any, of the pool and the maximum amount of potential annual incentive or
performance awards payable to each participant in the pool, or the amount of any
potential annual incentive or performance award otherwise payable to a
participant. The Compensation Committee may, in its discretion, determine that
the amount payable as a final annual incentive or performance award will be
increased or
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reduced from the amount of any potential Award, but may not exercise discretion
to increase any such amount in the case of an Award intended to qualify under
Code Section 162(m).
Subject to the requirements of the 1997 ICP, the Compensation Committee
will determine other performance award and annual incentive award terms,
including the required levels of performance with respect to the business
criteria, the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions, and the form of settlement.
Other Terms of Awards. Awards may be settled in the form of cash, Common
Stock, other Awards, or other property, in the discretion of the Compensation
Committee. The Compensation Committee may require or permit participants to
defer the settlement of all or part of an Award in accordance with such terms
and conditions as the Compensation Committee may establish, including payment or
crediting of interest or dividend equivalents on deferred amounts, and the
crediting of earnings, gains, and losses based on deemed investment of deferred
amounts in specified investment vehicles. The Compensation Committee is
authorized to place cash, shares, or other property in trusts or make other
arrangements to provide for payment of the Company's obligations under the 1997
ICP. The Compensation Committee may condition any payment relating to an Award
on the withholding of taxes and may provide that a portion of any shares or
other property to be distributed will be withheld (or previously acquired shares
or other property surrendered by the participant) to satisfy withholding and
other tax obligations. Awards granted under the 1997 ICP generally may not be
pledged or otherwise encumbered and are not transferable except by will or by
the laws of descent and distribution, or to a designated beneficiary upon the
participant's death, except that the Compensation Committee may, in its
discretion, permit transfers for estate planning or other purposes.
Awards under the 1997 ICP are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Compensation Committee may, however, grant Awards in exchange for other Awards
under the 1997 ICP, awards under other plans of the Company, or other rights to
payment from the Company, and may grant Awards in addition to and in tandem with
such other Awards, awards, or rights as well.
The Compensation Committee may cancel or rescind Awards, or require
repayment of any profits resulting from Awards, if the participant fails to
comply with certain restrictive or other covenants set forth in the 1997 ICP
and/or an Award agreement.
Acceleration of Vesting. The Compensation Committee may, in its
discretion, accelerate the exercisability, the lapsing of restrictions, or the
expiration of deferral or vesting periods of any Award, and such accelerated
exercisability, lapse, expiration and vesting shall occur automatically in the
case of a "change in control" of the Company except to the extent otherwise
provided in the Award agreement. In addition, the Compensation Committee may
provide that the performance goals relating to any performance-based award will
be deemed to have been met upon the occurrence of any change in control. "Change
in control" is defined in the 1997 ICP to include (i)(x) any person (other than
the Company, certain companies owned by the stockholders of the Company or any
employee benefit plans of the Company) becoming the beneficial owner of
securities representing 40% or more of the combined voting power of the
Company's then outstanding securities and (y) so long as the Management Voting
Trust is still in existence, representing a greater percentage of the combined
voting power of the Company's then outstanding securities than is represented by
securities held by the Management Voting Trust, provided, that all shares of
Common Stock subject to vested options under the 1997 ICP and the Management
Stock Option Plan (not including options which would vest on such change in
control) are counted as outstanding securities of the Company; (ii) during a
two-year period, individuals who constitute the Board at the start of such
period, and any new director whose election or nomination for election to the
Board was approved by a vote of at least two-thirds of the directors then in
office who either were directors at the start of such period or whose election
or nomination was previously so approved (excluding directors whose elections
were as a result of certain proxy contests or who were designated by any entity
who had entered into a change in control agreement with the Company), ceasing to
constitute a majority of the Board; (iii) the consummation of a merger or
consolidation of the Company with another entity which would result in either
(A) the voting securities of the Company outstanding immediately
53
<PAGE> 57
prior to such merger or consolidation failing to represent (either by remaining
outstanding or being converted into voting securities of the surviving or
resulting entity) 40% or more of the combined voting power of the surviving or
resulting entity outstanding immediately after such merger or consolidation or
(B)(I) the voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent at least 40% but less than
60% of the combined voting power of the surviving or resulting entity
outstanding immediately after such merger or consolidation and (II) as a result
of such merger or consolidation, there is an acceleration of the vesting or
exercisability of any material amount of, or material percentage of, outstanding
stock options or other stock awards granted by the entity with which such merger
or consolidation is taking place or any of its affiliates; (iv) the stockholders
of the Company approve a plan or agreement for the sale or disposition of all or
substantially all of the consolidated assets of the Company (other than a sale
or disposition immediately after which such assets will be owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of common stock of the Company immediately prior
thereto) in which case the Board shall determine the effective date of the
change in control; or (v) any other event which the Board determines, in its
discretion, would materially alter the structure of the Company or its
ownership. A change in control will also be deemed to have occurred immediately
prior to the consummation of (i) a tender offer for securities of the Company
representing more than 50% of the combined voting power of the Company's then
outstanding securities in which there is not disclosed an intention to follow
the consummation of the tender offer with a merger, reorganization,
consolidation, share exchange or similar transaction or (ii) a tender offer for
securities of the Company representing any percentage of the combined voting
power of the Company's then outstanding securities in which there is disclosed
an intention to follow the consummation of the tender offer with a merger,
reorganization, consolidation, share exchange or similar transaction in which
the value of the consideration to be offered for such securities is lower than
the value of the consideration offered for such securities in the tender offer
(as determined by the Board at the time) in order to allow holders of previously
unexercisable Options the opportunity to participate therein with respect to
shares underlying such Options.
Amendment and Termination of the 1997 ICP. The Board may amend, alter,
suspend, discontinue, or terminate the 1997 ICP or the Compensation Committee's
authority to grant Awards without the consent of shareholders or participants,
except shareholder approval must be obtained for any amendment or alteration if
required by law or regulation or under the rules of any stock exchange or
automated quotation system on which the shares are then listed or quoted and
participant consent must be obtained if such action would materially and
adversely affect the rights of a participant under an outstanding Award.
Shareholder approval will not be deemed to be required under laws or
regulations, such as those relating to ISOs, that condition favorable treatment
of participants on such approval, although the Board may, in its discretion,
seek shareholder approval in any circumstance in which it deems such approval
advisable. Thus, shareholder approval will not necessarily be required for
amendments that might increase the cost of the 1997 ICP or broaden eligibility.
The Committee may amend, alter, suspend, discontinue or terminate any
outstanding Award or Award agreement, except as otherwise provided in the 1997
ICP. Participant consent must be obtained if such action would materially and
adversely affect the rights of a participant under such Award. Notwithstanding
the foregoing, the Compensation Committee may terminate any outstanding Award in
whole or in part, provided that upon such termination the Company pays to such
Participant (i) with respect to an option (whether or not exercisable) or
portion thereof, an amount in cash for each share of Common Stock subject to
such option or portion thereof being terminated equal to the excess, if any, of
(a) the value at which a share of Common Stock received pursuant to the exercise
of such option would have been valued by the Company at that time for purposes
of determining applicable withholding taxes or other similar charges, over
(b) the sum of the exercise price per share of such option and applicable
withholding taxes and other similar charges, and (ii) with respect to any other
type of Award, an amount in Common Stock or cash (as determined by the
Compensation Committee in its sole discretion) equal to the value of such Award
or portion thereof being terminated as of the date of termination (assuming the
acceleration of the exercisability of such Award or portion thereof, the lapsing
of any restrictions on such Award or portion thereof or the expiration of any
deferral or vesting period of such Award or portion thereof) as determined by
the Compensation Committee in its sole discretion.
54
<PAGE> 58
Federal Income Tax Implications. The following is a summary description of
the federal income tax consequences generally arising with respect to Awards
under the 1997 ICP.
The grant of an option or SAR will create no tax consequences for the
participant or the Company. A participant will not generally recognize taxable
income upon exercising an ISO (except that the alternative minimum tax may
apply). Upon exercising an option other than an ISO, the participant must
generally recognize ordinary income equal to the difference between the exercise
price and fair market value of the freely transferable and nonforfeitable shares
acquired on the date of exercise. Upon exercising an SAR, the participant must
generally recognize ordinary income equal to the cash or the fair market value
of the freely transferable and nonforfeitable shares received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price, or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (including an ISO for which the ISO holding periods are
met) or SAR generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the participant's tax
basis in such shares (the tax basis generally being the exercise price plus any
amount previously recognized as ordinary income in connection with the exercise
of the option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option or SAR. The Company generally is not entitled to a tax deduction relating
to amounts that represent a capital gain to a participant. Accordingly, the
Company will not be entitled to any tax deduction with respect to an ISO if the
participant holds the shares for the ISO holding periods prior to disposition of
the shares.
With respect to Awards granted under the 1997 ICP that result in the
payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of shares or other property received. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. The Company generally will be entitled to a
deduction in an amount equal to the ordinary income recognized by the
participant.
With respect to Awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received at the first time
the shares or other property becomes transferable or is not subject to a
substantial risk of forfeiture, whichever occurs earlier. A participant may
elect to be taxed at the time of receipt of shares or other property rather than
upon lapse of restrictions on transferability or substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property, the
participant would not be entitled to any tax deduction, including as a capital
loss, for the value of the shares or property on which he previously paid tax.
The participant must file such election with the Internal Revenue Service within
30 days of the receipt of the shares or other property. The Company generally
will be entitled to a deduction in an amount equal to the ordinary income
recognized by the participant.
Awards that are granted, accelerated or enhanced upon the occurrence of a
change in control may give rise, in whole or in part, to "excess parachute
payments" within the meaning of Section 280G of the Code and, to such extent,
will be non-deductible by the Company and subject to a 20% excise tax by the
participant.
DEFERRED COMPENSATION PLAN. In December 1997, the Company also adopted the
Deferred Compensation Plan in order to permit certain members of a select group
of management or highly compensated employees of the Company and its affiliates
to defer receipt of specified portions of compensation (either cash, stock or
stock-based compensation) and to have such deferred amounts treated as if
invested in specified investment vehicles, all in accordance with the terms of
the Deferred Compensation Plan. Amounts deferred under the Deferred Compensation
Plan will be distributed to a participant as soon as practicable after the date
or dates (including upon the occurrence of specified events), and in such number
of installments, as may be
55
<PAGE> 59
elected by the participant or earlier in the case of Retirement, Disability or a
Change in Control (as defined in the 1997 ICP). The Deferred Compensation Plan
will be "unfunded". However, the Compensation Committee has authorized the
creation of a trust to aid in meeting the Company's obligations thereunder. Such
trust will be subject to the claims of the creditors of the Company in the event
of the Company's insolvency.
CAREER CASH BALANCE PLAN (THE "CCB PLAN"). The CCB Plan is a defined
benefit plan available to all employees of the Company and its participating
affiliates. Subject to certain limitations, most vested retirement benefits
available under the CCB Plan are insured by the Pension Benefit Guaranty
Corporation. The Company pays the full cost of the benefit provided under the
CCB Plan. Eligible retired employees may begin receiving full CCB Plan benefits
at or after age 60 if he or she had at least five years of service.
Alternatively a reduced benefit is payable at age 55 at the election of the
participant. Under the CCB Plan, effective July 1, 1996, the Company annually
credits to each participant's account 3.2% of the participant's salary. Salary
is defined to include base salary or wages and excludes bonus, overtime,
commissions and other special compensation. The Company will credit to each
account interest equal to the average 1-year U.S. Treasury Bill interest rate
for the month of November for the previous calendar year, rounded up to the
nearest tenth of a percent, up to a maximum average of $150,000, multiplied by
the number of benefit years (equal to twelve months of service or 2,280 hours).
If the present value of the earned benefit at the time of termination is less
than $3,500, the participant receives a lump sum distribution from the Company.
If the earned benefit is greater than $3,500, the cash balance account is
payable as a lump sum in cash or as an annuity (under certain circumstances) to
the participant for reinvestment in other qualified plans prior to retirement at
the participant's election, or for distribution upon retirement. CCB Plan
benefits are not reduced by Social Security benefits. Loans cannot be taken from
the CCB Plan.
The estimated annual benefits payable upon retirement at normal retirement
age for the named executive officers are as follows: Mr. Georgescu -- $18,756,
Mr. Vick -- $3,384, Mr. McGarry -- $18,756, Mr. Bell -- $4,632, and Mr.
Dolan -- $1,152.
SAVINGS PLAN. The Savings Plan is a defined contribution plan to which
employees may make contributions after one hour of service with the Company and
to which the Company will make matching contributions on behalf of employees who
have completed at least 1,000 hours of service with the Company. Eligible
employees may choose to save up to 15% of their base pay and up to 10% of their
additional pay (e.g., overtime, bonus, etc.) in any calendar year. Eligible
employees can elect the amount of base pay they want to contribute to the
Savings Plan through payroll deductions and can elect to save with before-tax
and/or after-tax dollars. The Company matches employee contributions
dollar-for-dollar at year-end up to the first 5% of annual base pay, provided
the eligible participant is employed at year-end. Savings Plan accounts
(consisting of employee contributions, Company contributions and earnings) grow
on a tax-deferred basis. Such accounts can be invested by the participant in any
of the investment options made available by the Company from time to time.
SELECTED EXECUTIVE RETIREMENT INCOME PLAN ("SERIP"). The SERIP is a
supplemental executive retirement arrangement for selected members of senior
management under separate contracts with the Company. Subject to certain
non-competition and non-solicitation provisions, cash payments in a fixed annual
amount varying as to each individual will be made to a participant whose rights
have vested in accordance with his agreement when such participant's employment
terminates or when he reaches a specified age (typically 60), whichever occurs
later. Payments are made for the balance of the participant's life and, if fewer
than ten annual payments are made during the participant's life, his beneficiary
will receive the balance of the payments until ten annual payments are made. The
Company's obligations to participants under the SERIP are subordinate in right
of payment to its obligations to senior lenders and certain other creditors.
The estimated annual benefits payable upon retirement at normal retirement
age for the named executive officers are as follows: Mr.
Georgescu -- $1,050,000, Mr. Vick -- $300,000, Mr. McGarry -- $200,000, Mr.
Bell -- none, and Mr. Dolan -- none.
56
<PAGE> 60
THE YOUNG & RUBICAM PROFIT SHARING PLAN (INACTIVE) (THE "PROFIT SHARING
PLAN"). The Profit Sharing Plan is a defined contribution plan which has been
inactive since 1975 and is being continued only for the benefit of current and
former employees (and their beneficiaries) who still have Profit Sharing Plan
account balances. Participants can direct the investment of their Profit Sharing
Plan account balances in any of the investment options made available by the
Company from time to time. Certain named executive officers have accrued
benefits under the Profit Sharing Plan but no additional accruals have been made
for their accounts since 1975. The Company recently merged the Profit Sharing
Plan into the Savings Plan.
EMPLOYMENT AND TERMINATION OF EMPLOYMENT ARRANGEMENTS. The Company and
Michael Dolan entered into a letter agreement, as amended, regarding Mr. Dolan's
principal terms of employment with the Company as Vice Chairman and Chief
Financial Officer. This letter agreement entitles Mr. Dolan to an annual base
salary and eligibility for a bonus under the Key Corporation Managers Bonus Plan
as well as to the same perquisites and benefits under Company policies as other
employees of the same rank. This letter agreement also provides that if Mr.
Dolan should die while in the employ of the Company prior to the consummation of
an initial public offering, the Company will treat as vested all shares of
Restricted Stock and options to purchase Common Stock to the extent necessary to
realize a value of $1,500,000 to Mr. Dolan.
Under the Management Voting Trust Agreement, Y&R has agreed to give each
Management Investor, including each named executive officer, six months
severance pay upon termination of employment for any reason other than for
cause, but each Management Investor is required to waive any possible right to
more than six months severance pay (and any claims for damages under any
employment agreement). Upon termination of the Management Voting Trust, in the
event of termination of employment, the named executive officers may be eligible
to receive severance pay of up to 13 weeks base salary (based upon length of
service) pursuant to a severance plan previously established for U.S. employees
of the Company.
The Management Voting Trust has the unqualified right and power to vote and
to execute consents with respect to all shares of Common Stock held by the
Management Voting Trust. The voting rights of the Management Voting Trust will
be exercised by certain members of senior management of Y&R, as Voting Trustees.
The Voting Trustees are Peter A. Georgescu, Stephanie W. Abramson, Thomas D.
Bell, Jr., Michael J. Dolan, Mitchell Kurz, John P. McGarry, Jr., Alan J.
Sheldon and Edward H. Vick. So long as Peter A. Georgescu (or a successor Chief
Executive Officer elected with the approval of the Management Voting Trust) is a
Voting Trustee, his (or such successor's) decision will be binding unless he is
outvoted by a super majority of the other Voting Trustees. If at any time there
is no Chief Executive Officer, or if the Chief Executive Officer was not
approved in advance by the Management Voting Trust, a majority vote of the
Voting Trustees will constitute the action of the Management Voting Trust. The
foregoing voting procedures will also apply to the election of Voting Trustees.
Executive officers are appointed by, and serve at the discretion of, the
Company Board.
CERTAIN TRANSACTIONS
Upon consummation of the Recapitalization, certain of the Recapitalization
Investors were granted an approval right over a number of specified fundamental
corporate actions, and were granted the right to nominate and have elected three
members of the Company Board. After the Offerings, such approval right will
terminate, and the H&F Investors will retain the right to nominate and have
elected (i) two members of the Board for so long as such investors continue to
hold, in the aggregate, at least 10% of the Outstanding Shares and (ii) one
member of the Board for so long as the H&F Investors continue to hold, in the
aggregate, at least 5% of the Outstanding Shares.
In addition, certain of the Recapitalization Investors have demand and
piggyback registration rights with respect to the Common Stock they hold. Such
Recapitalization Investors have the right to have shares they hold included in
any public offering of Common Stock made by the Company, and after the
Offerings, such Recapitalization Investors will have certain demand registration
rights to require the Company to register for resale shares of Common Stock held
by the Recapitalization Investors. See "Shares Eligible for Future Sale."
57
<PAGE> 61
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock and options to purchase Common Stock as of April
15, 1998 and as adjusted to reflect the sale of 16,600,000 shares of Common
Stock in the Offerings, including beneficial ownership by (i) each person who is
known by the Company to own beneficially 5% or more of the outstanding shares of
any class of the Common Stock, (ii) each of the Company's Directors and named
executive officers, (iii) all Directors and executive officers as a group and
(iv) the Selling Stockholders. The information in the table assumes that all
shares of Restricted Stock vest within 60 days. The information in the table
below has been calculated in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable. The address of each of the
Selling Stockholders other than the H&F Investors is c/o the Company at 285
Madison Avenue, New York, New York 10017. The address of the H&F Investors is
c/o Hellman & Friedman LLC, One Maritime Plaza, San Francisco, California 94111.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS
-----------------------------------------
SHARES AND SHARES BEING
NAME VESTED OPTIONS VESTED OPTIONS PERCENT OFFERED
<S> <C> <C> <C> <C>
Management Voting Trust(1)... 45,294,150 14,104,845 60.0% 2,101,860
Hellman & Friedman Capital
Partners III, L.P.......... 28,961,100 2,311,590 45.4 7,002,762
H&F Orchard Partners III,
L.P........................ 2,109,060 168,270 3.4 509,969
H&F International Partners
III, L.P................... 631,770 50,400 1.0 152,761
BearTel Corp. ............... 260,880 -- * 63,160
Peter A. Georgescu(2)........ 1,783,560 -- 2.9 --
Edward H. Vick (2)........... 1,495,290 895,245 2.4 156,465
Thomas D. Bell, Jr.(2)....... 1,463,655 1,165,215 2.3 167,130
John P. McGarry, Jr.(2)...... 1,155,450 -- 1.9 141,810
Michael J. Dolan(2).......... 419,631 104,346 * --
Richard S. Bodman............ -- -- * --
Philip U. Hammarskjold(3).... -- -- *
F. Warren Hellman(3)......... -- -- *
John F. McGillicuddy......... 13,035 -- * --
Alan D. Schwartz(4).......... -- -- *
All directors and executive
officers as a group........ 7,708,509 2,190,894 12.1% 517,665
Stephanie W. Abramson(2)..... 475,353 26,088 * 7,260
American Media Management,
Inc. ...................... 141,750 11,310 * 34,275
Frank Anfield................ 368,520 21,465 * 40,005
Matt Asinari................. 156,525 26,085 * 73,050
Jean-Marc Bara............... 304,080 -- * 73,455
Stephen Baum................. 21,600 -- * 12,090
Ted Bell..................... 827,820 334,065 1.3% 79,635
Bill Borrelle................ 17,025 -- * 7,305
Roger Chiocchi............... 79,140 25,875 * 2,160
Michael Claes................ 47,550 24,360 * 7,305
Neil Clark................... 91,305 52,170 * 21,915
Don Cogman................... 425,745 191,775 * 16,665
Janet Coombs................. 178,770 104,355 * 31,590
Cindy Giller................. 9,780 -- * 5,475
H. Irving Grousbeck.......... 283,485 22,620 * 68,546
Barbara Jack................. 600,750 395,565 1.0% 3,960
Paul Jandreau-Smith.......... 153,525 85,725 * 15,915
William Johnston............. 82,605 60,000 * 1,875
Christopher Komisarjevsky.... 153,420 109,575 * 2,640
Philippe Krakowsky........... 64,560 26,085 * 18,270
Kurt Krauss.................. 21,600 -- * 12,090
Stephanie Kugelman........... 473,355 88,485 * 25,530
Mitchell Kurz(2)............. 1,397,745 589,455 2.3% 210,825
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERINGS
--------------------------------------------
SHARES AND
NAME VESTED OPTIONS VESTED OPTIONS PERCENT
<S> <C> <C> <C>
Management Voting Trust(1)... 43,192,290 14,104,845 53.8%
Hellman & Friedman Capital
Partners III, L.P.......... 21,958,338 2,311,590 32.0%
H&F Orchard Partners III,
L.P........................ 1,599,091 168,270 2.4%
H&F International Partners
III, L.P................... 479,009 50,400 *
BearTel Corp. ............... 197,720 -- *
Peter A. Georgescu(2)........ 1,783,560 -- 2.7%
Edward H. Vick (2)........... 1,338,825 895,245 2.0%
Thomas D. Bell, Jr.(2)....... 1,296,525 1,165,215 1.9%
John P. McGarry, Jr.(2)...... 1,013,640 -- 1.5%
Michael J. Dolan(2).......... 419,631 104,346 *
Richard S. Bodman............ -- -- *
Philip U. Hammarskjold(3).... -- -- *
F. Warren Hellman(3)......... -- -- *
John F. McGillicuddy......... 13,035 -- *
Alan D. Schwartz(4).......... -- -- *
All directors and executive
officers as a group........ 7,190,844 2,190,894 10.5%
Stephanie W. Abramson(2)..... 468,093 26,088 *
American Media Management,
Inc. ...................... 107,475 11,310 *
Frank Anfield................ 328,515 21,465 *
Matt Asinari................. 83,475 26,085 *
Jean-Marc Bara............... 230,625 -- *
Stephen Baum................. 9,510 -- *
Ted Bell..................... 748,185 334,065 1.1%
Bill Borrelle................ 9,720 -- *
Roger Chiocchi............... 76,980 25,875 *
Michael Claes................ 40,245 24,360 *
Neil Clark................... 69,390 52,170 *
Don Cogman................... 409,080 191,775 *
Janet Coombs................. 147,180 104,355 *
Cindy Giller................. 4,305 -- *
H. Irving Grousbeck.......... 214,939 22,620 *
Barbara Jack................. 596,790 395,565 *
Paul Jandreau-Smith.......... 137,610 85,725 *
William Johnston............. 80,730 60,000 *
Christopher Komisarjevsky.... 150,780 109,575 *
Philippe Krakowsky........... 46,290 26,085 *
Kurt Krauss.................. 9,510 -- *
Stephanie Kugelman........... 447,825 88,485 *
Mitchell Kurz(2)............. 1,186,920 589,455 1.8%
</TABLE>
58
<PAGE> 62
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS
-----------------------------------------
SHARES AND SHARES BEING
NAME VESTED OPTIONS VESTED OPTIONS PERCENT OFFERED
<S> <C> <C> <C> <C>
Jay Kushner.................. 100,500 42,000 * 25,200
Anthony Manson............... 21,030 -- * 9,135
Thomas McQueeney............. 201,060 -- * 36,525
William Melzer............... 532,605 434,790 * 47,220
Craig Middleton.............. 242,310 26,085 * 77,010
Fernan Montero............... 980,535 -- 1.6% 64,065
James O'Malley............... 26,610 13,560 * 7,305
Steve Oroho.................. 217,590 112,605 * 825
Stewart Owen................. 268,365 119,265 * 67,335
Graham Phillips.............. 52,170 -- * 29,220
Dan Plouffe.................. 7,500 -- * 4,200
Tim Pollak................... 981,165 -- 1.6% 91,305
Hans-Henrik Rasmussen........ 118,110 -- * 52,230
Ken Rietz.................... 135,150 117,390 * 9,945
Ilene Rosenthal.............. 21,360 -- * 2,130
Michael Samet................ 328,740 14,625 * 101,145
Carol Schautz................ 117,315 -- * 15,450
Matthew Schetlick............ 118,485 60,870 * 32,265
Nico Schou................... 22,965 -- * 9,210
Alan Sheldon(2).............. 902,535 -- 1.5% 45,000
Barbara Smith................ 62,625 10,440 * 7,305
Stanley Stefanski............ 675,285 111,675 1.1% 150,690
Clay Timon................... 603,735 521,745 1.0% 40,875
Joanne Zaiac................. 179,010 -- * 41,850
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERINGS
--------------------------------------------
SHARES AND
NAME VESTED OPTIONS VESTED OPTIONS PERCENT
<S> <C> <C> <C>
Jay Kushner.................. 75,300 42,000 *
Anthony Manson............... 11,895 -- *
Thomas McQueeney............. 164,535 -- *
William Melzer............... 485,385 434,790 *
Craig Middleton.............. 165,300 26,085 *
Fernan Montero............... 916,470 -- 1.4%
James O'Malley............... 19,305 13,560 *
Steve Oroho.................. 216,765 112,605 *
Stewart Owen................. 201,030 119,265 *
Graham Phillips.............. 22,950 -- *
Dan Plouffe.................. 3,300 -- *
Tim Pollak................... 889,860 -- 1.3%
Hans-Henrik Rasmussen........ 65,880 -- *
Ken Rietz.................... 125,205 117,390 *
Ilene Rosenthal.............. 19,230 -- *
Michael Samet................ 227,595 14,625 *
Carol Schautz................ 101,865 -- *
Matthew Schetlick............ 86,220 60,870 *
Nico Schou................... 13,755 -- *
Alan Sheldon(2).............. 857,535 -- 1.3%
Barbara Smith................ 55,320 10,440 *
Stanley Stefanski............ 524,595 111,675 *
Clay Timon................... 562,860 521,745 *
Joanne Zaiac................. 137,160 -- *
</TABLE>
- ------------------------------
* Less than one percent.
(1) "Beneficial Ownership Prior to Offerings" includes 11,086,950 shares held
in the Restricted Stock Trust and "Beneficial Ownership After Offerings"
includes 9,231,105 shares held in the Restricted Stock Trust, which shares
are also subject to the Management Voting Trust. Beneficial ownership by
the Management Voting Trust includes an aggregate of 2,101,860 shares
offered hereby by Management Investors who are Selling Stockholders, which
shares are held by the Management Voting Trust. Other than the shares
offered by the H&F Investors, BearTel Corp., H. Irving Grousbeck and
American Media Management, Inc., all shares offered by Selling Stockholders
are held by the Management Voting Trust. Such shares will be delivered out
of the Management Voting Trust upon consummation of the Offerings.
(2) This amount does not include any of the 45,294,150 shares held in the
Management Voting Trust in excess of the amount reported above, which the
stockholder may be deemed to beneficially own as a result of such
stockholder's position as a Voting Trustee of the Management Voting Trust.
The stockholder disclaims beneficial ownership of any such shares in excess
of the amount reported above.
(3) Excludes 31,701,930 shares beneficially owned by the H&F Investors. The
sole general partner of the H&F Investors is H&F Investors III ("Investors
III"). The managing general partner of Investors III is Hellman & Friedman
Associates III, L.P. ("Associates III"), and the general partners of
Associates III are H&F Management III, L.L.C. ("Management III LLC") and
H&F Investors III, Inc. ("H&F Inc."). The sole shareholder of H&F Inc. is
The Hellman Family Revocable Trust (the "Trust"). Mr. Hammarskjold is a
member of Management III LLC. Mr. Hellman is a managing member of
Management III LLC, a director of H&F Inc. and a trustee of the Trust.
Investors III, Associates III, Management III LLC, H&F Inc., the Trust and
Messrs. Hammarskjold and Hellman exercise, directly or indirectly, voting
and investment discretion with respect to the shares held by the H&F
Investors and could be deemed to beneficially own such shares, but each of
them disclaims such beneficial ownership except to the extent of its or his
indirect pecuniary interest in such shares.
(4) Excludes 260,880 shares held by BearTel Corp., a company affiliated with
Bear, Stearns & Co. Inc., of which Mr. Schwartz is an executive officer.
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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 April 15, 1998,
and after giving effect to the Stock Split, the Company's issued and outstanding
capital stock consisted of 59,561,655 shares of issued and outstanding Common
Stock and 87 shares of issued and outstanding Money Market Preferred Stock.
Based upon shares outstanding as of April 15, 1998, the Company estimates that
immediately after the closing of the Offerings there will be an aggregate of
66,228,322 shares of Common Stock issued and outstanding, 31,442,985 shares of
Common Stock will be issuable upon exercise of outstanding options, 87 shares of
Money Market Preferred Stock will be issued and outstanding and no other shares
of Preferred Stock will be issued and outstanding. All of the Company's issued
and outstanding capital stock has been fully paid.
The following description of the Company's capital stock does not purport
to be complete and is subject to and qualified in its entirety by the Company's
Charter and By-Laws, which are included as exhibits to the Registration
Statement of which this Prospectus forms a part, and by the provisions of
applicable Delaware law.
The Company's Charter and By-Laws contain certain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the Board and which may have the effect of delaying, deferring,
or preventing a future takeover or change in control of the Company unless such
takeover or change in control is approved by the Board.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share on
all matters voted on by stockholders, and the holders of such shares, together
with the holders of shares of Money Market Preferred Stock (as described
herein), will possess all voting power, except as otherwise required by law or
as provided in the Company's Charter. Holders of Common Stock who are employees
of Y&R or its affiliates are subject to the provisions of the Management Voting
Trust and the Stockholders' Agreement and will be subject to the provisions of
the Amended Stockholders' Agreement upon consummation of the Offering. See
"-- The Management Voting Trust Agreement" and "The Stockholders' Agreement."
The holders of Common Stock will not have cumulative voting rights. Holders of
Common Stock will not have any preemptive right to subscribe for or purchase any
kind or class of securities of the Company. Holders of Common Stock will have no
subscription, conversion or redemption rights, and will not be subject to
further calls or assessments. Subject to any preferential or other rights of any
outstanding series of Preferred Stock that may be designated by the Company
Board, the holders of Common Stock will be entitled to such dividends, if any,
as may be declared from time to time by the Company Board. The Company's Credit
Facilities contain restrictive covenants that limit the Company's ability to pay
cash dividends or make certain stock repurchases above certain permitted limits
without the prior written consent of the lenders. The New Facility, which the
Company expects to enter into effective upon the consummation of the Offerings,
is expected to permit the payment of cash dividends except in the event of a
continuing default under the credit agreement. See "Dividend Policy." In the
event of the liquidation, dissolution or winding up of the Company, holders of
Common Stock will be entitled to receive on a pro rata basis any assets of the
Company remaining after provision for payment of creditors and after payment of
any liquidation preferences to holders of Preferred Stock.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock.
The 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,
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preferences and limitations as between such series, and to increase and decrease
the number of shares constituting each such series. See "-- Authorized But
Unissued Capital Stock" and "-- Anti-Takeover Effects of Certain Provisions of
the Charter, the By-Laws, the Rights Plan and Delaware Law -- Preferred Stock."
The Company's Charter designates an initial series of Preferred Stock,
consisting of 50,000 shares, as the Money Market Preferred Stock. Holders of
Money Market Preferred Stock are entitled to receive, subject to declaration by
the Board, certain cumulative cash dividends which are payable quarterly and
calculated with reference to the interest rate for the three-month London
interbank deposit market. On or after December 12, 2001, any Money Market
Preferred Stock issued and outstanding for five years may, at the option of the
Board and subject to providing holders with notice of redemption, be redeemed by
the Company at a redemption price per share of $115.00 (together with all
accrued and unpaid dividends thereon). Redeemed Money Market Preferred Stock may
be reissued by the Board as shares of such series or as shares of any other
series of Preferred Stock. Money Market Preferred Stock are not convertible,
have a liquidation preference of $115.00 per share (together with all accrued
and unpaid dividends thereon) and have voting rights equal to one-tenth of one
vote for each share of Money Market Preferred Stock.
Effective upon the closing of the Offerings, in connection with the Rights
Plan, the Company's Charter will authorize a series of Preferred Stock
designated Cumulative Participating Junior Preferred Stock (the "Junior
Preferred Stock"), consisting of 2,500,000 shares. For a description of the
Rights Plan and the Junior Preferred Stock, see "-- Rights Plan" and
"-- Anti-Takeover Effects of Certain Provisions of the Charter, the By-Laws, the
Rights Plan and Delaware Law."
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Based on the calculations set forth above, the Company estimates that,
following the completion of the Offerings, it will have approximately
183,133,293 shares of authorized but unissued Common Stock (including an
aggregate of 28,964,130 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 remains listed on such exchange, require prior stockholder approval of
certain issuances, including issuances of shares bearing voting power equal to
or exceeding 20% of the pre-issuance outstanding voting power or pre-issuance
outstanding number of shares of Common Stock. These additional shares could be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. The Company
currently does not have any plans to issue additional shares of Common Stock or
Preferred Stock other than in connection with employee compensation plans. See
"Management -- Executive Compensation." One of the effects of the existence of
unissued and unreserved Common Stock and Preferred Stock may be to enable the
Board of the Company to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management and
possibly deprive the stockholders of the opportunity to sell their shares of
Common Stock at prices higher than prevailing market prices. Such additional
shares also could be used to dilute the stock ownership of persons seeking to
obtain control of the Company pursuant to the operation of the Rights Plan,
which is discussed below. See "-- Anti-Takeover Effects of Certain Provisions of
the Charter, the By-Laws, the Rights Plan and Delaware Law."
THE MANAGEMENT VOTING TRUST AGREEMENT
Pursuant to the Management Voting Trust Agreement, the Management Investors
and the Restricted Stock Trust are required to deposit with the Management
Voting Trust all 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
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Restricted Stock Trust or otherwise). Common Stock sold in the public market by
Management Investors and the Restricted Stock Trust will be withdrawn from, and
delivered free of, the Management Voting Trust.
The Management Voting Trust will have the unqualified right and power to
vote and to execute consents with respect to all shares of Common Stock and all
shares of Money Market Preferred Stock held by the Management Voting Trust. The
voting rights of the Management Voting Trust are exercised by certain members of
senior management of Y&R, in their capacities as voting trustees (the "Voting
Trustees"). The current Voting Trustees are Peter A. Georgescu, Stephanie W.
Abramson, Thomas D. Bell, Jr., Michael J. Dolan, Mitchell Kurz, John P. McGarry,
Jr., Alan J. Sheldon and Edward H. Vick (each of whom is currently a member of
the senior management of Y&R). So long as Peter A. Georgescu (or a successor
Chief Executive Officer elected with the approval of the Management Voting
Trust) is a Voting Trustee, any action (i) approved in writing or at a meeting
by Peter A. Georgescu (or such successor) and any two other Voting Trustees and
(ii) any action approved over the objection of Peter A. Georgescu (or such
successor) at a meeting of the Voting Trustees by an aggregate vote of Voting
Trustees equal to not less than the total number of Voting Trustees then in
office minus two, shall constitute the action of, and shall be binding upon, the
Management Voting Trust (unless there shall be fewer than seven Voting Trustees
then in office, in which event any action under clause (ii) shall require the
vote of all the Voting Trustees other than Peter A. Georgescu (or such
successor)). The foregoing voting procedures will also apply to the election and
removal of Voting Trustees, to proposals to increase or decrease the number of
Voting Trustees and to proposals to amend the foregoing voting procedures.
The Management Voting Trust will terminate at such time that (i) no person
(including the Recapitalization Investors and the Management Voting Trust) is
the owner of more than 20% of the Outstanding Shares, (ii) the number of shares
of Common Stock held by the Management Voting Trust is less than 10% of the
Outstanding Shares or (iii) the Voting Trustees determine to terminate the
Management Voting Trust. Pursuant to an irrevocable unanimous written consent of
the Voting Trustees, the Management Voting Trust will terminate 24 months after
the consummation of the Offerings, assuming no earlier termination in accordance
with its terms.
The Management Voting Trust has issued and will issue voting trust
certificates ("Voting Trust Certificates") representing the shares of Common
Stock and Money Market Preferred Stock deposited with it. The Voting Trust
Certificates will be subject to the transfer restrictions set forth in the
Amended Stockholders' Agreement. See "-- The Stockholders' Agreement."
Y&R has agreed to assume all liability and indemnify and defend all Voting
Trustees and their successors, assigns, agents and servants from any and all
losses incurred or asserted against any Voting Trustees relating to their
administration of the Management Voting Trust, unless there is clear and
convincing evidence that such losses were proximately caused by an act or
omission that was not taken in good faith or not reasonably believed to be in
the best interest of Y&R and the Management Investors as a group. See
"Management -- Limitation of Liability and Indemnification."
Under the Management Voting Trust Agreement and certain stock option and
restricted stock agreements, each of the Management Investors is subject to
certain non-competition, non-solicitation, confidentiality and notice
requirements in connection with the termination of such person's employment.
They include the following: (i) for one year after termination of employment, a
Management Investor may not work for any competitor of Y&R on the account of any
client of Y&R or any of its affiliates with whom such Management Investor had a
direct relationship or as to which such Management Investor had a significant
supervisory responsibility or otherwise was significantly involved at any time
during the two years prior to termination; (ii) for six months after termination
of employment, (a) a Management Investor with principally corporate type job
responsibilities that do not principally involve client service related
functions may not work for a principal competitor of Y&R or any of its
affiliates in any substantially similar role as that held with Y&R or any of its
affiliates during the two years prior to termination, and (b) a Management
Investor with principally client service related responsibilities may not work
for a competitor of Y&R or its affiliates on the account of any substantial
competitor (or directly for such competitor) of any client of Y&R or any of its
affiliates for whom such Management Investor had substantial responsibility
during the two years prior to
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termination; (iii) for one year after termination of employment, a Management
Investor may not (a) directly or indirectly solicit or hire, or assist in the
soliciting or hiring of, any person employed by Y&R or any of its affiliates as
of the date of termination or any person who was then being recruited by Y&R or
any of its subsidiaries or (b) induce any such employee to terminate his or her
employment with Y&R or any of its affiliates; (iv) a Management Investor shall
keep confidential information of Y&R, its affiliates and their clients learned
during his or her employment and (v) a Management Investor shall give six weeks
written notice prior to voluntary termination unless a shorter period is
approved by the Company.
Y&R has agreed, under the Management Voting Trust Agreement, to give each
Management Investor six months severance pay upon termination of employment for
any reason other than for cause (as defined), and each Management Investor is
required to waive any possible right to more than six months' severance pay (or
similar compensation) (and any claims for damages under any employment
agreement). Y&R has the right under the Stockholders' Agreement to offset
against any payments to be made in connection with the purchase of securities
from a Management Investor in connection with his or her termination of
employment (i) any severance or similar obligations to be paid to such
Management Investor in excess of or in addition to six months severance pay
required to be made under applicable law despite such Management Investor's
waiver of entitlement thereto, as provided in the Management Voting Trust
Agreement) and (ii) any damages or expenses incurred as a result of any
malfeasance by such Management Investor or a breach by such Management Investor
of the covenants described in the preceding paragraph.
THE STOCKHOLDERS' AGREEMENT
In connection with the Recapitalization, the Recapitalization Investors,
the Management Investors, the Restricted Stock Trust, the Management Voting
Trust and Y&R entered into a stockholders' agreement (the "Stockholders'
Agreement") with respect to the restrictions on transferability of shares of
Common Stock and related Voting Trust Certificates, and with respect to the
management of Y&R.
Upon consummation of the Offerings, the Stockholders' Agreement will be
terminated as to certain parties and the H&F Investors, the Management
Investors, the Restricted Stock Trust, the Management Voting Trust and Y&R will
enter into an amended and restated stockholders' agreement (the "Amended
Stockholders' Agreement").
RIGHT TO NOMINATE DIRECTORS. Under the Amended Stockholders' Agreement,
the H&F Investors will have the right to nominate and have elected two members
of the Company Board for so long as they continue to hold, in the aggregate, at
least 10% of the Outstanding Shares, and one member of the Board for so long as
they continue to hold, in the aggregate, at least 5% of the Outstanding Shares.
Outstanding Shares is defined in the Stockholders' Agreement to include all
shares of Common Stock subject to vested options (not including options which
would vest on a change in control).
TRANSFER RESTRICTIONS. Under the Amended Stockholders' Agreement, the
transfer restrictions described below will apply. Purported transfers in
violation of these restrictions will be null and void.
H&F Investors may not transfer shares of Common Stock, options to purchase
Common Stock or other voting capital stock, (i) prior to termination of the
Management Voting Trust (which will occur no later than the second anniversary
of the consummation of the Offerings), if at least 20% of the Outstanding Shares
are then subject to the Management Voting Trust, to any party who as a result
thereof would (together with its affiliates) own a percentage of the Outstanding
Shares which is greater than the percentage then subject to the Management
Voting Trust, or (ii) after such termination of the Management Voting Trust and
(A) prior to the first anniversary of such termination, to any party who as a
result thereof would (together with its affiliates) own a percentage of the
Outstanding Shares which is greater than the greater of (1) 20% and (2) the
percentage of the Outstanding Shares subject to the Management Voting Trust upon
termination thereof (the "Termination Percentage") less 5% and (B) from and
after the first anniversary of such termination until December 12, 2002, to any
party who as a result thereof would (together with its affiliates) own a
percentage of the Outstanding Shares which is greater than the greater of (1)
20% and (2) the Termination Percentage less 10%, unless, in any such case (A)
Y&R fails to arrange for the sale of such shares to a third party for the
benefit of the H&F Investors at a price to the H&F Investors not less than the
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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 a result thereof (together with its affiliates)
would own more than 20% of the Outstanding Shares are subject to a right of
first refusal by each of Y&R and the H&F Investors, exercisable in that order.
CERTAIN TRANSFER RESTRICTIONS
The following transfer restrictions apply to shares of Common Stock issued
to Management Investors pursuant to Regulation S under the Securities Act, but
will not apply to shares of Common Stock sold in the Offerings. Under the
Company's By-Laws, any direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition (a "Transfer") of legal or
beneficial ownership of any stock heretofore or hereafter issued and sold by the
Company pursuant to Regulation S under the Securities Act of 1933, as amended
(the "Securities Act"), may be made only (i) pursuant to an effective
registration statement under the Securities Act or (ii) pursuant to a
transaction that is exempt from, or not subject to, the registration
requirements of the Securities Act. Neither the Company nor any employee or
agent of the Company shall record any Transfer prohibited by the preceding
sentence, and the purported transferee of such a prohibited Transfer (the
"Purported Transferee") shall not be recognized as a securityholder of the
Company for any purpose whatsoever in respect of the security or securities that
are the subject of the prohibited Transfer. The Purported Transferee shall not
be entitled, with respect to such securities, to any rights of a securityholder
of the Company, including without limitation, in the case of securities that are
Common Stock, the right to vote such Common Stock or to receive dividends or
distributions in respect thereof, if any. All certificates representing
securities subject to the transfer restrictions set forth in this Article V
shall bear a legend to the effect that the securities represented by such
certificates are subject to such restrictions, unless and until the Company
determines in its sole discretion that such legend may be removed consistent
with applicable law.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of the Company has any preemptive right to
subscribe for or purchase any kind or class of securities of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York.
RIGHTS PLAN
The Company has adopted the Rights Plan and expects to enter into a Rights
Agreement (the "Rights Agreement") between the Company and The Bank of New York,
as Rights Agent (the "Rights Agent"), prior to consummation of the Offerings. In
connection with the Rights Plan, the Board has declared a dividend distribution
of one Right for each share of Common Stock outstanding immediately prior to
consummation of the Offerings and after the Stock Split (the "Record Date"). The
dividend is payable immediately prior to consummation of the Offerings. The
Company will distribute one associated Right with each share of Common Stock
distributed in the Offerings. The terms of the Rights are set forth in the
Rights Agreement. The Company's Charter authorizes the Board to adopt a
stockholder rights plan such as the Rights Plan.
Each Right entitles the registered holder under certain circumstances to
purchase from the Company one one-hundredth of a share of Junior Preferred Stock
at a purchase price of $ , subject to adjustment (the "Purchase
Price"). The Purchase Price shall be payable in cash or by certified check or
bank draft.
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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 to elect one director voting as a class. In
the event of any merger, consolidation or other transaction in which shares of
Common Stock are exchanged, each share of Junior Preferred Stock will be
entitled to receive 100 times the amount received per share of Common Stock.
These rights are protected by customary anti-dilution provisions. Because of the
nature of their dividend, liquidation and voting rights, the value of the
one-one-hundredth interest in a share of Junior Preferred Stock purchasable upon
exercise of each Right should approximate the value of one share of Common
Stock.
Until the close of business on the earlier of (i) the tenth business day
after the Stock Acquisition Date (as defined below) and (ii) the tenth business
day (or such later day as may be determined by action of the Company Board prior
to such time as any person becomes an Acquiring Person (as defined below)) after
the date of the commencement by any person (other than any Company Entity (as
defined below)) of, or the first public announcement of the intent of any person
(other than any Company Entity) to commence (which intention to commence remains
in effect for five business days after such announcement), a tender or exchange
offer the consummation of which would result in any person becoming an Acquiring
Person (the earlier of the dates referred to in clauses (i) and (ii) above being
herein referred to as the "Distribution Date"), the Rights will be evidenced by
the certificates representing shares of Common Stock and no separate Right
Certificates (as defined below) will be issued or distributed. All shares of
Common Stock outstanding as of the Record Date or issued prior to the earlier of
the Distribution Date or the Expiration Date will be issued with Rights.
The term "Stock Acquisition Date" means the time and day of the first
public announcement (which includes, without limitation, the filing of a report
pursuant to the Exchange Act) by the Company or an Acquiring Person indicating
that an Acquiring Person has become such.
The term "Acquiring Person" means (i) any person (other than the H&F
Investors and other than any Permitted H&F 15% Transferee (as defined below))
who or which, together with all affiliates and associates of such person,
acquires beneficial ownership (as defined in the Rights Agreement) of 15% or
more of the then outstanding shares of Common Stock (other than as a result of
an Approved Offer (as defined below)), or (ii) the H&F Investors if, after the
Offerings, the H&F Investors, together with all of their affiliates and
associates, acquire beneficial ownership of any additional shares of Common
Stock such that following such acquisition (A) the H&F Investors beneficially
own in excess of 15% of the then outstanding shares of Common Stock and (B) if
the Management Voting Trust is then in existence, following such acquisition the
H&F Investors beneficially own a greater percentage of the Diluted Shares
Outstanding than the percentage of the Diluted Shares Outstanding subject to the
Management Voting Trust at the time of such acquisition (it being understood
that neither sales by, nor termination of, the Management Voting Trust will
trigger this provision absent a subsequent acquisition of beneficial ownership
of additional shares by the H&F Investors or any of their affiliates or
associates) or (iii) any Permitted H&F 15% Transferee if contemporaneously with
or subsequent to the transfer from the H&F Investors that resulted in such
person becoming a Permitted H&F 15% Transferee, such Permitted H&F 15%
Transferee, together with all affiliates and associates of such Permitted H&F
15% Transferee, acquires beneficial ownership of any additional shares;
provided, however, that (1) a person shall not become an Acquiring Person if
such person, together with all of its affiliates and associates, becomes the
beneficial owner of 15% or more (in the case of clause (i) above) of the then
outstanding shares of Common Stock as a result of a reduction in the number of
shares of Common Stock outstanding due to the repurchase of shares of Common
Stock by the Company, unless and until such time as such person purchases or
otherwise becomes (as a result of actions taken by such person or any of its
affiliates or associates) the beneficial owner of any additional shares of
Common Stock; (2) the term "Acquiring
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Person" shall not include any Company Entity; and (3) the term "Acquiring
Person" shall not include any person who or which, together with all affiliates
and associates of such person, becomes the beneficial owner of 15% or more of
the then outstanding shares of Common Stock (in the case of clause (i) above) or
any additional shares of Common Stock (in the case of clauses (ii) and (iii)
above) but who acquired beneficial ownership of shares of Common Stock
inadvertently, and such person promptly (and in any event within 10 business
days after being so requested by the Company) enters into an irrevocable
commitment satisfactory to the Company Board promptly (and in any event within
20 business days or such shorter period as shall be determined by the Company
Board) to divest, and thereafter promptly divests as required by such
commitment, sufficient shares of Common Stock so that such person, together with
all of its affiliates and associates, ceases to be a beneficial owner of 15% or
more of the then outstanding shares of Common Stock (in the case of clause (i)
above) or any additional shares of Common Stock (in the case of clauses (ii) and
(iii) above).
The term "Company Entity" means any of the Company, any wholly owned
subsidiary of the Company, any employee benefit plan or employee stock plan of
the Company or any wholly owned subsidiary of the Company, any person or entity
holding shares of Common Stock which was organized, appointed or established by
the Company or any such wholly owned subsidiary for or pursuant to the terms of
any such plan, the Management Voting Trust, the Restricted Stock Trust, the
trustees under the Management Voting Trust or the Restricted Stock Trust, any
affiliate or associate of the Management Voting Trust or the Restricted Stock
Trust or any trustee under either such trust and any group that includes the
Management Voting Trust, the Restricted Stock Trust, any trustee under either
such trust or any affiliate or associate thereof.
The term "Permitted H&F 15% Transferee" means any person who is a Permitted
H&F Transferee (as defined below) who or which, immediately after the transfer
from the H&F Investors that resulted in such person becoming a Permitted H&F
Transferee, together with all affiliates and associates of such person, is the
beneficial owner of 15% or more of the then outstanding shares of Common Stock.
The term "Permitted H&F Transferee" means any person that acquires
beneficial ownership of shares of Common Stock from the H&F Investors pursuant
to a transfer that is either not restricted under, or occurs in compliance with,
the transfer restrictions applicable to the H&F Investors set forth in the
Amended Stockholders' Agreement.
The term "Approved Offer" means a tender offer or exchange offer for all
the outstanding shares of Common Stock which is at a price and on terms
approved, prior to the acceptance for payment of shares under such tender or
exchange offer, by the Company Board.
The term "Diluted Shares Outstanding" as of any given time means the sum of
(a) the number of shares of Common Stock then issued and outstanding (including
all shares of Common Stock held in the Restricted Stock Trust) and (b) the
number of shares of Common Stock issuable upon exercise of the (1) HFCP Options
(as defined in the Amended Stockholders' Agreement) and the Rollover Options and
(2) all other options, warrants and rights to acquire, and the conversion of any
securities convertible into, shares of Common Stock, to the extent such rights
to acquire shares of Common Stock are then exercisable. For purposes of clause
(ii)(B) of the definition of "Acquiring Person" above, when calculating the
percentage of the Diluted Shares Outstanding owned by the H&F Investors or the
Management Voting Trust, as the case may be, the H&F Investors or the Management
Voting Trust, as the case may be, shall be deemed to own all shares of Common
Stock beneficially owned by them assuming the exercise of all of their options,
warrants and rights to acquire, and the conversion by them of any securities
convertible into, shares of Common Stock to the extent, but only to the extent,
such rights to acquire shares of Common Stock are then exercisable by them. For
purposes of calculating the percentage of Diluted Shares Outstanding owned by
the Management Voting Trust, the Management Voting Trust shall be deemed to own
all shares of Common Stock (including all shares of Common Stock required to be
deposited thereunder upon exercise of vested options) then subject to the
Management Voting Trust.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Certificates
representing shares of Common Stock issued after the Record Date
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and prior to the earlier of the Distribution Date and the Expiration Date will
contain a legend incorporating the Rights Agreement by reference. Until the
Distribution Date, the surrender for transfer of any of the certificates
representing shares of Common Stock outstanding as of the Record Date or issued
prior to the Distribution Date will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate and the number
of Rights associated with each share of Common Stock will be proportionately
adjusted in the event of any dividend in Common Stock on the Common Stock or
subdivision, combination or reclassification of the Common Stock. In the event
that the Company purchases or acquires any shares of Common Stock after the
Record Date but prior to the Distribution Date, any Rights associated with such
shares of Common Stock shall be deemed canceled and retired so that the Company
shall not be entitled to exercise any Rights associated with the shares of
Common Stock which are no longer outstanding. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of Common Stock as of the
close of business on the Distribution Date and such separate Rights Certificates
alone will evidence the Rights. The Rights are not exercisable until the
Distribution Date. The Rights will expire at the close of business on May 31,
2008, unless they have previously expired in connection with an Approved Offer
(as described in the Rights Agreement) or they are exchanged for shares of
Common Stock or have been previously redeemed by the Company as described below.
Immediately upon the Stock Acquisition Date, proper provision shall be made
so that each holder of a Right will thereafter have the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a preexisting market value (as of shortly
before the Stock Acquisition Date), equal to two times the then current Purchase
Price of the Right. Notwithstanding any of the foregoing, following the
occurrence of the Stock Acquisition Date, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person and certain related parties will become null and void.
To illustrate the rights described in the preceding paragraph, at a
Purchase Price of $ per Right, each Right not owned by an Acquiring Person
(or by certain related parties) following an event set forth in the preceding
paragraph would entitle its holder to purchase Common Stock (or other
consideration, as noted above) with a preexisting market value of $ for
$ . Assuming that the Common Stock has a preexisting market value of
$ at such time, the holder of each Right would be entitled to purchase six
shares of Common Stock for $ .
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business consolidation transaction,
(ii) the Company is the surviving corporation in a merger or other business
consolidation with any person and the Common Stock is changed into or exchanged
for stock or other securities of any other person or cash or any other property
(other than, in the case of any transaction described in (i) or (ii), a merger
or consolidation which would result in all of the voting securities of the
Company outstanding immediately prior thereto continuing to represent all of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation and holders of such securities
not having changed as a result of such merger or consolidation) or (iii) 50% or
more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights that previously have been voided as set forth
above) shall thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a market value equal to two times the then
current Purchase Price of the Right.
The Purchase Price payable, and the fraction of a share of Junior Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Junior Preferred Stock (prior to the Distribution Date) or the Common Stock,
(ii) if holders of the Junior Preferred Stock are granted certain rights or
warrants to subscribe for Junior Preferred Stock or convertible securities at
less than the current market price of the Junior Preferred Stock, or (iii) upon
the distribution to holders of the Junior Preferred Stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends below certain
levels or dividends payable in shares of Junior Preferred Stock) or of
subscription rights or warrants (other than those referred to above).
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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 which
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person) or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to adjust the
time period governing redemption or to modify the ability (or inability) of the
Board to redeem the Rights shall be made at such time when the Rights are not
redeemable.
As long as the Rights are attached to the Common Stock, the Company will
issue one Right for each share of Common Stock issued prior to the Distribution
Date so that all such shares will have attached Rights. Two million five hundred
thousand shares of Junior Preferred Stock will initially be reserved for
issuance upon exercise of the Rights.
The Rights have certain anti-takeover effects. See "-- Anti-Takeover
Effects of Certain Provisions of the Charter, the By-Laws, the Rights Plan and
Delaware Law."
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the Rights Agreement, which is filed as an exhibit to
the Registration Statement and is incorporated herein by reference.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CHARTER, THE BY-LAWS, THE
RIGHTS PLAN AND DELAWARE LAW
The Company's Charter, the Company's By-Laws, the Rights Plan and the DGCL
contain certain provisions that could make more difficult the acquisition of
control of the Company by means of a tender offer, open market purchases, a
proxy contest or otherwise. Set forth below is a description of such provisions
in the Company's Charter, the Company's By-Laws, the Rights Plan and the DGCL.
The following description is intended as a summary only and is qualified in its
entirety by reference to the Company's Charter, the Company's By-Laws and the
Rights Agreement, the forms of which are included as exhibits to the
Registration Statement of which this Information Statement forms a part, and to
the DGCL. Upon consummation of the Offerings, the Management Voting Trust will
hold approximately 54.2% of the outstanding shares of Common Stock (assuming the
exercise of all currently vested options), which could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. See "Description of Capital Stock -- The Management Voting Trust
Agreement."
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The Company's Charter
provides that the number of Directors shall be not less than five nor more than
fifteen, with the exact number of Directors to be
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determined from time to time by a majority of the entire Board. The Directors
shall be divided into three classes, as nearly equal in number as is possible,
serving staggered three-year terms so that Directors' initial terms will expire
at the annual meeting of the Company's stockholders held in 1999, 2000 and 2001,
respectively. Starting with the 1999 annual meeting of the Company's
stockholders, one class of Directors will be elected each year for a three-year
term. See "Management."
The Company believes that a classified Board will help to assure the
continuity and stability of the Board and the Company's business strategies and
policies, since a majority of the Directors at any given time will have had
prior experience as Directors of the Company. The Company believes that this in
turn will permit the Board to represent more effectively the interests of
stockholders.
With a classified Board, at least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the members of the Board. As a result, the classification of the Board of the
Company may discourage proxy contests for the election of Directors, unsolicited
tender offers or purchases of a substantial block of the Common Stock because it
could prevent an acquirer from obtaining control of the Board in a relatively
short period of time. In addition, pursuant to the DGCL and the Company's
Charter, a Director may be removed only for cause and only by the affirmative
vote of holders of not less than 80% of the outstanding shares of Common Stock
entitled to vote thereon. As a result, a classified Board delays stockholders
who do not agree with the policies of the Board from replacing Directors, unless
they can demonstrate that the Directors should be removed for cause and obtain
the requisite vote. Such a delay may help ensure that the Company Board, if
confronted with a proxy contest or an unsolicited proposal for an extraordinary
corporate transaction, will have sufficient time to review the proposal and
appropriate alternatives to the proposal and to act in what it believes is the
best interest of the Company's stockholders.
FILLING VACANCIES ON THE BOARD. The Company's Charter provides that,
subject to the rights of holders of any shares of Preferred Stock, any vacancy
in the Board that results from an increase in the number of Directors may be
filled only by a majority of the Directors then in office, provided that a
quorum is present, and any other vacancy may be filled by a majority of the
Directors then in office, even if less than a quorum, or by the sole remaining
Director. Accordingly, these provisions could temporarily prevent any
stockholder from obtaining majority representation on the Board by enlarging the
Board and filling the new Directorships with its own nominees.
WRITTEN CONSENTS AND SPECIAL MEETINGS. The Company's Charter provides that
no action required or permitted to be taken at any annual or special meeting of
stockholders may be taken by stockholders of the Company except at such a
meeting of stockholders. The Company's By-Laws provide that special meetings of
stockholders may be called only by the Chairman of the Board or the Company
Board. Stockholders are not permitted to call a special meeting or to require
that the Board call a special meeting of stockholders. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited to
the purpose or purposes specified in the written notice of such meeting. The
provisions of the Company's Charter prohibiting action by written consent
without a meeting and the provisions of the Company's By-Laws governing the
calling of and matters considered at special meetings may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting.
These provisions would also prevent the holders of a majority of the voting
power of the outstanding shares of stock entitled to vote generally in the
election of Directors from using the written consent procedure to take
stockholder action and from taking action by written consent without giving all
the stockholders entitled to vote on a proposed action the opportunity to
participate in determining such proposed action at a meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS. The
Company's By-Laws establish an advance notice provision with regard to the
nomination, other than by or at the direction of the Board, of candidates for
election as Directors, or the bringing before any annual meeting of any
stockholder proposal (the "Notice of Meeting Provision").
The Notice of Meeting Provision provides that, subject to any rights of
holders of any Preferred Stock, business other than that proposed by the Board
may be transacted and candidates for Director other than those selected by the
Board may be nominated at the annual meeting only if the Secretary of the
Company has received a written notice identifying such business or candidates
and providing specified additional information not less than ninety nor more
than one hundred twenty days before the first Tuesday in June (or, if the Board
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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 Company's By-Laws do not give the Board any power to approve or
disapprove stockholder nominations for the election of Directors or proposals
for action, they may have the effect of precluding a contest for the election of
Directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of Directors or to approve its
proposal without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to the Company and its stockholders.
RESTRICTIONS ON AMENDMENT. The Company's Charter provides that the
approval of holders of at least 80% of the voting power entitled to vote
generally in the election of Directors, voting together as a single class, is
required to adopt any charter provision inconsistent with or to alter, amend or
repeal the provisions of the Company's Charter classifying the Board; governing
the removal of directors; establishing the minimum and maximum number of members
of the Board; eliminating the ability of stockholders to act by written consent;
authorizing the Board to consider the interests of clients and other customers,
creditors, employees and other constituencies of the Corporation and its
subsidiaries and the effect upon communities in which the Corporation and its
subsidiaries do business, in evaluating proposed corporate transactions;
establishing the Board's authority to issue, without a vote or any other action
of the stockholders, any or all authorized shares of stock of the Corporation,
securities convertible into or exchangeable for any authorized shares of stock
of the Corporation and warrants, options or rights to purchase, subscribe for or
otherwise acquire shares of stock of the Corporation for any such consideration
and on such terms as the Board in its discretion lawfully may determine; and
authorizing that the By-Laws of the Corporation may establish procedures
regulating the submission by stockholders of nominations and proposals for
consideration at meetings of stockholders of the Corporation. In addition, the
Company's Charter provides that the approval of the Board or the affirmative
vote of the holders of 80% of the voting power entitled to vote generally in the
election of Directors, voting together as a single class, is required to alter,
amend or repeal the above provisions of the Company's Charter or to adopt any
provision of the Charter inconsistent with such provisions or to alter, amend or
repeal certain provisions of the Company's By-Laws or to adopt any provision of
the By-Laws inconsistent with such provisions.
PREFERRED STOCK. Subject to the Company's Charter and applicable law, the
authority of the Company Board with respect to each series of Preferred Stock,
excluding the Money Market Preferred Stock, includes but is not limited to the
authority to generally determine the following: the designation of such series,
the number of shares initially constituting such series and whether to increase
or decrease such number of shares, dividend rights and rates, terms of
redemption and redemption prices, liquidation preferences, voting rights,
conversion rights, whether a sinking fund will be provided for the redemption of
the shares of such series (and, if so, the terms and conditions thereof) and
whether a purchase fund shall be provided for the shares of such series (and, if
so, the terms and conditions thereof).
The Company believes that the availability of the Preferred Stock will
provide increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs that might arise. Having such
authorized shares available for issuance will allow the Company to issue shares
of Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as
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well as shares of Common Stock, will be available for issuance without further
action by the stockholders, unless such action is required by applicable law or
the rules of any stock exchange on which the Company's securities may be listed.
Although the Board has no current intention to do so, it would have the power
(subject to applicable law) to issue a series of Preferred Stock that could,
depending on the terms of such series, impede the completion of a merger, tender
offer or other takeover attempt. For instance, subject to applicable law, such
series of Preferred Stock might impede a business combination by including class
voting rights that would enable the holder to block such a transaction. The
Board will make any determination to issue such shares based on its judgment as
to the best interests of the Company and its stockholders. The Board, in so
acting, could issue Preferred Stock having terms which could discourage an
acquisition attempt or other transaction that some, or a majority, of the
stockholders might believe to be in their best interest or in which stockholders
might receive a premium for their stock over the then market price of such
stock. See "-- Rights Plan."
OTHER CONSIDERATIONS. Article XII of the Company's Charter generally
provides that, in determining whether to take or refrain from taking corporate
action on any matter, including proposing any matter to the stockholders of the
Company, the Company Board may, but shall not be obligated to, take into account
the interests of clients and other customers, creditors, employees and other
constituencies of the Company and its subsidiaries and the effect upon
communities in which the Company and its subsidiaries do business.
CERTAIN EFFECTS OF THE RIGHTS PLAN. The Rights Plan is designed to protect
stockholders of the Company in the event of unsolicited offers to acquire the
Company and other coercive takeover tactics which, in the opinion of the Board,
could impair its ability to represent stockholder interests. The provisions of
the Rights Agreement may render an unsolicited takeover of the Company more
difficult or less likely to occur or might prevent such a takeover, even though
such takeover may offer the Company's stockholders the opportunity to sell their
stock at a price above the then prevailing market rate and may be favored by a
majority of the Company's stockholders. See "-- Rights Plan." The Company's
Charter authorizes the Board to adopt a stockholder rights plan.
DELAWARE BUSINESS COMBINATION STATUTE. The terms of Section 203 of the
DGCL apply to the Company. With certain exceptions, Section 203 generally
prohibits an "interested stockholder" from engaging in a broad range of
"business combination" transactions, including mergers, consolidations and sales
of 10% or more of a corporation's assets, with a Delaware corporation for three
years following the date on which such person became an interested stockholder
unless (i) the transaction that results in the person's becoming an interested
stockholder or the business combination is approved by the board of directors of
the corporation before the person becomes an interested stockholder, (ii) upon
consummation of the transaction which results in the stockholder becoming an
interested stockholder, the interested stockholder owns 85% or more of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also officers
and shares owned by certain employee stock plans, or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by holders of at least
two-thirds of the corporation's outstanding voting stock, excluding shares owned
by the interested stockholder, at a meeting of stockholders. Under Section 203,
an "interested stockholder" is generally defined as any person (and the
affiliates and associates of any such person), other than the corporation and
any direct or indirect majority-owned subsidiary, that is (a) the owner of 15%
or more of the outstanding voting stock of the corporation or (b) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder. The restrictions contained in
Section 203 do not apply to a corporation that so provides in an amendment to
its certificate of incorporation or by-laws passed by a majority of its
outstanding voting shares, but such stockholder action generally does not become
effective for 12 months following its adoption and would not apply to persons
who were already interested stockholders at the time of the amendment. The
Company's Charter and Company's By-Laws do not exclude the Company from the
restrictions imposed under Section 203, but the Company's Charter provides that
in no case shall the H&F Investors or any person who is a Permitted H&F
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.
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Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring the Company to
negotiate in advance with the Company Board, because the stockholder approval
requirement would be avoided if the Board approves either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder. Such provisions also may have the effect of preventing
changes in the Board. It is further possible that such provisions could make it
more difficult to accomplish transactions which stockholders may otherwise deem
to be in their best interests.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no market for the Common Stock and
there is no assurance that a significant public market for the Common Stock will
develop or be sustained after the Offerings. Sales of substantial amounts of
Common Stock in the public market following the Offerings could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through the sale of its equity securities.
Upon the closing of the Offerings, the Company will have outstanding
66,228,322 shares of Common Stock. Of these shares, approximately (i) 20,239,045
shares will be freely tradeable by persons, other than "affiliates" of the
Company, without restriction under the Securities Act of 1933, as amended (the
"Securities Act"); (ii) 44,952,822 shares will be "restricted" securities,
within the meaning of Rule 144 under the Securities Act, and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption provided by Rule 144; and
(iii) 1,036,455 shares originally issued pursuant to Regulation S under the
Securities Act will be subject to transfer restrictions thereunder.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated),
including any affiliate of the Company, who has beneficially owned restricted
securities for at least one year (including the holding period of any prior
owner except an affiliate of the Company) would be entitled to sell within any
three-month period, a number of shares that does not exceed the greater of: (i)
one percent of the number of Common Stock then outstanding (approximately
662,283 shares immediately after the Offerings); or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned restricted
securities for at least two years (including the holding period of any prior
owner except an affiliate of the Company), is entitled to sell such shares
without complying with the manner of sale, public information requirements,
volume limitations or notice requirements of Rule 144. Sale of shares by
affiliates of the Company will continue to be subject to such volume
limitations, and manner of sale, notice and public information requirements.
Each of the Company, all of the Management Investors, the Directors, and
the Recapitalization Investors, including the Selling Stockholders, who, upon
consummation of the Offerings, will collectively be the beneficial owners of an
aggregate of 49,628,322 shares of Common Stock and hold vested options to
acquire an aggregate of 16,702,950 shares of Common Stock have agreed not to (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise), without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation and Bear,
Stearns & Co. Inc. (and, in the case of Management Investors, the Company), for
a period of 180 days after the date of this Prospectus (except that (i) the
Company may grant stock options or stock awards pursuant to the Company's
existing benefit or compensation plans, (ii) the Company may issue shares of
Common Stock upon the exercise of options, warrants or Rights or the conversion
of currently outstanding securities, (iii) the H&F Investors may transfer shares
of Common Stock to partners or affiliates thereof in transactions not involving
a public offering provided that each transferee agrees in writing to be bound by
the restrictions set forth in this paragraph and (iv) the Company may issue,
offer and sell shares of Common Stock or securities convertible, exercisable or
exchangeable therefor in transactions not involving a public offering as
consideration for the acquisition (pursuant to merger or otherwise) of one or
more entities provided that each recipient of such securities agrees in writing
to be bound by the restrictions set forth in this paragraph). In addition,
during such period, the Company has also agreed not to file any registration
statement with respect to, and the Company's executive officers and Directors,
and certain other stockholders, including the Selling Stockholders, have agreed
not to make any demand for, or exercise any right with respect
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to, the registration of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation and Bear, Stearns
& Co. Inc., except that the Company may file a registration statement on Form
S-8 under the Act to register the shares of Common Stock issuable upon the
exercise of options and the sale by certain employees of shares of Common Stock
issuable upon the exercise of currently outstanding options (which sales will be
subject to the 180-day lock-up agreements described above). The Company intends
to file a registration statement on Form S-8 under the Act on or shortly after
the date of consummation of the Offerings. See "Underwriting."
REGISTRATION RIGHTS AGREEMENT
In connection with the Recapitalization, Y&R, the Recapitalization
Investors and the Management Voting Trust entered into a Registration Rights
Agreement in favor of the Recapitalization Investors and, to the extent
necessary to permit a Management Investor to pay taxes when such sales would not
otherwise be permitted, the Management Investors, under which registration
rights are available after the consummation of the Offerings. Pursuant to the
Registration Rights Agreement, effective upon consummation of the Offerings, the
Company has granted (i) the Recapitalization Investors the right to require,
subject to the terms and conditions set forth therein, the Company to register
shares of Common Stock held by them for sale in accordance with their intended
method of disposition thereof and (ii) the Management Voting Trust the right to
require, subject to the terms and conditions set forth therein, the Company to
register such number of shares of Common Stock as is necessary to permit
Management Investors to pay taxes as a result of the exercise by such Management
Investors of Rollover Options or Closing Options or the vesting of Restricted
Stock awarded to such Management Investors (each a "demand registration"),
provided that in the case of the Management Voting Trust no such request may be
made without the consent of the Company. Subject to certain limitations, the
Recapitalization Investors may request up to four demand registrations and the
Management Voting Trust may request up to two demand registrations. The Company
will not be required to effect any demand registration if (i) the aggregate
market value of the shares of Common Stock proposed to be registered is less
than $100 million or (ii) such demand registration is requested by the
Recapitalization Investors or the Management Voting Trust within six months of
the effective date of a prior demand registration requested by the
Recapitalization Investors or the Management Voting Trust, respectively. The
Company may postpone the filing of a demand registration for up to 60 days in
certain circumstances.
In addition, the Company has granted the Recapitalization Investors and the
Management Voting Trust (to the extent of such number of shares of Common Stock
as is necessary to permit Management Investors to pay taxes as a result of the
exercise by such Management Investors of Rollover Options or Closing Options or
the vesting of Restricted Stock awarded to such Management Investors) the right,
subject to certain exceptions, to participate in registrations of Common Stock
initiated by the Company on its own behalf or on behalf of any other stockholder
(a "piggy-back registration"). The Recapitalization Investors and the Management
Voting Trust (on behalf of those Management Investors that are Selling
Stockholders) have exercised these piggy-back registration rights in connection
with the Offerings.
The Registration Rights Agreement provides that if requested by the
managing underwriter(s) of any underwritten offering of shares of Common Stock,
the Recapitalization Investors and the Management Voting Trust will agree, on
the same terms applicable to officers and directors of the Company, not to
effect any public sale or distribution of any shares of Common Stock for a
period of up to 180 days following and 15 days prior to the date of the final
prospectus contained in the registration statement filed in connection with such
offering. See "Underwriting."
The Company is required to pay expenses incurred by it and the reasonable
fees and disbursements of one counsel to the selling stockholders under the
Registration Rights Agreement in connection with the demand and piggy-back
registrations under the Registration Rights Agreement. In connection with any
registration under the Registration Rights Agreement, the Company has agreed to
indemnify five of the Recapitalization Investors against certain liabilities,
including liabilities under the Securities Act, and to contribute to certain
payments they may be required to make. The Registration Rights Agreement will
terminate on December 12, 2011.
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<PAGE> 78
CERTAIN U.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
person that, for U.S. federal income tax purposes, is not a U.S. Person (a
"non-U.S. holder"). For purposes of this Section a "U.S. Person" means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source or a trust if (i) a U.S. court
is able to exercise primary supervision over the trust's administration and (ii)
one or more United States persons have the authority to control all of the
trust's substantial decisions, and the term "United States" means the U.S. of
America (including the States and the District of Columbia). The discussion does
not consider specific facts and circumstances that may be relevant to a
particular non-U.S. holder's tax position. Accordingly, each non-U.S. holder is
urged to consult its own tax advisor with respect to the U.S. tax consequences
of the ownership and disposition of Common Stock, as well as any tax
consequences that may arise under the laws of any state, municipality, foreign
country or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30 percent rate, or at a
lower rate under an applicable income tax treaty that provides for a reduced
rate of withholding. However, if the dividends are effectively connected with
the conduct by the holder of a trade or business within the United States, then
the dividends will be exempt from the withholding tax described above and
instead will be subject to U.S. federal income tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain realized on a disposition of Common Stock, provided that (a)
the gain is not effectively connected with a trade or business conducted by the
non-U.S. holder in the United States and (b) in the case of a non-U.S. holder
who is an individual and who holds the Common Stock as a capital asset, such
holder is present in the United States for less than 183 days in the taxable
year of the sale and other conditions are met.
FEDERAL ESTATE TAXES
Common Stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will not
apply to dividends paid on Common Stock to a non-U.S. holder address outside the
United States, except that with regard to payments made after December 31, 1998,
a Non-U.S. Holder will be entitled to such an exemption only if it provides a
Form W-8 (or satisfies certain documentary evidence requirements for
establishing that it is a non-United States person) or otherwise establishes an
exemption. As a general matter, information reporting and backup withholding
also will not apply to a payment of the proceeds of a sale of Common Stock
effected outside the United States by a foreign office of a foreign broker.
However, information reporting requirements (but not backup withholding) will
apply to a payment of the proceeds of a sale of Common Stock effected outside
the United States by a foreign office of a broker if the broker (i) is a U.S.
person, (ii) derives 50 percent or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or (iii) is a
"controlled foreign corporation" as to the United States, or (iv) with respect
to payments made after December 31, 1998, is a foreign partnership that, at any
time during its taxable year is 50 percent or more (by income or capital
interest) owned by U.S. persons or is engaged in the conduct of a U.S. trade or
business, unless the broker has documentary evidence in its records that the
holder is a non-U.S. holder and certain conditions are met, or the holder
otherwise establishes an exemption. Payment by a United States office of a
broker of the proceeds of a sale of Common Stock will be subject to both backup
withholding and information reporting unless the holder certifies its non-United
States status under penalties of perjury or otherwise establishes an exemption.
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<PAGE> 79
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the U.S. Underwriters named
below (the "U.S. Underwriters"), who are represented by Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), Bear, Stearns & Co. Inc. ("Bear
Stearns"), Furman Selz LLC, Goldman, Sachs & Co. and Smith Barney Inc. (the
"U.S. Representatives"), and the International Managers named below (the
"International Managers" and, together with the U.S. Underwriters, the
"Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
International ("DLJ International"), Bear, Stearns International Limited, Furman
Selz LLC, Goldman Sachs International and Smith Barney Inc. are acting as
representatives (the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"), have severally agreed to purchase from
the Company and the Selling Stockholders the respective number of shares of
Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Bear, Stearns & Co. Inc. ...................................
Furman Selz LLC.............................................
Goldman, Sachs & Co. .......................................
Smith Barney Inc............................................
----------
Subtotal............................................... 13,280,000
==========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette International..................
Bear, Stearns International Limited.........................
Furman Selz LLC.............................................
Goldman Sachs International.................................
Smith Barney Inc............................................
---------
Subtotal...............................................
=========
Total............................................. 3,320,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the Common Stock, the public offering price and other
selling terms may be changed by the Representatives at any time without notice.
The Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The H&F Investors, H. Irving Grousbeck and American Media Management, Inc.
have granted to the U.S. Underwriters an option, exercisable within 30 days
after the date of this Prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of 2,490,000 additional shares of Common Stock at
the initial public offering price less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option solely to cover over-allotments,
if any, made in connection with the Offerings. To the extent that the U.S.
Underwriters exercise such option, each U.S. Underwriter will become obligated,
subject to certain
76
<PAGE> 80
conditions, to purchase its pro rata portion of such additional shares based on
such U.S. Underwriter's percentage underwriting commitment in the U.S. portion
of the Offerings as indicated in the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, all of the Management Investors, the Directors and the
Recapitalization Investors (including the Selling Stockholders) has agreed not
to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ and
Bear Stearns (and, in the case of Management Investors, the Company) (except
that (i) the Company may grant stock options or stock awards pursuant to the
Company's existing benefit or compensation plans, (ii) the Company may issue
shares of Common Stock upon the exercise of options, warrants or Rights or the
conversion of currently outstanding securities, (iii) the H&F Investors may
transfer shares of Common Stock to partners or affiliates thereof in
transactions not involving a public offering provided that each transferee
agrees in writing to be bound by the restrictions set forth in this paragraph
and (iv) the Company may issue, offer and sell shares of Common Stock or
securities convertible, exercisable or exchangeable therefor in transactions not
involving a public offering as consideration for the acquisition (pursuant to
merger or otherwise) of one or more entities provided that each recipient of
such securities agrees in writing to be bound by the restrictions set forth in
this paragraph). In addition, during such period, the Company has also agreed
not to file any registration statement with respect to, and each of its
executive officers, directors and certain stockholders of the Company (including
the Selling Stockholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without the prior written consent of DLJ and Bear Stearns, except that the
Company may file a registration statement on Form S-8 under the Act to register
the shares of Common Stock issuable upon the exercise of options and the sale by
certain employees of shares of Common Stock issuable upon the exercise of
currently outstanding options (which sales will be subject to the 180-day
lock-up agreements described above). The Company intends to file a registration
statement on Form S-8 under the Act on or shortly after the date of consummation
of the Offerings.
Prior to the Offerings, there has been no established trading market for
the Common Stock. The initial public offering price for the shares of Common
Stock offered hereby will be determined by negotiation between the Company and
the Representatives. The factors to be considered in determining the initial
public offering price include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the prospects for future earnings of the Company, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of the Offerings.
Application has been made to list the Common Stock on the New York Stock
Exchange (the "NYSE"). In order to meet the requirements for listing the Common
Stock on the NYSE, the U.S. Underwriters have undertaken to sell lots of 100 or
more shares to a minimum of 2,000 beneficial owners.
Pursuant to an Agreement Between U.S. Underwriters and International
Managers (the "Intersyndicate Agreement"), each U.S. Underwriter has represented
and agreed that, with certain exceptions, (i) it is not purchasing any shares of
Common Stock offered hereby for the account of anyone other than a United States
or Canadian Person (as defined below) and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any shares of Common Stock
offered hereby or distribute any prospectus relating to such shares of Common
Stock outside the United States or Canada or to anyone other than a United
States or Canadian Person. Pursuant to the Intersyndicate Agreement, each
International Manager has represented and agreed
77
<PAGE> 81
that, with certain exceptions, (i) it is not purchasing any shares of Common
Stock offered hereby for the account of any United States or Canadian Person and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common stock offered hereby or distribute any
prospectus relating to such shares of Common Stock in the United States or
Canada or to any United States or Canadian Person. With respect to any
Underwriter that is both a U.S. Underwriter and an International Manager, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter apply only to it in its capacity as a U.S. Underwriter and (ii)
made by it in its capacity as an International Manager apply only to it in its
capacity as an International Manager. The foregoing limitations do not apply to
stabilization transactions and to certain other transactions specified in the
Intersyndicate Agreement. As used herein, "United States or Canadian Person"
means any individual who is resident in the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under or governed by the laws of the United States or Canada or of any political
subdivision thereof (other than the foreign branch of any United States or
Canadian Person), and includes any United States or Canadian branch of a person
other than a United States or Canadian Person.
Pursuant to the Intersyndicate Agreement, sales may be made between the
syndicates of U.S. Underwriters and International Managers of such number of
shares of Common Stock offered hereby as may be mutually agreed. Unless
otherwise determined by the Representatives, the per share price of any shares
of Common Stock so sold shall be the initial public offering price set forth on
cover page hereof, in United States dollars, less an amount not greater than the
per share amount of the concession to dealers set forth above.
Pursuant to the Intersyndicate Agreement, each U.S. Underwriter has
represented and agreed that (i) it has not offered or sold and will not offer or
sell, directly or indirectly, any shares of Common Stock offered hereby in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and (ii) without limiting the generality of the foregoing, any offer or
sale of such shares of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or territory
of Canada in which such offer or sale is made. Each U.S. Underwriter has further
agreed to send to any dealer who purchases from it any shares of Common Stock
offered hereby a notice stating in substance that by purchasing such shares of
Common Stock such dealer represents and agrees that (i) it has not offered or
sold and will not offer or sell, directly or indirectly, any of such shares of
Common Stock in any province or territory of Canada or to, or for the benefit
of, any resident of any province or territory of Canada in contravention of
securities laws thereof, (ii) any offer or sale of such shares of Common Stock
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer or
sale is made and (iii) it will send to any other dealer to whom it sells any of
such shares of Common Stock a notice containing substantially the same statement
as is contained in this sentence.
Pursuant to the Intersyndicate Agreement, each International Manager has
represented and agreed that (i) it has not offered or sold and, prior to the
date six months after the closing date for the sale of shares of Common Stock to
the International Managers pursuant to the Underwriting Agreement, will not
offer or sell, any shares of Common Stock offered hereby to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the shares
of Common Stock offered hereby in, from or otherwise involving the United
Kingdom; and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
Offerings to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom the document may otherwise lawfully be issued or passed
on.
Pursuant to the Intersyndicate Agreement, each International Manager has
further represented and agreed that it has not offered or sold and will not
offer or sell, directly or indirectly, any shares of Common
78
<PAGE> 82
Stock acquired in connection with the distribution contemplated hereby in Japan
or to or for the account of any resident thereof, except for offers or sales to
Japanese International Managers or dealers and except pursuant to an exemption
from the registration requirements of the Securities and Exchange Law of Japan
and otherwise in compliance with applicable provisions of Japanese law. Each
International manager has further agreed to send to any dealer who purchases
from it any shares of Common Stock offered hereby a notice stating in substance
that by purchasing such shares of Common Stock such dealer represents and agrees
that (i) it has not offered or sold and will not offer or sell, directly or
indirectly, any of such shares on Common Stock in Japan or to or for the account
of any resident thereof, except for offers or sales to Japanese International
Managers or dealers and except pursuant to an exemption from the registration
requirements of the Securities and Exchange Law of Japan and otherwise in
compliance with applicable provisions of Japanese law and (ii) it will send to
any other dealer to whom it sells any of such shares of Common Stock a notice
containing substantially the same statement as is contained in this sentence.
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offerings and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such an offer or a solicitation is unlawful.
In connection with the Offerings, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offerings,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members, if DLJ
repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilization transactions or otherwise or if DLJ receives a
report that indicates that the clients of such syndicate members have "flipped"
the Common Stock. These activities may stabilize or maintain the market price of
the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
830,000 of the shares offered hereby have been reserved for sale to certain
employees of the Company and its majority-owned subsidiaries, certain clients
and certain other persons designated by the Company ("Eligible Participants"),
in each case to the extent permitted by applicable law. The price per share of
the shares to be sold to Eligible Participants will be the same as the price to
the public in the Offerings. The maximum investment of any Eligible Participant
may be limited by the Company in its sole discretion. This program is being
administered by DLJ or DLJ International or, where required by applicable law, a
locally licensed or authorized broker-dealer. It is currently anticipated that
the number of shares to be sold under this program will not exceed 5% of the
number of shares of Common Stock offered in connection with the Offerings.
Bear Stearns from time to time performs investment banking and other
financial services for the Company and its affiliates for which Bear Stearns may
receive advisory or transaction fees, as applicable, plus out-of-pocket
expenses, of the nature and in amounts customary in the industry for such
services. Alan D. Schwartz, an Executive Vice President and Head of the
Investment Banking Department of Bear Stearns, is a member of the Company Board.
BearTel Corp., a company affiliated with Bear Stearns, is a Selling Stockholder
in the Offerings. See "Principal and Selling Stockholders."
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<PAGE> 83
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
Certain legal matters in connection with the Offerings will be passed upon for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1997 and
for each of the three years in the period ended December 31, 1997 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement"), of which
this Prospectus forms a part, covering the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain items of which are omitted as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in its entirety by such
reference.
Following the Offerings, the Company will become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith will be required to file reports and other information with
the Commission. The Registration Statement (including exhibits), as well as such
reports and other information, when so filed, can be inspected without charge
and copied, at prescribed rates, at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
regional offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material may be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates or at the Commission's web site at
http.//www.sec.gov. Such reports and other information may also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, once the Common Stock have been approved for listing.
The Company will furnish its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited consolidated financial statements prepared in
accordance with U.S. generally accepted accounting principles. The financial
statements included in the annual reports will be examined and reported upon,
with an opinion expressed, by the Company's independent auditors.
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<PAGE> 84
[ADDITIONAL PAGE FOR INTERNATIONAL PROSPECTUS]
ADDITIONAL INFORMATION
The following information is required pursuant to the United Kingdom Public
Offers of Securities Regulations 1995. A copy of this document, which comprises
a prospectus prepared in accordance with the Public Offers of Securities
Regulations 1995, has been delivered to the Registrar of Companies in England
and Wales in accordance with Regulation 4(2) of those Regulations.
RESPONSIBILITY
The Directors of the Company accept responsibility for the information
contained in this document. To the best knowledge and belief of such persons
(who have taken all reasonable care to ensure that such is the case), such
information is in accordance with the facts and does not omit anything likely to
affect the import of such information. The business address of Messrs.
Georgescu, Vick, Bell and Dolan is 285 Madison Avenue, New York, New York 10017.
The business address of Messrs. Hellman and Hammarskjold is One Maritime Plaza,
San Francisco, California 94111. The business address of Mr. Schwartz is 245
Park Avenue, New York, New York 10167. The business address of Mr. Bodman is c/o
AT&T Ventures, Chevy Chase Metro Building, 2 Wisconsin Circle, Suite 610, Chevy
Chase, Maryland 20815-7003. The business address of Mr. McGillicuddy is 270 Park
Avenue, 32nd Floor, New York, New York 10017.
DIRECTORS' SERVICE CONTRACTS
Any service contracts with Directors are determinable by the Company upon
less than one year's notice without payment of compensation.
INCORPORATION AND PURPOSE
The Company was incorporated as a corporation with limited liability under
the laws of the State of Delaware in October 1996 under the name "Young &
Rubicam Inc." The Company's Charter provides that the purposes for which the
Company is formed are to engage in any lawful act or activity for which
corporations may be organized and incorporated under the General Corporation Law
of the State of Delaware. The principal offices of the Company in the United
Kingdom are Young & Rubicam Holdings (U.K.) Ltd., Greater London House,
Hampstead Road, London NW1 7QP, United Kingdom.
CONSENT
Price Waterhouse LLP have given and have not withdrawn their written
consent to the inclusion of their report and, for the purposes of paragraph
45(2)(a)(iv) of Schedule 1 of The Public Offers of Securities Regulations 1995,
accept responsibility for the report and have not become aware, since the date
of the audit report, of any matter affecting the validity of the report at that
date. The address of Price Waterhouse LLP is 1177 Avenue of the Americas, New
York, New York 10036.
THE OFFER
The Offering in the United Kingdom will commence on April , 1998 and will
remain open until the date on which the Registration Statement is declared
effective by the Commission, which is expected to occur on or about May ,
1998. DLJ International will contact Eligible Participants in the United Kingdom
to arrange for the sale of shares of Common Stock offered hereby. Eligible
Participants may choose which specified number of shares of Common Stock they
wish to purchase on the share reservation form to be provided to them by DLJ
International. DLJ International will provide information on setting up the
appropriate account with them for payment and delivery of shares of Common
Stock, which is expected to occur on or about , 1998. Payment for
such shares shall be upon their delivery.
IF YOU ARE IN ANY DOUBT ABOUT THE CONTENTS OF THIS DOCUMENT YOU SHOULD
CONSULT A PERSON AUTHORIZED UNDER THE FINANCIAL SERVICES ACT 1986 WHO
SPECIALIZES IN ADVISING ON THE ACQUISITION OF SHARES AND OTHER SECURITIES.
81
<PAGE> 85
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1997................................... F-4
Consolidated Statements of Cash Flows for the three years
ended December 31, 1997................................... F-5
Consolidated Statements of Changes in Equity (Deficit) for
the three years ended December 31, 1997................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Young & Rubicam Inc.
The stock dividend described in Note 20 to the financial statements has not been
consummated at April 20, 1998. When it has been consummated, we will be in a
position to furnish the following report:
"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 if 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> 87
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1997
------------------------ ------------
PRO FORMA
1996 1997 (SEE NOTE 2)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 110,180 $ 160,263 $ 160,263
Accounts receivable, net of allowance for doubtful
accounts of $9,849 and $14,125 at December 31, 1996 and
1997, respectively...................................... 847,653 790,342 790,342
Costs billable to clients................................. 78,723 50,479 50,479
Other receivables......................................... 50,302 35,218 35,218
Deferred income taxes..................................... 78,732 32,832 32,832
Prepaid expenses and other assets......................... 17,102 16,891 16,891
Due from employees........................................ 2,340 1,098 1,098
---------- ---------- ----------
Total Current Assets................................ 1,185,032 1,087,123 1,087,123
---------- ---------- ----------
NONCURRENT ASSETS
Property and equipment, net............................... 129,088 125,014 125,014
Deferred income taxes..................................... 79,411 124,192 124,192
Goodwill, less accumulated amortization of $64,062 and
$80,166 at December 31, 1996 and 1997, respectively..... 131,511 116,637 116,637
Equity in net assets of and advances to unconsolidated
companies............................................... 25,219 26,393 26,393
Due from employees........................................ 705 300 300
Other assets.............................................. 47,846 48,360 48,360
---------- ---------- ----------
Total Noncurrent Assets............................. 413,780 440,896 440,896
---------- ---------- ----------
Total Assets........................................ $1,598,812 $1,528,019 $1,528,019
========== ========== ==========
CURRENT LIABILITIES
Loans payable............................................. $ 36,282 $ 10,765 $ 10,765
Accounts payable.......................................... 805,710 811,162 811,162
Installment notes payable -- related parties.............. 24,874 3,231 3,231
Accrued expenses and other liabilities.................... 247,816 273,011 273,011
Accrued payroll and bonuses............................... 252,487 65,458 65,458
Income taxes payable...................................... 14,372 29,665 29,665
---------- ---------- ----------
Total Current Liabilities........................... 1,381,541 1,193,292 1,193,292
---------- ---------- ----------
NONCURRENT LIABILITIES
Loans payable............................................. 206,082 330,552 330,552
Installment notes payable -- related parties.............. -- 6,503 6,503
Deferred compensation -- related parties.................. 17,887 31,077 31,077
Other liabilities......................................... 104,502 112,851 112,851
---------- ---------- ----------
Total Noncurrent Liabilities........................ 328,471 480,983 480,983
---------- ---------- ----------
Commitments and Contingencies (Note 18)
Minority Interest........................................... 5,569 6,987 6,987
---------- ---------- ----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share;
authorized -- 250,000,000 shares at December 31, 1996
and 1997 (actual and pro forma); issued and
outstanding -- 47,382,330 shares, 50,658,180 shares and
0 shares at December 31, 1996 (actual), December 31,
1997 (actual) and pro forma December 31, 1997,
respectively............................................ 363,264 508,471 --
---------- ---------- ----------
STOCKHOLDERS' DEFICIT
Money Market Preferred Stock -- Cumulative variable
dividend; liquidating value of $7.67 per share;
one-tenth of one vote per share; 10,000,000 shares
authorized December 31, 1996 and 1997 (actual and pro
forma); 87 shares issued and outstanding (actual and pro
forma).................................................. -- -- --
Common stock, par value $.01 per share; authorized
250,000,000 shares at December 31, 1996 and 1997 (actual
and pro forma); issued and outstanding -- 11,086,950
shares at December 31, 1996 and 1997 (actual) and
61,745,130 shares pro forma December 31, 1997........... 111 111 617
Capital surplus........................................... 106,825 23,613 531,578
Accumulated deficit....................................... (498,928) (522,866) (522,866)
Cumulative translation adjustment......................... (2,322) (16,577) (16,577)
Pension liability adjustment.............................. (719) (706) (706)
---------- ---------- ----------
(395,033) (516,425) (7,954)
Common stock in treasury, at cost; 0 shares at December
31, 1996 and 1,115,160 shares at December 31, 1997
(actual and pro forma).................................. -- (8,550) (8,550)
Unearned compensation -- Restricted Stock................. (85,000) (136,739) (136,739)
---------- ---------- ----------
Total Stockholders' Deficit......................... (480,033) (661,714) (153,243)
---------- ---------- ----------
Total Liabilities, Mandatorily Redeemable Equity
Securities and Stockholders' Deficit.............. $1,598,812 $1,528,019 $1,528,019
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 88
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................... $1,085,494 $1,222,139 $1,382,740
Compensation expense, including employee benefits...... 672,026 730,261 836,150
General and administrative expenses.................... 356,523 391,617 463,936
Recapitalization-related charges....................... -- 315,397 --
Other operating charges................................ 31,465 17,166 11,925
---------- ---------- ----------
Operating expenses..................................... 1,060,014 1,454,441 1,312,011
---------- ---------- ----------
Income (loss) from operations.......................... 25,480 (232,302) 70,729
Interest income........................................ 9,866 10,269 8,454
Interest expense....................................... (27,441) (28,584) (42,879)
---------- ---------- ----------
Income (loss) before income taxes...................... 7,905 (250,617) 36,304
Income tax provision (benefit)......................... 9,130 (20,611) 58,290
---------- ---------- ----------
(1,225) (230,006) (21,986)
Equity in net income (loss) of unconsolidated
companies............................................ 5,197 (9,837) 342
Minority interest in net (income) loss of consolidated
subsidiaries......................................... (3,152) 1,532 (2,294)
---------- ---------- ----------
Net income (loss)...................................... $ 820 $ (238,311) $ (23,938)
========== ========== ==========
Basic and diluted loss per common share (Note 3)....... $ (.51)
==========
Weighted average shares outstanding (Note 3)........... 46,949,355
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 89
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> 90
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED AND
LIMITED UNDISTRIBUTED
NON-VOTING VOTING PARTNERS' EARNINGS COMMON
PREFERRED COMMON COMMON CONTRIBUTED CAPITAL (ACCUMULATED STOCK IN RESTRICTED
STOCK STOCK STOCK EQUITY SURPLUS DEFICIT) TREASURY STOCK
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................. $ 63 $ 4,000 $ -- $ 946 $ 53,006 $ 29,616 $ 3,298 $ --
==== ======= ===== ======= ========= ========= ======= =========
Net income............. -- -- -- -- -- 820 -- --
Dividends paid......... -- -- -- -- -- (491) -- --
Common stock/Limited
Partnership Units
issued............... 28 -- -- 1,359 12,237 183 (72) --
Limited Partnership
Units
repurchased/capital
distributions........ -- -- -- (4,000) -- (6,733) -- --
Common Stock
repurchased.......... (25) -- -- -- (10,051) (5,759) 91 --
Capitalization of tax
benefits of options
exercised............ -- -- -- -- 29 -- -- --
Equityholder loans..... -- -- -- 4,231 1,882 -- -- --
---- ------- ----- ------- --------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1995................. $ 66 $ 4,000 $ -- $ 2,536 $ 57,103 $ 17,636 $ 3,317 $ --
==== ======= ===== ======= ========= ========= ======= =========
Net loss............... -- -- -- -- -- (238,311) -- --
Dividends paid......... -- -- -- -- -- (696) -- --
Common stock/Limited
Partnership Units
issued............... 3 -- -- 4,067 13,269 -- (61) --
Limited Partnership
Units
repurchased/capital
distributions........ -- -- -- (2,370) -- (3,329) -- --
Common stock
repurchased.......... (2) -- -- -- (14,699) (8,863) 123 --
Recapitalization
redemptions.......... (67) (3,900) -- (1,534) (36,435) (265,365) (3,379) --
Recapitalization
issuances............ -- -- 427 -- 326,590 -- -- (85,000)
Recapitalization
exchanges............ -- (100) 158 (2,914) 122,732 -- -- --
Mandatorily Redeemable
Equity Securities.... -- -- (474) -- (362,790) -- -- --
Equityholder loans..... -- -- -- 215 1,055 -- -- --
---- ------- ----- ------- --------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1996................. $ -- $ -- $ 111 $ -- $ 106,825 $(498,928) $ -- $ (85,000)
==== ======= ===== ======= ========= ========= ======= =========
Net loss............... -- -- -- -- -- (23,938) -- --
Common stock issued.... -- -- -- -- 1,501 -- -- --
Common stock
repurchased.......... -- -- -- -- -- -- (8,550) --
Unearned
compensation --
Restricted Stock..... -- -- -- -- 51,739 -- -- (51,739)
Common stock options
exercised............ -- -- 44 -- 8,711 -- -- --
Accretion of
Mandatorily
Redeemable Equity
Securities........... -- -- (44) -- (145,163) -- -- --
---- ------- ----- ------- --------- --------- ------- ---------
BALANCE AT DECEMBER 31,
1997................. $ -- $ -- $ 111 $ -- $ 23,613 $(522,866) $(8,550) $(136,739)
==== ======= ===== ======= ========= ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 91
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- OPERATIONS AND BASIS OF PRESENTATION:
NATURE OF OPERATIONS: Young and Rubicam Inc. (the "Company") is a global
marketing and communications enterprise with integrated services in advertising,
perception management and public relations, identity and design, sales
promotion, direct marketing and healthcare communications. The Company operates
in the U.S., Canada, Europe, Latin America and Asia/Pacific as well as through
certain affiliations in other parts of the world.
BASIS OF PRESENTATION: On December 12, 1996, the Company effected a
recapitalization (the "Recapitalization"). As the equity holders prior to the
Recapitalization retained control of the Company, the financial statements
reflect the consolidated financial position, results of operations and cash
flows of the Company on a continuous basis (see Note 4).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company, a Delaware corporation, and all subsidiaries in
which it holds a controlling interest, including a Delaware Limited Partnership,
Young & Rubicam L.P. (the "LP"). Investments in affiliates in which the Company
owns more than 20% but less than or equal to 50% of the voting interest are
accounted for under the equity method. All significant intercompany transactions
are eliminated.
UNAUDITED PRO FORMA BALANCE SHEET: The unaudited pro forma balance sheet at
December 31, 1997 has been presented after giving effect to the termination of
the redeemable feature and subsequent reclassification of the Mandatorily
Redeemable Equity Securities to stockholders' deficit concurrent with the
closing of the contemplated initial public offering (see Note 16).
CASH EQUIVALENTS: The Company considers all highly liquid instruments with
an initial maturity of three months or less at the time of purchase to be cash
equivalents.
REVENUE RECOGNITION: Revenue from advertising and related services is
comprised of commissions and fees derived from billings to clients for media and
production activities. Public relations, sales promotion and other services are
generally billed on the basis of negotiated fees. Commission revenue is
recognized primarily when media placements appear on television, on radio or in
print, and when labor and production costs are billed. Fee revenue is recognized
when services are rendered.
BENEFIT PLANS: The Company maintains a noncontributory defined benefit
pension plan for all full-time U.S. employees. The Company also contributes to
government mandated plans and maintains various noncontributory retirement plans
at certain foreign subsidiaries in accordance with local laws and customs. The
Company also maintains deferred compensation plans and has made appropriate
provisions for future payments due under these plans.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are computed
using the straight-line method over the estimated useful life of the respective
asset. Leasehold improvements are amortized over the shorter of their estimated
useful life or the remaining term of the lease. Goodwill is amortized on a
straight-line basis generally over twenty to forty years.
INCOME TAXES: In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", deferred tax assets
and liabilities are determined based on differences between the financial
reporting and the tax basis of assets and liabilities and are measured by
applying enacted tax rates and laws to taxable years in which such differences
are expected to reverse. The Company's practice is to provide currently for
taxes that will be payable upon remittance of foreign earnings of subsidiaries
and affiliates to the extent that such earnings are not considered to be
indefinitely reinvested.
STOCK-BASED COMPENSATION: SFAS No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123") encourages entities to account for employee stock
options or similar equity instruments using a
F-7
<PAGE> 92
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fair value approach for all such plans. However, it also allows an entity to
continue to measure compensation costs for those plans using the method
prescribed by Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has elected to continue to account
for such plans under the provisions of APB Opinion No. 25 and has included, in
Note 17, the required SFAS 123 pro forma disclosures of net income (loss) and
earnings (loss) per share as if the fair value-based method of accounting had
been applied.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of certain non-U.S.
subsidiaries are translated at current exchange rates, and related revenues and
expenses are translated at average exchange rates in effect during the period.
Resulting translation adjustments are recorded as a component of stockholders'
deficit in the accompanying Consolidated Balance Sheets. Financial results of
non-U.S. subsidiaries in countries with highly inflationary economies are
translated using a combination of current and historical exchange rates and any
translation adjustments are included in net income (loss) along with all
transaction gains and losses for the period.
DERIVATIVE FINANCIAL INSTRUMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Derivative financial instruments are used by the Company principally in the
management of its interest rate and foreign currency exposures. The Company does
not hold or issue derivative financial investments for trading purposes. Gains
and losses on hedges of existing assets and liabilities are included in the
carrying amounts of those assets and liabilities and are ultimately recognized
in income as part of those carrying amounts. Gains and losses related to hedges
of firm commitments are also deferred and included in the basis of the
transaction when it is completed. Amounts to be paid or received under interest
rate swap agreements are accrued as interest and are recognized over the life of
the swap agreements as an adjustment to interest expense.
LONG-LIVED ASSETS: In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
("SFAS 121") management reviews long-lived assets and the related intangible
assets for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Recoverability of these
assets is determined by comparing the forecasted undiscounted net cash flows of
the operation to which the assets relate, to the carrying amount including
associated intangible assets of such operation. If the operation is determined
to be unable to recover the carrying amount of its assets, then intangible
assets are written down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.
CONCENTRATIONS OF CREDIT RISK: The Company's clients are engaged in various
businesses located primarily in North America, Europe, Latin America and
Asia/Pacific. The Company performs ongoing credit evaluations of its clients.
Reserves for credit losses are maintained at levels considered adequate by
management. The Company invests its excess cash in deposits with major banks and
in money market securities. These securities typically mature within 90 days and
bear minimal risk. Additionally, due to the Company's strategy, the Company is
dependent upon a relatively small number of clients who contribute a significant
percentage of revenues. The Company's largest client accounted for approximately
9%, 9%, and 10% of consolidated revenues for the years ended December 31, 1995,
1996 and 1997, respectively.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, SFAS No. 130, "Reporting
Comprehensive Income", ("SFAS 130") was issued. SFAS 130 establishes standards
for the reporting of comprehensive income and its components. It requires all
items that are required to be recognized as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other income statement
F-8
<PAGE> 93
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
information. SFAS 130 is effective for financial statements for periods
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods presented for comparative purposes is required upon adoption.
In June 1997, SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", ("SFAS 131") was issued. SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in annual
financial statements and in interim financial reports issued to shareholders.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits", ("SFAS 132") was issued. SFAS 132 revises
disclosures about pensions and other postretirement benefit plans. SFAS 132 is
effective for financial statements for periods beginning after December 15,
1997. Restatement of disclosures for earlier periods provided for comparative
purposes is required upon adoption.
The Company anticipates that the adoption of SFAS 130, SFAS 131 and SFAS
132 will not have a significant effect on its 1998 financial statements.
NOTE 3 -- NET LOSS PER COMMON SHARE:
The Company computes earnings (loss) per share in accordance with SFAS No.
128, "Earnings Per Share".
Basic net loss per share was computed by dividing net loss by the
weighted-average number of common shares outstanding during the period. In
computing basic net loss per share, the Company's 11,086,950 shares of
restricted stock were excluded from the weighted average number of common shares
outstanding as such shares vest upon the six-month anniversary of an initial
public offering or the six-month anniversary thereof, a condition which was not
satisfied at December 31, 1997. Diluted net loss per share for the period was
computed in the same manner as basic net loss per share since the Company
experienced a net loss for the period and therefore including potential common
shares would be antidilutive.
There are 31,013,205 common stock options that could potentially dilute
basic earnings (loss) per share in the future that were excluded from the
computation of diluted net loss per share because the effect would be
antidilutive. In addition, there exists 11,086,950 shares of Restricted Stock,
which would also be potentially dilutive upon the occurrence of the Company's
contemplated initial public offering which is further described in Note 21.
Earnings per share for the years ended December 31, 1996 and 1995 cannot be
computed because the Company's capital structure prior to the 1996
Recapitalization consisted of both common shares and Limited Partnership Units
in Predecessor entities (see Note 4).
NOTE 4 -- RECAPITALIZATION:
On December 12, 1996, a recapitalization (the "Recapitalization") was
effected of Young & Rubicam Inc., a New York corporation (the "Predecessor
Company") whereby (a) the Predecessor Company, Young & Rubicam Holdings Inc.
("Holdings"), or subsidiaries of the Predecessor Company (i) acquired 2,058,678
of the 2,458,102 outstanding shares of Predecessor Company common stock for an
amount equal to $115 per share less the principal and accrued interest of any
outstanding loans relating to such shares (which loans were thereby repaid),
(ii) acquired 760,232 of the 1,869,682 outstanding Limited Partnership Units of
the LP ("LPUs") together with any related subordinated promissory notes of the
Predecessor Company for an amount equal to $115 per LPU less the principal and
accrued interest of any outstanding loans relating to such LPUs (which loans
were thereby repaid); (iii) canceled 332,636 of the 690,249 common stock options
and 596,448 of the 1,600,414 LPU options (collectively, the "Nonrollover
Options") and all outstanding Growth
F-9
<PAGE> 94
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Participation Units ("GPUs") for cash consideration of $115 per unit less the
aggregate option exercise price and (iv) exchanged for, or canceled in
consideration of, the remaining outstanding common stock, LPUs and options on
common stock and LPUs held by certain members of the management of the
Predecessor Company (the "Management Investors") for 15,815,985 shares of
Holdings common stock and 16,823,565 options on common stock of Holdings
("Rollover Options"); (b) Hellman & Friedman Capital Partners III, L.P. ("HFCP")
and certain other investors contributed $242 million in cash to Holdings in
exchange for 31,566,345 shares of Holdings common stock at a price of $7.67 per
share ($115 per share prior to the stock dividend which is further described in
Note 20) and 2,598,105 options to purchase additional shares of Holdings common
stock at $7.67 per share ($115 per share prior to the stock dividend which is
further described in Note 20)(the "HFCP Options" -- see Note 17), and (c) Senior
Secured Credit Facilities of $700 million (the "Credit Facilities") were
arranged (see Note 14).
Common stock, LPUs, Nonrollover Options on common stock and LPUs and GPUs
held by non U.S.-based equity holders were acquired or canceled prior to
December 31, 1996. Payment for previously tendered Nonrollover options and GPUs
of $161.7 million (included as a component of accrued payroll and bonuses at
December 31, 1996) held by U.S. based equity holders occurred on March 18, 1997.
Following the closing of the Recapitalization, Holdings was merged with and
into the Predecessor Company. As a result of the merger, the 1,391 outstanding
shares of Predecessor Company preferred stock were each converted into the right
to receive par value $50 in cash. On December 31, 1996, the Predecessor Company
then merged into Young & Rubicam Inc., a Delaware corporation (the "Company").
Under the Stockholders' Agreement, the Management Investors are required to
deposit all Company common stock currently held or acquired in the future into a
voting trust (the "Management Voting Trust") under which all rights to vote such
shares are assigned to certain members of the Company's senior management as
voting trustees. In the event that HFCP holds greater than 49% of Company common
stock, HFCP is required to transfer those shares in excess of 49% to a separate
voting trust (the "HFCP Voting Trust") with the Chief Executive Officer of the
Company as voting trustee, provided that the Company is not in default under
certain terms of the Credit Facilities.
As the equity holders of the Predecessor Company retained control of the
Company, the transaction has been reported as a recapitalization. The financial
statements reflect the financial position, results of operations and cash flows
of the Company and the Predecessor Company on a continuous basis. The excess of
the Predecessor common stock and LPUs repurchase transaction amount over the
stated amount of the Predecessor common stock and LPUs repurchased has been
reported as a distribution to equity holders and charged to limited partners'
contributed equity, capital surplus and accumulated deficit.
As a result of the Recapitalization, the Company recorded charges of $315.4
million, primarily related to compensation. A summary of the significant
Recapitalization and related charges include the following:
(1) The cancellation of 1,244,647 GPUs outstanding for cash
consideration of $115 per unit. Compensation expense of $83.1 million
represents the difference between the cash consideration paid to GPU
holders and the amount of previously accrued compensation under the
original terms of the GPU plan.
(2) The cancellation of 929,084 Nonrollover Options for cash
consideration. The cash consideration and the associated compensation
expense of $66.6 million represents the difference between the transaction
price of $115 and the $40.2 million aggregate exercise price of the
Nonrollover Options.
(3) Cancellation of the remaining outstanding options and award of
Rollover Options to acquire 16,823,565 shares of Company common stock at an
exercise price of $1.92 ($28.75 per share prior to the stock split which is
further described in Note 20) per share, with certain limited exceptions
outside of the U.S. As a result of the change in the terms of the former
stock option plan, which resulted in a new measurement date, the Company
recognized compensation expense of $96.7 million representing the
F-10
<PAGE> 95
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
difference between the transaction price per Rollover Option of $7.67 ($115
per share prior to the stock split which is further described in Note 20)
and the aggregate exercise price of the Rollover Options.
(4) Professional fees and other charges amounted to approximately $69
million.
NOTE 5 -- EQUITY IN NET ASSETS OF UNCONSOLIDATED COMPANIES:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ----------------- -----------------
EQUITY
EQUITY EQUITY EQUITY EQUITY EQUITY IN NET
OWNERSHIP IN NET IN NET IN NET IN NET IN NET INCOME
INTEREST ASSETS INCOME ASSETS INCOME ASSETS (LOSS)
AFFILIATE (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Dentsu, Y&R Partnerships........ 50% $16,957 $ 534 $12,954 $(9,181) $17,510 $ 2,587
J.M.C. Creatividad Orientada
(Venezuela)................... 49% 4,509 1,315 2,471 (2,038) 953 (1,515)
Prolam (Chile).................. 30% 3,106 968 2,656 262 2,851 825
Eco S.A. (Guatemala)............ 40% 1,864 372 2,134 26 2,206 96
Cresswell, Munsell, Fultz &
Zirbel........................ 33% 1,245 524 1,635 624 1,922 508
National Public Relations
(Canada)...................... 22% 414 333 607 204 647 98
ViceVersa (Uruguay)............. 35% 652 401 883 224 -- --
Other........................... 50% or less 8,618 750 1,879 42 304 (2,257)
------- ------ ------- ------- ------- -------
$37,365 $5,197 $25,219 $(9,837) $26,393 $ 342
======= ====== ======= ======= ======= =======
</TABLE>
The summarized financial information below represents an aggregation of the
Company's unconsolidated companies.
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS DATA
Revenues................................................. $234,891 $238,810 $207,668
Income from operations................................... 29,398 22,132 13,768
Net income (loss)........................................ 14,984 (16,097) 4,347
Company's equity in net earnings (loss).................. $ 5,197 $ (9,837) $ 342
======== ======== ========
BALANCE SHEET DATA
Current assets........................................... $361,451 $348,325 $321,372
Noncurrent assets........................................ 54,954 33,996 40,147
Current liabilities...................................... 335,490 323,406 287,101
Noncurrent liabilities................................... 18,902 11,683 13,215
Equity................................................... 62,013 47,232 61,203
Company's equity in net assets........................... $ 37,365 $ 25,219 $ 26,393
======== ======== ========
</TABLE>
NOTE 6 -- ACQUISITIONS, DISPOSITIONS AND OTHER OPERATING CHARGES:
In 1995, the Predecessor Company increased its ownership interests in
advertising agencies in Holland (from 49% to 70%) and Spain (from 49% to 77%),
as well as a public relations firm in Belgium (from 40% to 85%). In addition,
the Predecessor Company acquired the remaining 40% interest in an advertising
agency in the Czech Republic, the remaining 25% interest in an agency in
Hungary, the remaining 20% interest in a direct marketing operation in South
Africa and the remaining 10% interest in an advertising agency, also in South
Africa. The purchase price of these investments was $5.4 million. Other regional
investment activity
F-11
<PAGE> 96
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
took place in Latin America in 1995, with increased ownership interests in
advertising agencies in Guatemala (from 25% to 40%) and Uruguay (from 20% to
35%).
In 1995, the D,Y&R Partnerships also acquired a 40% interest in an
advertising agency in India (Y&R's effective ownership is 20%). The cost of this
investment to Y&R was $2.2 million.
A wholly owned public relations subsidiary in Canada was merged in 1995
with another Canadian public relations firm. The Company has a 22% interest in
the merged operation.
In 1995, the Predecessor Company approved a productivity improvement plan
which resulted in the elimination of 500 positions throughout its worldwide
operations. The Predecessor Company recorded a charge in 1995 of $24.4 million
to cover the expected severance, benefits and social law costs which were paid
during 1996 relating to this staff reduction.
Also in 1995, losses of $7.1 million were recorded primarily to cancel a
long-term agreement with a service provider as well as to dispose of certain
non-strategic European agencies. The aforementioned charges are included in
other operating charges in the accompanying Consolidated Statement of
Operations.
In 1996, the Predecessor Company acquired substantially all of the assets
of one advertising agency and one media buying agency in the United States and
acquired the remaining 28% equity interest in an advertising agency in
Switzerland. In addition, the Predecessor Company increased its ownership
interests in three advertising agencies in Europe. Other regional activity took
place in Korea where the Company acquired a 25% equity interest in a public
relations agency. The purchase price of these investments was $26.8 million.
In 1996, a $17.2 million charge was recorded for asset impairment
writedowns principally related to certain operations in Europe and Latin
America.
In 1997, the Company acquired the remaining 60% equity interest in an
advertising agency in France and a 51% equity interest in an advertising agency
in Brazil. In addition, the Company increased its ownership interests in one
advertising agency in Latin America and one agency in Europe. The Company also
acquired substantially all of the assets of one public relations agency and
acquired a 70% equity interest in a German public relations agency and the
remaining 49% equity interest in a Japanese public relations agency. The
purchase price of these investments was $14.7 million.
Effective January 1, 1997, the Company acquired an additional 37.5% equity
interest in the former Australian and New Zealand joint ventures with Dentsu. In
consideration for this additional equity interest, the Company contributed to
Dentsu, 12.5% of its equity interest in its advertising and direct marketing
agencies in Australia and New Zealand.
In 1997, an $11.9 million charge was recorded for asset impairment
writedowns principally related to certain operations in the U.S., Africa, Latin
America and Europe.
NOTE 7 -- PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost and are comprised of the
following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
USEFUL LIVES 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings............ 20-40 years $ 31,901 $ 29,716
Furniture, fixtures and
equipment................... 3-10 years 220,728 235,836
Leasehold improvements........ Shorter of 10 years or life of lease 78,414 77,804
Automobiles................... 3-5 years 6,315 6,609
-------- --------
337,358 349,965
-------- --------
Less -- Accumulated
depreciation and
amortization................ 208,270 224,951
-------- --------
$129,088 $125,014
======== ========
</TABLE>
F-12
<PAGE> 97
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, 1996 and 1997, depreciation expense amounted to $38.2 million,
$42.0 million and $47.6 million, respectively.
NOTE 8 -- CERTAIN LIABILITIES:
Accrued expenses and other liabilities include $71.3 million and $41.0
million of bank overdrafts as of December 31, 1996 and 1997, respectively.
Accrued payroll and bonuses are comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Accrued costs -- Recapitalization........................... $161,700 $ --
Accrued payroll and bonuses................................. 90,787 65,458
-------- -------
$252,487 $65,458
======== =======
</TABLE>
NOTE 9 -- INCOME TAXES:
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic........................................... $(22,957) $(242,578) $12,304
Foreign............................................ 30,862 (8,039) 24,000
-------- --------- -------
Total.............................................. $ 7,905 $(250,617) $36,304
======== ========= =======
</TABLE>
The following summarizes the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal.......................................... $ 1,295 $ 16,993 $ 18,195
State and local.................................. 2,138 3,921 4,220
Foreign.......................................... 20,563 18,146 36,259
-------- -------- --------
23,996 39,060 58,674
-------- -------- --------
DEFERRED:
Federal.......................................... (7,548) (51,363) 7,547
State and local.................................. (2,811) (22,111) 2,472
Foreign.......................................... (4,507) 13,803 (10,403)
-------- -------- --------
(14,866) (59,671) (384)
-------- -------- --------
Provision (benefit) for income taxes............... $ 9,130 $(20,611) $ 58,290
======== ======== ========
</TABLE>
F-13
<PAGE> 98
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of the United States statutory rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
PERCENT OF INCOME (LOSS) BEFORE TAXES 1995 1996 1997
<S> <C> <C> <C>
United States statutory rate................................ 35.0% (35.0)% 35.0%
Federal tax savings attributable to limited partnership
structure................................................. (27.6) -- --
State and local income taxes, net of federal tax effect..... (7.1) (4.5) 17.1
Foreign income taxed greater than the United States
statutory rate............................................ 64.2 15.2 107.2
Change in valuation allowance and related components........ 11.5 5.9 (13.1)
Amortization of goodwill.................................... 14.3 2.1 8.5
Travel, entertainment and other non-deductible expenses..... 19.7 8.4 6.2
Other, net.................................................. 5.5 (0.3) (0.3)
----- ----- -----
Consolidated effective rate................................. 115.5% (8.2)% 160.6%
===== ===== =====
</TABLE>
The Company's share of the undistributed earnings of foreign subsidiaries
not included in its consolidated Federal income tax return that could be subject
to additional income taxes if remitted, was approximately $49.5 million at
December 31, 1997. No provision has been recorded for the U.S. or foreign taxes
that could result from the remittance of such undistributed earnings since the
earnings are permanently reinvested outside the U.S. and it is not practicable
to estimate the amount of such taxes. Withholding taxes of approximately $6.4
million would be payable upon remittance of all previously unremitted earnings
at December 31, 1997.
The components of the Company's net deferred income tax assets are:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Bad debt reserve............................................ $ 1,785 $ 3,118
Accrued expenses and other.................................. 5,195 --
Net operating loss carryforwards............................ 7,377 32,797
Deferred compensation....................................... 76,170 1,172
-------- --------
90,527 37,087
Valuation allowance......................................... (11,795) (4,255)
-------- --------
Current portion............................................. 78,732 32,832
-------- --------
Deferred compensation....................................... 42,646 40,650
Depreciable and amortizable assets.......................... 26,671 30,561
Long-term leases............................................ 7,351 7,436
Postretirement benefits..................................... 3,570 3,654
Other non-current items..................................... 810 11,989
Net operating loss carryforwards............................ 10,259 42,338
Tax credit carryforwards.................................... -- 3,658
-------- --------
91,307 140,286
Valuation allowance......................................... (11,896) (16,094)
-------- --------
Non-current portion......................................... 79,411 124,192
-------- --------
Net deferred income tax assets.............................. $158,143 $157,024
======== ========
</TABLE>
The Company's net deferred income tax assets arise from temporary
differences which represent the cumulative deductible or taxable amounts
recorded in the financial statements in different years than
F-14
<PAGE> 99
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in the tax returns. The majority of the temporary differences result
from expenses accrued for financial reporting purposes which are not deductible
for tax purposes until actually paid and net operating losses.
The net operating loss ("NOL") carryforwards represent the benefit recorded
for U.S., state and local, and foreign NOLs. At December 31, 1997, the Company
had approximately $140.4 million of NOL carryforwards for U.S. tax purposes
which expire in the year 2012 and approximately $69.2 million of NOL
carryforwards for foreign tax purposes with carryforward periods ranging from
one year to an indefinite time. The Company had approximately $3.2 million of
alternative minimum tax credits which are not subject to expiration and $0.4
million of foreign tax credits which expire in the year 2001.
The Company is required to provide a valuation allowance against deferred
income tax assets when it is more likely than not that some or all of the
deferred tax assets will not be realized. A valuation allowance of $13.5 million
was recorded at December 31, 1994. The valuation allowance increased $0.9
million to $14.4 million at December 31, 1995, increased $9.3 million to $23.7
million at December 31, 1996 and decreased $3.3 million to $20.4 million at
December 31, 1997. The valuation allowances represent a provision for
uncertainty as to the realization of certain deferred tax assets, including net
operating loss carryforwards in certain jurisdictions. The Company has
concluded, that based upon expected future results, it is more likely than not
that the net deferred tax asset balance will be realized.
NOTE 10 -- WORLDWIDE OPERATIONS:
Financial information by geographic area is as follows:
<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995
Revenues............................ $ 492,265 $411,283 $181,946 $1,085,494
(Loss) income from operations....... (7,695) 14,899 18,276 25,480
Identifiable assets................. 511,779 499,335 215,467 1,226,581
1996
Revenues............................ $ 571,155 $444,644 $206,340 $1,222,139
(Loss) income from operations....... (239,201) (3,627) 10,526 (232,302)
Identifiable assets................. 819,828 533,318 245,666 1,598,812
1997
Revenues............................ $ 661,367 $472,225 249,148 $1,382,740
(Loss) income from operations....... 42,816 29,527 (1,614) 70,729
Identifiable assets................. 687,462 582,424 258,133 1,528,019
</TABLE>
Foreign currency transactions and remeasurement losses resulting from
operations in highly inflationary economies are included in general and
administrative expenses. These amounts were comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Foreign currency transaction losses...................... $1,101 $ 887 $1,344
Remeasurement losses resulting from operations in highly
inflationary economies................................. 1,156 1,653 2,603
------ ------ ------
$2,257 $2,540 $3,947
====== ====== ======
</TABLE>
F-15
<PAGE> 100
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- EMPLOYEE BENEFITS:
The Company has a defined benefit pension plan ("the Plan") that covers all
full-time U.S. employees upon commencement of employment. Contributions to the
Plan are based upon current costs and prior service costs. Both costs are
actuarially computed and the latter are amortized over the average remaining
service period. Effective July 1, 1996, the Predecessor Company amended the
Plan. Benefits credited to each employee's account under the Plan are based on
3.2% of the employee's annual compensation up to $150,000. The Plan also credits
each employee's account with interest equal to the average one year U.S.
Treasury Bill interest rate multiplied by the account balance at the beginning
of the year. Subject to certain limitations, most vested retirement benefits
available under the Plan are insured by the Pension Benefit Guaranty Corporation
("PBGC"). The Company is in compliance with the minimum funding standards
required by the Employee Retirement Income Security Act of 1974 ("ERISA").
In connection with the Recapitalization transaction, the Company
contributed an additional $12.5 million to the Plan on December 23, 1996,
pursuant to an agreement with the PBGC. Total contributions made in 1996 and
1997 were $18.9 million and $6.6 million, respectively.
The Company also agreed to make future contributions to the Plan in an
amount required to cause the credit balance at the end of each Plan year to be
at least equal to the required credit balance of $12.5 million plus interest.
The Company is not required to make any payment that would not be deductible
under Internal Revenue Code section 404. The Company's credit balance
maintenance requirement terminates when the Company's debt obtains specified
rating levels (or, if there are no such ratings from certain major ratings
agencies, when the Company meets a fixed charge coverage ratio test), but in no
event earlier than December 31, 2001. In addition, such credit balance
maintenance requirements terminate if the Plan's unfunded benefit liabilities
are zero at the end of two consecutive Plan years.
The Company also contributes to government mandated plans and maintains
various noncontributory retirement plans at certain foreign subsidiaries, some
of which are considered to be defined benefit plans for accounting purposes.
A summary of the components of net periodic pension cost for the defined
benefit plans is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ ------------------------------ ------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service costs for benefits
earned during the
period.................. $ 2,774 $ 717 $ 3,491 $ 2,834 $ 674 $ 3,508 $ 2,671 $ 550 $ 3,221
Interest costs on
projected benefit
obligation.............. 8,074 946 9,020 8,488 893 9,381 8,804 789 9,593
Actual return on plan
assets.................. (15,960) -- (15,960) (11,070) -- (11,070) (15,558) -- (15,558)
Net amortization and
deferral................ 9,390 182 9,572 5,668 188 5,856 6,862 150 7,012
-------- ------ -------- -------- ------ -------- -------- ------ --------
Net periodic pension cost
of the plans............ $ 4,278 $1,845 $ 6,123 $ 5,920 $1,755 $ 7,675 $ 2,779 1,489 4,268
======== ====== ======== ======== ====== ======== ======== ====== ========
</TABLE>
F-16
<PAGE> 101
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the defined benefit plans is summarized as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------
1996 1997
------------------------------ ------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligation including vested benefits of
$119,093 and $134,491 at December 31, 1996
and 1997, respectively...................... $111,921 $ 10,350 $122,271 $126,975 $ 9,557 $136,532
-------- -------- -------- -------- -------- --------
Projected benefit obligation.................. 114,710 12,198 126,908 130,036 10,753 140,789
Plan assets at fair value, primarily fixed
income and equity securities................ 114,264 -- 114,264 129,421 -- 129,421
-------- -------- -------- -------- -------- --------
Projected benefit obligation in excess of plan
assets...................................... (446) (12,198) (12,644) (615) (10,753) (11,368)
Unrecognized net transition (asset)
obligation.................................. (225) 644 419 (164) 471 307
Unrecognized prior service benefit............ (2,953) -- (2,953) (2,542) -- (2,542)
Unrecognized net loss......................... 12,811 1,813 14,624 16,352 1,260 17,612
Additional liability.......................... -- (719) (719) -- (706) (706)
-------- -------- -------- -------- -------- --------
(Accrued) prepaid pension costs for defined
benefit plans............................... $ 9,187 $(10,460) $ (1,273) $ 13,031 $ (9,728) $ 3,303
======== ======== ======== ======== ======== ========
</TABLE>
Assumptions used were:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- ----------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
<S> <C> <C> <C> <C> <C> <C>
Discount and settlement rate........................ 7.5% 6.5%-8.5% 8.0% 7.0%-8.0% 7.25% 6.5%-7.0%
Rate of increase in compensation levels............. 7.0% 3.5%-5.5% 5.5% 3.5%-5.0% 5.0% 3.5%-5.0%
Expected long-term rate of return on assets......... 9.0% N/A 9.0% N/A 9.0% N/A
</TABLE>
In 1996 and 1997, the Company recorded liabilities of $0.7 million for the
portion of its unfunded pension liabilities that had not been recognized as
expense and an adjustment to equity of $0.7 million.
Contributions to other foreign defined contribution plans were $5.9
million, $6.2 million and $7.5 million in 1995, 1996 and 1997, respectively.
The Company also has an employee savings plan that qualifies as a deferred
salary arrangement under section 401(k) of the Internal Revenue Code. Under the
plan, participating U.S. employees may defer a portion of their pre-tax earnings
up to the Internal Revenue Service annual contribution limit. The Company
currently matches 100% of each employee's contribution up to a maximum of 5% of
the employee's earnings up to $150,000. Amounts expensed by the Company for its
contributions to the plan were $6.4 million, $7.0 million and $7.8 million in
1995, 1996 and 1997, respectively. Prior to the Recapitalization, the Company's
contribution was made through the issuance of the Company's common stock. All of
the shares of common stock held in the Plan were purchased by Holdings as part
of the Recapitalization. Subsequent to the Recapitalization, matching
contributions are satisfied in cash.
NOTE 12 -- DEFERRED COMPENSATION:
The Predecessor Company maintained a non-qualified deferred compensation
plan for its key executives, the Growth Participation Plan. Participation in the
plan was at the discretion of management. Awards of growth participation units
("GPUs") granted under the plan generally vested at the rate of 20% per year. As
a result of the Recapitalization, all GPUs (whether fully or partially vested)
were canceled for cash consideration of $115 per unit (see Note 4).
F-17
<PAGE> 102
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains other deferred cash incentive plans which are either
tied to operating performance or contractual deferred compensation agreements.
The costs of these compensation plans are expensed currently. At December 31,
1996 and 1997, included in other non-current liabilities were deferred
compensation liabilities of $17.9 million and $31.1 million, respectively.
NOTE 13 -- INSTALLMENT PAYMENT OBLIGATIONS:
Prior to 1997, the Company issued installment notes payable to former
equityholders of the Predecessor Company which arose out of the repurchase of
Common Stock and LPUs upon termination of employment. Installment notes were
paid in five annual installments, the first of which was payable 90 days
following termination of employment. In connection with the Recapitalization,
all foreign installment notes outstanding at December 12, 1996 were assumed and
repaid. The remaining current installment notes of $24.9 million at December 31,
1996 were repaid in the first quarter of 1997.
Effective in 1997 and pursuant to the Stockholders' Agreement, the Company
may, at its election, pay for shares purchased from Management Investors
pursuant to a call or put at the applicable call price or the applicable put
price in up to four equal installments. The first such installment is payable in
cash upon the applicable payment date (generally the June 30 or December 31
closest in time following termination of employment) and the remaining
installments are evidenced by a non-negotiable obligation from the Company to
the Management Investor. At December 31, 1997, current and non-current
installment notes of $3.2 million and $6.5 million, respectively, were payable
to former Management Investors.
Interest accrues and is payable annually with each installment payment at a
rate equal to the applicable federal rate in effect as published by the Internal
Revenue Service, compounded semi-annually. For 1997, the interest rate ranged
from 5.68% to 6.14%.
NOTE 14 -- LOANS PAYABLE:
Short Term: The Company's short term loans payable are primarily advances
under bank lines of credit and generally bear interest at prevailing market
rates. The Company's current loans payable of $36.3 million and $10.8 million
include the short-term portion of long-term loans payable of $14.7 million and
$1.2 million at December 31, 1996 and 1997 respectively.
Long-term loans payable are comprised of the following at December 31:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Senior Secured Credit Facilities............................ $219,282 $330,552
Capital lease obligations................................... 611 404
Other borrowings............................................ 859 818
-------- --------
220,752 331,774
Less -- Current portion..................................... 14,670 1,222
-------- --------
$206,082 $330,552
======== ========
</TABLE>
In connection with the Recapitalization, in December 1996, the Company
entered into Senior Secured Credit Facilities (the "Credit Facilities")
amounting to $700 million with a group of banks arranged by Bank of America,
with The Bank of New York, Citibank N.A., Credit Lyonnais and Wachovia Bank as
managing agents. The Credit Facilities consist of a six and one-half year $400
million term loan and a six and one-half year $300 million revolving credit
facility. The term loan is available in two drawings of $200 million each: the
F-18
<PAGE> 103
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
first drawdown occurred in December 1996, while the second drawdown occurred on
March 18, 1997. The Company's obligations under the Credit Facilities are
secured by a security interest in certain domestic assets, including its
headquarters building in New York, all of the capital stock of the direct and
indirect domestic subsidiaries of the Company and 66.7% of the capital stock of
the Company's first-tier non-U.S. subsidiaries. The Company pays a commitment
fee ranging from 0.20% to 0.50% on the unused portion of the total Credit
Facilities. The Credit Facilities include several credit sensitive pricing
options (LIBOR, Base Rate Loans, Fronted Loans and Swing Line Loans), letter of
credit issuances and a $175 million multi-currency subfacility. The applicable
interest rate was 6.915% and 6.875% at December 31, 1996 and 1997, respectively.
The Credit Facilities contain various covenants which contain interest,
fixed charge, and debt coverage ratios, the maintenance of minimum net worth and
limitations on the amount of debt, liens, asset sales, dividends and
acquisitions. Deferred financing costs of $9.2 million were capitalized and are
being amortized over the six and one-half year term of the Credit Facilities.
The Company is required to enter into interest rate protection agreements
with respect to $100 million of the initial drawdown and $100 million of the
second drawdown.
In December 1996, the Company entered into a two year $50 million notional
principal amount interest rate floored-swap, and pays, on a quarterly basis,
fixed interest equal to 6.00% and receives interest based on floating
three-month LIBOR. If LIBOR is less than 5.00%, the Company receives the
difference between 5.00% and the three-month LIBOR. This agreement expires
December 29, 1998.
In January 1997, the Company entered into a one year $50 million notional
principal amount interest rate cap. The interest rate cap resulted in the
Company receiving quarterly, the difference between the amount that three-month
LIBOR exceeded the cap rate of 6.25%. This agreement expired January 27, 1998.
In February 1997, the Company entered into a four year $50 million notional
principal amount interest rate swap. The interest rate swap will result in the
Company paying, on a quarterly basis, fixed interest equal to 6.11% and
receiving interest based on floating three month LIBOR. This four year interest
rate swap agreement expires February 20, 2001.
In March 1997, the Company entered into a two year $50 million notional
principal amount interest rate floored-swap, and pays, on a quarterly basis,
fixed interest equal to 6.36% and receives interest based on floating
three-month LIBOR. If LIBOR is less than 5.00%, the Company receives the
difference between 5.00% and the three-month LIBOR. This agreement expires March
24, 1999.
In April 1997, the Company entered into a one year $50 million notional
principal amount interest rate cap. The interest rate cap will result in the
Company receiving quarterly, the difference between the amount that three-month
LIBOR exceeds the cap rate of 6.50%. This agreement expires May 1, 1998.
In June 1997, the Company entered into a four year $25 million notional
principal amount interest rate swap. The interest rate swap will result in the
Company paying, on a quarterly basis, fixed interest equal to 6.365% and
receiving interest based on floating three-month LIBOR. This four year interest
rate swap agreement expires June 18, 2001.
In February 1996, the Predecessor Company entered into a 10-year, $100
million, 7.01% Senior Note transaction with a group of insurance companies. The
proceeds were used to reduce the Revolving Credit Agreement borrowings. This
note was repaid by proceeds from the Credit Facilities. A prepayment penalty of
$1.8 million was paid in 1996 and is included as a component of interest
expense.
In June 1996, the Predecessor Company entered into a $150 million, five
year Revolving Credit Agreement. The Company paid a facility fee ranging from
0.125% to 0.30% on the full amount of the committed facility. This agreement
included several pricing options (LIBOR, Bid Loans and Swing Line
F-19
<PAGE> 104
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans), letter of credit issuances and multi-currency borrowing options. This
Revolving Credit Agreement was repaid by proceeds from the Credit Facilities.
In June 1994, the Predecessor Company entered into a $225 million, three
year Revolving Credit Agreement. The Company paid a facility fee ranging from
0.20% to 0.375% on the full amount of the committed facility. This revolving
credit agreement included several pricing options (LIBOR, Bid Loans and Swing
Line Loans), letter of credit issuances and multicurrency borrowing options. The
Revolving Credit Agreement was replaced by the five year Revolving Credit
Agreement entered into in June 1996.
In October 1991, the Predecessor Company arranged a seven year $40 million,
8.75% Senior Note transaction with the Prudential Insurance Company. This note
was repaid by proceeds from the Credit Facilities. A prepayment penalty of $1.1
million was paid in 1996 and is included as a component of interest expense.
In January 1991, the Predecessor Company entered into a five year, $20
million notional principal amount interest rate swap. The Predecessor Company
paid, on a semi-annual basis, fixed interest rate equal to 8.485% and received
interest based on floating six-month LIBOR. This agreement expired January 22,
1996.
At December 31, 1997, the Company had $690 million in availability under
its commercial lines of credit ($449 million in the U.S. and $241 million
outside the U.S.). Unused commercial lines of credit at December 31, 1997 were
$349 million. The Company paid commitment fees of approximately $0.9 million on
the unused portion of the U.S. credit lines and varying fees on the foreign
credit lines. At December 31, 1996, the Company had $802 million in availability
under its commercial lines of credit ($540 million in the U.S. and $262 million
outside the U.S.). Unused commercial lines of credit at December 31, 1996 were
$560 million. The Company paid commitment fees of approximately $0.1 million on
the unused portion of the U.S. credit lines and varying fees on the foreign
credit lines.
Repayment requirements on long-term loans existing at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
TOTAL
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 1,222
1999........................................................ 50,250
2000........................................................ 68,750
2001........................................................ 71,250
2002........................................................ 84,583
Thereafter.................................................. 55,719
--------
$331,774
========
</TABLE>
F-20
<PAGE> 105
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- EQUITY:
The following schedule summarizes the changes in the number of outstanding
shares of preferred stock, common stock, LPUs and treasury stock:
<TABLE>
<CAPTION>
VOTING LIMITED
PREFERRED COMMON NON-VOTING PARTNERSHIP COMMON STOCK
STOCK STOCK COMMON STOCK UNITS IN TREASURY
<S> <C> <C> <C> <C> <C>
BALANCE 12/31/94............ 1,252 -- 16,000,000 2,465,729 13,190,263
------ ---------- ----------- ---------- -----------
Issued...................... 563 -- -- 43,000 (289,970)
Repurchased................. (491) -- -- (476,719) 365,779
------ ---------- ----------- ---------- -----------
BALANCE 12/31/95............ 1,324 -- 16,000,000 2,032,010 13,266,072
------ ---------- ----------- ---------- -----------
Issued...................... 67 -- -- 83,993 (215,907)
Repurchased................. -- -- -- (246,321) 491,733
Recapitalization............ (1,391) 58,469,280 (16,000,000) (1,869,682) (13,541,898)
------ ---------- ----------- ---------- -----------
BALANCE 12/31/96............ -- 58,469,280 -- -- --
------ ---------- ----------- ---------- -----------
Issued...................... -- 4,391,010 -- -- --
Repurchased................. -- (1,115,160) -- -- 1,115,160
------ ---------- ----------- ---------- -----------
BALANCE 12/31/97............ -- 61,745,130 -- -- 1,115,160
====== ========== =========== ========== ===========
</TABLE>
The preferred stock of the Predecessor Company was owned by members of the
Predecessor Company's Board of Directors. The Predecessor Company had the right
to reacquire the preferred stock when the holder ceased to be a member of the
Board of Directors.
On December 12, 1996, all outstanding Predecessor Company equity was
purchased for cash or exchanged for Company common stock pursuant to the
Recapitalization. In addition, all outstanding Predecessor Company options were
canceled for cash consideration or the award of Company options and all
outstanding GPUs were canceled for cash consideration (see Note 4). In addition,
all treasury shares were retired.
In connection with the consummation of the Recapitalization in December
1996, the Company created a class of preferred stock designated as Money Market
Preferred Stock (the "Money Market Preferred"). The Money Market Preferred
carries a variable rate dividend and is redeemable at the Company's election for
$7.67 per share following the fifth anniversary of the issuance thereof. At
December 31, 1996 and 1997, 10,000,000 shares of Money Market Preferred were
authorized. 87 shares of Money Market Preferred were issued and outstanding at
December 31, 1996 and 1997.
In connection with the Recapitalization, the Company also issued 11,086,950
shares of common stock ("Restricted Shares") to a trust ("Restricted Stock
Trust"). All Restricted Shares held in the Restricted Stock Trust are deposited
in the Management Voting Trust. Any employee awarded Restricted Shares under the
plan will become vested in the Restricted Shares on the earlier of (i) a change
of control event (as defined); (ii) the consummation of an initial public
offering or the six month anniversary following an initial public offering if,
in connection with the offering, the holders are unable to sell such Restricted
Shares; and (iii) upon any other event as determined by the Compensation
Committee of the Board of Directors with the written consent of the HFCP
Investors, if prior to an initial public offering, and the Management Voting
Trust. The Company has recorded unearned compensation of $85 million and $136.7
million, representing the fair value of the Restricted Shares at December 31,
1996 and 1997, respectively. Compensation expense will be recognized when
vesting becomes probable and will be equal to the fair value of the common stock
at the time that the Restricted Shares become vested. At December 31, 1996 and
1997, a total of 11,086,950 shares were outstanding and held in the Restricted
Stock Trust.
F-21
<PAGE> 106
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- MANDATORILY REDEEMABLE EQUITY SECURITIES:
Concurrent with the Recapitalization, the Company entered into a
Stockholders' agreement which includes both put rights and calls on the
Company's common stock. The Company has the right to purchase shares and the
stockholder has the right to cause the Company to purchase such shares at
certain times and subject to certain conditions. The put provision becomes
enforceable upon termination of employment for Management Investors if the
Company has not previously exercised its call right and upon the six-year
anniversary of the Recapitalization for HFCP. The carrying value of the
mandatorily redeemable equity securities held by the Management Investors is
equivalent to the redemption value of $7.67 and $12.33 at December 31, 1996 and
1997, respectively. The carrying value of the Mandatorily Redeemable Equity
Securities for common shares held by HFCP is being accreted to redemption value
over the six year period from the date of the Recapitalization. Accordingly, the
carrying value of Mandatorily Redeemable Equity Securities held by HFCP was
$7.67 and $8.47 at December 31, 1996 and 1997, respectively.
The accretion from carrying value to redemption value for the respective
periods is reflected as a charge to capital surplus. Both the calls and puts
terminate upon the earlier to occur of an initial public offering or such time
as the Common Stock is listed for trading on a national securities exchange.
NOTE 17 -- OPTIONS:
Under the Company's 1992 Stock Option Plan, options to purchase an
aggregate of 8,000,000 shares of common stock, at a price not less than the
prior year-end book value, as defined, could be granted to key employees. The
Predecessor Company also had an LPU Option Plan with substantially the same
terms as the common stock option plan. In accordance with the Recapitalization
(as discussed below), all prior option plans were terminated.
In connection with the Recapitalization, the shareholders approved a stock
option plan (the "Stock Option Plan") which allowed the Board of Directors to
grant to employees of the Company options to purchase up to 33,173,565 shares of
Company common stock. The Stock Option Plan governs both the Rollover Options
and certain other executive options (the "Executive Options").
At the closing of the Recapitalization (see Note 4), the Board of Directors
granted the Rollover Options which were immediately vested and exercisable. Each
Rollover Option has an exercise price of $1.92 per share, with certain limited
exceptions outside of the U.S. Of the Rollover Options, 50% have a term of five
years and the remaining 50% have a term of seven years. In connection with the
issuance of the Rollover Options, the Company recognized compensation expense of
$96.7 million (see Note 4).
At the closing of the Recapitalization, the Board of Directors granted to
employees 5,200,590 options to purchase shares of Company common stock at $7.67
per share (the "Closing Options"). The Closing Options vest as follows: 40% on
the grant date, 30% on the third anniversary of the grant date and 30% on the
fifth anniversary of the grant date.
Pursuant to the Stock Option Plan, the Board of Directors had the right to
grant additional options (the "Additional Options") to purchase up to 2,974,410
shares of Company common stock plus any shares that became available through the
cancellation of unexercised Executive Options. Through December 31, 1997,
Additional Options to purchase 1,891,200 shares of Company common stock had been
granted, each at $7.67 per share. As a result, during 1997 the Company
recognized a compensation charge of $1.3 million representing the difference
between the estimated fair market value of Company common stock and the exercise
price of $7.67 on date of grant in accordance with the applicable vesting
provisions of the Additional Options.
F-22
<PAGE> 107
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, at the closing of the Recapitalization, the Company issued
options to HFCP (see Note 4) to purchase 2,598,105 shares of Company common
stock at $7.67 per share which were exercisable immediately and expire on the
seventh anniversary of the closing. The HFCP Options are not governed under the
Stock Option Plan.
In December 1997, the Company adopted the Young & Rubicam Inc. 1997
Incentive Compensation Plan (the "Incentive Compensation Plan" or "ICP"). The
ICP superseded the Stock Option Plan and amended and restated the Restricted
Stock Plan (the Stock Option Plan and the Restricted Stock Plan (prior to such
amendment and restatement) (the "Preexisting Plans"), although all awards
granted prior to the adoption of the ICP, and any grants of Restricted Stock
made after such adoption but on or prior to March 31, 1998, will remain
outstanding in accordance with their terms and will be subject to the terms of
the Preexisting Plans.
The ICP provides for grants of stock options, stock appreciation rights
("SARS"), Restricted Stock, deferred stock, other stock-related awards, and
performance or annual incentive awards that may be settled in cash, stock or
other property ("Awards"). Under the ICP, the total number of shares of Company
common stock reserved and available for delivery to participants in connection
with Awards is 19,125,000, plus the number of shares of Company common stock
subject to awards under the Preexisting Plans that become available (generally
due to cancellation or forfeiture) after the effective date of the ICP;
provided, however that the total number of shares of Company common stock with
respect to which incentive stock options ("ISO") may be granted shall not exceed
15,000,000. Any shares of Company common stock delivered under the ICP may
consist of authorized and unissued shares or treasury shares.
The Board of Directors is authorized to grant stock options, including both
incentive stock options, non-qualified stock options, and SARS entitling the
participant to receive the excess of the fair market value of a share of common
stock on the date of exercise over the grant price of the SAR. The exercise
price per share subject to an option and the grant price of a SAR is determined
by the Board of Directors, but must not be less than the fair market value of a
share of common stock on the date of grant. The maximum term of each option or
SAR, the times at which each option or SAR will be exercisable, and provisions
requiring forfeiture of unexercised options or SARS at or following termination
of employment generally is fixed by the Board of Directors, except no option or
SAR may have a term exceeding ten years.
The Board of Directors may, at its discretion, accelerate the
exercisability, the lapsing of restrictions, or the expiration of deferral or
vesting periods of any award, and such accelerated exercisability, lapse,
expiration and vesting shall occur automatically in the case of a "change in
control" of the Company except to the extent otherwise provided in the award
agreement. In addition, the Board of Directors may provide that the performance
goals relating to any performance-based awards will be deemed to have been met
upon the occurrence of any change in control.
In December 1997, the Company granted options to employees to purchase an
aggregate of 9,577,950 shares of Company common stock at $12.33 per share, the
fair market value of such common stock as of the date of grant. Each such option
will expire if not exercised ten years after the date of grant and will be fully
exercisable on the fifth anniversary of the date of grant if the recipient
remains an employee of the Company or an affiliate as of such date; provided,
however, that in the event that the Company completes an initial public offering
of its common stock prior to December 31, 1999, the exercisability of 33 1/3% of
the shares subject to any such option will accelerate to December 31, 2000, if
the recipient remains an employee of the Company or an affiliate as of December
31, 2000, and an additional 33 1/3% of the shares subject to any such option
will accelerate to December 31, 2001, if the recipient remains an employee of
the Company or an affiliate as of December 31, 2001. Of the 9,577,950 options
granted in December 1997, options to purchase 1,152,150 shares of common stock
will not become exercisable until nine years and nine months from the date
F-23
<PAGE> 108
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of grant, unless certain 1998 operating targets are met, in which case the
vesting schedule described above will apply.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company applies APB Opinion No. 25, and related interpretations in accounting
for its plans. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under its plans
consistent with the methodology prescribed by SFAS 123, the Company's SFAS 123
net loss would be increased by $1.3 million and $9.4 million for 1995 and 1996
and the net loss and net loss per common share would be increased by $6.3
million and $.13, respectively, for 1997.
These SFAS 123 pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years. The fair value for these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following assumptions for the
period ended December 31, 1995, 1996 and 1997, respectively:
ADDITIONAL OPTIONS
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Expected term.......................... 2-10 years 5-10 years 10 years
Risk-free rate......................... 5.41%-7.22% 5.92%-6.61% 5.59%-7.12%
Dividend yield......................... 0% 0% 0%
Expected volatility.................... 0% 0% 0%
</TABLE>
The weighted-average fair value and weighted average exercise price of
options granted prior to the Recapitalization for which the exercise price
equals the fair value of Company common stock on the grant date was $11.23 and
$44.65 in 1995, respectively, and $13.28 and $47.14, in 1996, respectively. The
weighted-average fair value and weighted-average exercise price of options
granted on and subsequent to the Recapitalization for which the exercise price
equals the fair value of Company common stock on the grant date was $3.69 and
$7.67 in 1996, respectively, and $5.28 and $12.33 in 1997, respectively.
The weighted-average fair value and weighted-average exercise price of
options granted for which the exercise price was less than the fair value of
Company common stock on the grant date was $6.30 and $1.97 in 1996, respectively
and $6.76 and $7.67 in 1997, respectively. There were no option issuances prior
to the Recapitalization for which the exercise price was less than the estimated
fair value of Company common stock on the date of grant.
The Black-Scholes option valuation model was developed for use in
estimating the weighted-average fair value of traded options which have no
vesting restrictions and are fully transferable. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in managements opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
F-24
<PAGE> 109
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions involving options are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
<S> <C> <C>
JANUARY 1, 1995............................................. 1,633,110 $40.51
Granted................................................... 1,197,722 44.72
Exercised................................................. (144,400) 34.26
Cancellations............................................. (260,324) 40.17
---------- ------
DECEMBER 31, 1995........................................... 2,426,108 42.99
---------- ------
Granted................................................... 284,773 47.14
Exercised................................................. (252,278) 41.94
Cancellations............................................. (167,940) 42.83
Recapitalization cancellations............................ (2,290,663) 43.64
Recapitalization grants................................... 24,622,260 3.76
---------- ------
DECEMBER 31, 1996........................................... 24,622,260 3.76
---------- ------
Granted................................................... 11,469,150 11.56
Exercised................................................. (4,250,790) 2.19
Cancellations............................................. (827,415) 4.50
---------- ------
DECEMBER 31, 1997........................................... 31,013,205 6.84
========== ======
</TABLE>
The following information is as of December 31, 1997:
<TABLE>
<S> <C> <C> <C>
Number outstanding................................... 12,312,690 9,122,565 9,577,950
------------- ---------- ---------
Weighted-average contractual life, in years.......... 6 10 10
Weighted-average exercise price...................... $ 1.92 $ 7.67 $ 12.33
------------- ---------- ---------
Number exercisable................................... 12,312,690 4,930,305 0
------------- ---------- ---------
Weighted-average exercise price...................... $ 1.92 $ 7.67 $ 12.33
------------- ---------- ---------
</TABLE>
The following information is as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C> <C>
Range of Exercise Prices............................... $35.85-$44.65 $ 1.92 $ 7.67
------------- ---------- ---------
Number outstanding..................................... 2,426,108 16,823,565 7,798,695
------------- ---------- ---------
Weighted-average contractual life, in years............ 5 6 10
Weighted-average exercise price........................ $ 42.96 $ 1.92 $ 7.67
------------- ---------- ---------
Number exercisable..................................... 544,004 16,823,565 4,678,335
------------- ---------- ---------
Weighted-average exercise price........................ $ 40.92 $ 1.92 $ 7.67
------------- ---------- ---------
</TABLE>
NOTE 18 -- LITIGATION, COMMITMENTS AND CONTINGENT LIABILITIES:
The Company has performed, and continues to perform, services for clients
in a wide range of businesses, including tobacco products manufacturers. As a
result, the Company may from time to time be joined as a defendant in litigation
brought against its clients and others by third parties, including its
competitors, governmental and regulatory bodies, or consumers, alleging that
advertising claims made through the
F-25
<PAGE> 110
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company with respect to such clients' products are false, deceptive or
misleading; that such clients products are defective, injurious or pose some
manner of threat to the public generally; or that marketing or communications
materials created for such clients infringe upon the proprietary rights of third
parties. The Company's practice is to attempt to minimize such potential
liabilities through insurance coverage and/or indemnification provisions in its
agreements with clients and others.
Recently, the Company was named as a defendant in an action brought by a
county government against tobacco products manufacturers (including a current
and a former client of the Company) and others alleging that, because the
Company performed advertising and other professional services for such clients,
the Company is liable for damages for health and other claims. While this action
is in its early stages and the allegations against the Company have not been
made with specificity, the Company believes it has meritorious defenses to the
claims and intends to contest them vigorously.
The Company is named as party in litigation matters which arise in the
ordinary course of its business, including claims by former employees for money
damages and other relief based upon the circumstances or consequences of their
separation from employment. The Company believes that it has meritorious
defenses to these claims, and is contesting such claims vigorously. In addition,
the Company is covered by insurance with respect to some of such claims.
Accordingly, the Company does not expect such matters to have a material adverse
effect on its consolidated financial position, results of operations or cash
flows.
Net rental expense was $62.4 million, $62.9 million, and $74.4 million in
1995, 1996 and 1997, respectively. Future minimum rental commitments as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998................................................... $ 62,863
1999................................................... 54,525
2000................................................... 42,924
2001................................................... 40,162
2002................................................... 39,119
Thereafter............................................. 108,437
</TABLE>
Certain leases contain renewal options calling for increased rentals.
Others contain certain escalation clauses relating to taxes and other operating
expenses.
At December 31, 1996, the Company had outstanding guarantees of $18.6
million in support of credit lines of unconsolidated companies. At December 31,
1997, the Company had outstanding guarantees of $7.6 million in support of
credit lines of unconsolidated companies.
The Company and its corporate affiliates conduct business in various
developing countries in Asia, Africa, Latin America and Eastern Europe, where
the systems and bodies of commercial law and trade practices arising thereunder
are in a continuing state of evolution. Commercial laws in such countries are
often vague, arbitrary, contradictory, inconsistently administered and
retroactively applied. Under such circumstances, it is difficult for the Company
to determine with certainty at all times the exact requirements of such local
laws. Nevertheless, the Company believes that any difficulty in compliance with
local laws in such developing countries will not have a materially adverse
impact on the consolidated financial position, results of operations or cash
flows of the Company.
NOTE 19 -- FAIR VALUE OF FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES:
At December 31, 1996 and 1997, the carrying value of the Company's
financial instruments approximated fair value in all material respects.
F-26
<PAGE> 111
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company entered into interest rate exchange agreements with off-balance
sheet risk in order to reduce its exposure to changes in interest rates on its
variable rate long-term debt. These interest rate exchange agreements included
interest rate swaps, interest rate floors and interest rate caps. At December
31, 1996 and 1997, the notional amount of these agreements was $50 million and
$275 million, respectively (see Note 14). The fair value, which has been
estimated based upon quotations from independent third party banks, approximated
the notional amount at December 31, 1996 and 1997.
The Company enters into forward foreign exchange contracts to hedge certain
assets and liabilities which are recorded in a currency different from that in
which they settle. The purpose of these contracts is almost exclusively to hedge
intercompany transactions. The Company's forward foreign exchange contracts do
not create exchange rate risk because gains and losses on these contracts
generally offset losses and gains on the foreign currency denominated
intercompany transactions. The gains and losses on these positions are deferred
and included in the basis of the transaction upon settlement. The terms of these
contracts are generally a one month maturity. The tables below summarize the
Company's forward foreign exchange contracts outstanding at December 31, 1996
and 1997. The "buy" amounts represent the U.S. dollar equivalent of commitments
to purchase the respective currency, and the "sell" amounts represent the U.S.
dollar equivalent of commitments to sell the respective currency.
<TABLE>
<CAPTION>
1996 COMPANY BUYS COMPANY SELLS
(IN THOUSANDS)
<S> <C> <C>
Canadian Dollar............................................. $ -- $8,399
Italian Lira................................................ 4,524 --
Swiss Franc................................................. 5,934 --
Japanese Yen................................................ 6,199 --
------- ------
$16,657 $8,399
======= ======
</TABLE>
<TABLE>
<CAPTION>
1997 COMPANY BUYS COMPANY SELLS
(IN THOUSANDS)
<S> <C> <C>
German Deutschemark......................................... $ -- $13,318
Italian Lira................................................ -- 3,901
Swedish Krona............................................... -- 1,268
Swiss Franc................................................. 6,849 --
Japanese Yen................................................ 5,975 --
------- -------
$12,824 $18,487
======= =======
</TABLE>
Management believes the risk of incurring losses due to credit risk and
foreign exchange would not have a material adverse impact on the consolidated
financial position, results of operations or cash flows of the Company.
NOTE 20 -- SUBSEQUENT EVENT -- COMMON STOCK DIVIDEND
On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares of common stock payable for each share of common stock outstanding on the
effective date of the Company's planned initial public offering (see note 21).
Common stock and accumulated deficit reflected in the historical balance sheets
at December 31, 1996 and 1997 have been restated to reflect the common stock
dividend. The number of common shares the Company is authorized to issue was
also increased from 10 million to 250 million and the number of authorized
preferred shares, none of which have been issued, was increased from 50,000 to
10 million.
F-27
<PAGE> 112
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All references in the consolidated financial statements to shares, share
prices, per share data, including stock option and stock option plan
information, for periods after the 1996 Recapitalization are reflected on a post
dividend basis. All references in the historical financial statements to common
shares and Limited Partnership Units in Predecessor entities including option
and option plan information are reflected on a pre-dividend basis.
NOTE 21 -- PUBLIC OFFERING AND RELATED TRANSACTIONS SUBSEQUENT TO THE DATE OF
THE INDEPENDENT ACCOUNTANTS REPORT (UNAUDITED)
OFFERING: On February 26, 1998, the Company filed a Registration Statement
on Form S-1. Total proceeds to be raised in connection with the public offerings
are estimated at $430 million, comprised of approximately $150 million raised
from the sale of newly issued common shares and approximately $280 million
raised from common shares to be sold from certain selling stockholders. The
Company intends to use the estimated net proceeds from the sale of newly issued
common shares to repay borrowings under the term loan portion of its Credit
Facilities. The Company will not receive any of the net proceeds from the sale
of common stock by the selling stockholders.
NEW DEBT FACILITY: On March 10, 1998, the Company received an executed
commitment letter (the "Commitment") from Citibank N.A. and the Bank of America
National Trust and Savings Association for an aggregate of $150 million of a
$400 million, 5 year multicurrency revolving credit facility (the "Facility").
The Commitment is subject to, among other things, the receipt of commitments
from other lenders to provide not less than $250 million and the consummation of
the initial public offering resulting in not less than $100 million of cash
proceeds to the Company. Under the proposed terms of the Facility, interest
charged on loans will include base rate, Eurodollar and Eurocurrency rates, plus
applicable margins tied to the leverage ratio ranging from 0.04% to 0.05%.
RESTRICTED STOCK: In March 1998, the Company amended the Restricted Stock
Trust agreement which will result in the redemption of 1,855,845 of the
11,086,950 shares of common stock previously held in the Restricted Stock Trust
upon consummation of the initial public offering. Based upon an assumed initial
public offering price of $22.50, the consummation of the offering will give rise
to a non-recurring, non-cash, pre-tax charge of $207.7 million arising from the
vesting of the aggregate 9,231,105 shares of Restricted Stock.
F-28
<PAGE> 113
[PHOTOGRAPH OF OLD-FASHIONED
HANDWRITING ON HEAVY PAPER
VERY CLOSE-UP PREDOMINANTLY
IN ORANGE AND YELLOW.
NO PARTICULAR WORDS
CAN BE IDENTIFIED.]
F-29
<PAGE> 114
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 10
The Company........................... 17
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 31
Management............................ 41
Certain Transactions.................. 57
Principal and Selling Stockholders.... 58
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 73
Certain U.S. Tax Consequences to Non-
United States Holders............... 75
Underwriting.......................... 76
Legal Matters......................... 80
Experts............................... 80
Available Information................. 80
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
16,600,000 SHARES
[YOUNG & RUBICAM INC. LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
FURMAN SELZ
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
, 1998
======================================================
<PAGE> 115
[INTERNATIONAL BACK COVER PAGE]
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 10
The Company........................... 17
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 31
Management............................ 41
Certain Transactions.................. 57
Principal and Selling Stockholders.... 58
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 73
Certain U.S. Tax Consequences to Non-
United States Holders............... 75
Underwriting.......................... 76
Legal Matters......................... 80
Experts............................... 80
Available Information................. 80
Additional Information................ 81
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
16,600,000 SHARES
[YOUNG & RUBICAM INC. LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
FURMAN SELZ
GOLDMAN SACHS INTERNATIONAL
SALOMON SMITH BARNEY INTERNATIONAL
, 1998
======================================================
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Common Stock being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC registration fee........................................ $135,158
NASD filing fee............................................. 30,500
New York Stock Exchange listing fee......................... *
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 Y&R's Amended and Restated Certificate of Incorporation
provides substantially as follows:
Section 1. Elimination of Certain Liability of Directors. A director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit.
Section 2. Indemnification and Insurance.
(a) Right to indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Company or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended but, in the case of any such amendment, to the fullest
extent permitted by law, only to the extent that such amendment permits the
Company to provide broader indemnification rights than said law permitted the
Company to provide prior to such amendment), against all expense, liability and
loss (including, without limitation, attorneys' fees, judgments, fines, amounts
paid or to be paid in settlement, and excise taxes or penalties arising under
the Employee Retirement Income Security Act of 1974) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in paragraph (b)
hereof, the Company shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Company. The right to indemnification conferred in this
II-1
<PAGE> 117
Section shall be a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of its
final disposition; provided, however, that, if the General Corporation Law of
the State of Delaware requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Company of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Company may, by action of the Board of Directors,
provide indemnification to employees and agents of the Company with the same
scope and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Company within thirty days after a
written claim has been received by the Company, the claimant may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim and, if successful in whole or in part, the claimant shall be entitled to
be paid also the expense of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the Company)
that the claimant has not met the standards of conduct which make it permissible
under the General Corporation Law of the State of Delaware for the Company to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Company. Neither the failure of the Company (including
its Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
Section 5 of the Management Voting Trust Agreement provides substantially
as follows:
The Company hereby agrees to assume liability for and does hereby
indemnify, protect, save and hold harmless the Voting Trustees and their
successors, assigns, agents and servants to the full extent lawful from and
against any and all liabilities, obligations, losses, damages, penalties, taxes,
claims, actions, suits, costs, expenses or disbursements (including legal fees
and expenses) of any kind and nature whatsoever ("Losses") that may be imposed,
incurred by or asserted against the Voting Trustees or any of them individually
in any way relating to or arising under the Management Voting Trust Agreement or
the enforcement of any of the terms thereof or in any way relating to or arising
out of the administration of the trusts created thereby or the action or
inaction of the Management Voting Trust thereunder, unless the Company shall
sustain the burden of proving by clear and convincing evidence that such Losses
were proximately caused by an act or omission on the part of such Voting Trustee
or Voting Trustees that was not taken in good faith or that was not reasonably
believed to be in or not opposed to the best interests of the Company and the
Management Investors as a group. The Company shall advance to any Voting Trustee
all reasonable expenses in connection with litigation arising under the
Management Voting Trust Agreement or the enforcement of any of the terms
II-2
<PAGE> 118
thereof or in any way relating to or arising out of the administration of the
trusts created thereby or the action or inaction of the Management Voting Trust
thereunder, including, but not limited to, expenses in connection with
litigation in which such Voting Trustee purports to seek to enforce any portion
of the Management Voting Trust Agreement. A Voting Trustee shall be required to
execute an undertaking agreeing to repay the Company the amount so advanced in
the event it is ultimately determined that such Voting Trustee is not entitled
to indemnification with respect to such Losses, but the Voting Trustee shall not
be required to give a bond or any security for the advancement of such expenses.
To the extent insurance is available on commercially reasonable terms, the
Company will procure and maintain (for the benefit of the Company and the Voting
Trustees) insurance covering the Voting Trustees at least to the extent their
conduct would give rise to indemnification under the Management Voting Trust
Agreement. The provisions contained in this indemnification section shall
survive the termination of the Management Voting Trust Agreement.
The Restricted Stock Plan and the Management Stock Option Plan each provide
that no member of the Compensation Committee of the Company Board or of the
Company Board shall be liable for any action or determination made in good faith
with respect to such plan or any grant under such plan. The Restricted Stock
Plan and the Management Stock Plan each provide that to the fullest extent
permitted by law, the Company shall indemnify and save harmless each person made
or threatened to be made a party to any civil or criminal action or proceeding
by reason of the fact that such person, or such person's testator or intestate,
is or was a member of the Compensation Committee of the Company Board. The 1997
ICP Plan provides that no member of the Compensation Committee or any officer or
employee of the Company or an affiliate acting at the direction or on behalf of
the Compensation Committee shall be personally liable for any action or
determination taken or made in good faith with respect to the 1997 ICP Plan, and
shall, to the extent permitted by law, be fully indemnified and protected by the
Company with respect to any such action or determination.
Y&R also carries liability insurance covering officers and directors.
Pursuant to the proposed form of Underwriting Agreement, the Underwriters
have agreed to indemnify the directors and officers of Y&R in certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1996, in connection with the Recapitalization, Y&R (i) issued
and sold 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
II-3
<PAGE> 119
March 1998, the Company issued and sold 135,885 shares of Common Stock to its
employees for an aggregate amount of $864,196 pursuant to the exercise of
Rollover Options and Executive Options.
All of the sales of Y&R securities described above were deemed to be exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof, and in reliance on Rule 701 promulgated under Section 3(b) thereof
and Regulation D and Regulation S thereunder. Each recipient of such securities
represented in each transaction such recipient's intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*.............................
3.1 Amended and Restated Certificate of Incorporation of
Registrant..................................................
3.2 Amendment to Amended and Restated Certificate of
Incorporation of Registrant.................................
3.3 Amended and Restated Bylaws of Registrant...................
3.4 Form of Amended and Restated Certificate of Incorporation of
Registrant to become effective upon the closing of the
Offerings under the Registration Statement..................
3.5 Form of Amended and Restated Bylaws of Registrant to become
effective upon the closing of the Offerings under the
Registration Statement......................................
4.1 Specimen Certificate of Common Stock of Registrant*.........
4.2 Form of Rights Agreement....................................
4.3 Form of Certificate of Designation for Registrant's
Cumulative Participating Junior Preferred Stock.............
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton, counsel to
the Registrant, as to the legality of the shares of Common
Stock being registered*.....................................
9.1 Management Voting Trust Agreement, dated as of December 12,
1996+.......................................................
9.2 Young & Rubicam Inc. Restricted Stock Trust Agreement, dated
as of December 12, 1996+....................................
10.1 $700,000,000 Credit and Guarantee Agreement, dated as of
December 12, 1996+..........................................
10.2 Amended Stockholders' Agreement*............................
10.3 Contribution Agreement dated October 30, 1996+..............
10.4 Young & Rubicam Holdings Inc. Restricted Stock Plan+........
10.5 Young & Rubicam Holdings Inc. Management Stock Option
Plan+.......................................................
10.6 Young & Rubicam Inc. 1997 Incentive Compensation Plan.......
10.7 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with Peter
Georgescu+..................................................
10.8 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995, with Peter Georgescu+....
10.9 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1986, with Peter Georgescu+....
10.10 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with John McGarry+.....
10.11 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1986, with John McGarry+.......
10.12 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 31, 1994, with John McGarry+.....
</TABLE>
II-4
<PAGE> 120
<TABLE>
<C> <S>
10.13 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with Edward Vick+......
10.14 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995, with Edward Vick+........
10.15 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997 with Alan J.
Sheldon+....................................................
10.16 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995 with Alan Sheldon+........
10.17 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1988 with Alan Sheldon+........
10.18 Registration Rights Agreement, dated as of December 12,
1996+.......................................................
10.19 Letter Agreement dated as of October 16, 1997 by and between
Young & Rubicam Inc. and Michael J. Dolan+..................
10.20 Letter Agreement dated June 28, 1996 by and between Young &
Rubicam Inc. and Michael J. Dolan+..........................
10.21 Lease agreement for 230 Park Avenue South+..................
10.22 H&F Option Agreement, dated as of December 12, 1996, among
Y&R Holdings, Y&R Inc., Y&R Inc., and H&F Capital Partners
III, L.P.+..................................................
10.23 H&F Option Agreement, dated as of December 12, 1996, among
Y&R Holdings, Y&R Inc., Y&R Inc., and H&F Orchard Partners
III, L.P.+..................................................
10.24 Form of Young & Rubicam Inc. Key Corporation Managers Bonus
Plan........................................................
10.25 Amendment No. 1 to Restricted Stock Trust Agreement dated as
of March 13, 1998...........................................
10.26 Young & Rubicam Inc. Deferred Compensation Plan.............
10.27 Young & Rubicam Inc. Grantor Trust Agreement*...............
21.1 List of Subsidiaries........................................
23.1 Consent of Price Waterhouse LLP.............................
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
opinion to be filed as Exhibit 5.1)*........................
24.1 Powers of Attorney (included on signature pages)+...........
</TABLE>
- ------------------------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules
Schedule II -- Young & Rubicam Inc. and Subsidiary Companies Valuation and
Qualifying Accounts and Reserves.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a
II-5
<PAGE> 121
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(b) (1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(c) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery
each to purchaser.
II-6
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on April 17, 1998.
YOUNG & RUBICAM INC.
By: /s/ STEPHANIE W. ABRAMSON
------------------------------------
Name: Stephanie W. Abramson
Title: General Counsel and
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and Chief April 17, 1998
- ------------------------------------------------ Executive Officer (principal
Peter A. Georgescu executive officer)
* Vice Chairman, Chief Financial April 17, 1998
- ------------------------------------------------ Officer and Director (principal
Michael J. Dolan financial officer)
* Senior Vice President, Finance April 17, 1998
- ------------------------------------------------ (principal accounting officer)
Kevin Lavan
* Chief Operating Officer and Director April 17, 1998
- ------------------------------------------------
Edward H. Vick
* Executive Vice President and April 17, 1998
- ------------------------------------------------ Director
Thomas D. Bell, Jr.
* Director April 17, 1998
- ------------------------------------------------
F. Warren Hellman
* Director April 17, 1998
- ------------------------------------------------
Richard S. Bodman
* Director April 17, 1998
- ------------------------------------------------
Philip U. Hammarskjold
* Director April 17, 1998
- ------------------------------------------------
Alan D. Schwartz
* Director April 17, 1998
- ------------------------------------------------
John F. McGillicuddy
</TABLE>
*By: /s/ STEPHANIE W. ABRAMSON
---------------------------------
Name: Stephanie W. Abramson,
Title: Attorney-in-Fact
II-7
<PAGE> 123
SCHEDULE II
YOUNG AND RUBICAM INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------------
BALANCE AT CHARGED TO COSTS CHARGED TO BALANCE
DESCRIPTION BEGINNING AND EXPENSES OTHER ACCOUNTS DEDUCTIONS AT END
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1995
Allowance for Doubtful Accounts...... $ 8,284 $ 8,352 -- $ 5,110 $11,526
======= ======= == ======= =======
Year ended December 31, 1996
Allowance for Doubtful Accounts...... $11,526 $11,411 -- $13,088 $ 9,849
======= ======= == ======= =======
Year ended December 31, 1997
Allowance for Doubtful Accounts...... $ 9,849 $14,269 -- $ 9,993 $14,125
======= ======= == ======= =======
</TABLE>
S-1
<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*.............................
3.1 Amended and Restated Certificate of Incorporation of
Registrant..................................................
3.2 Amendment to Amended and Restated Certificate of
Incorporation of Registrant
3.3 Amended and Restated Bylaws of Registrant...................
3.4 Form of Amended and Restated Certificate of Incorporation of
Registrant to become effective upon the closing of the
Offerings under the Registration Statement..................
3.5 Form of Amended and Restated Bylaws of Registrant to become
effective upon the closing of the Offerings under the
Registration Statement......................................
4.1 Specimen Certificate of Common Stock of Registrant*.........
4.2 Form of Rights Agreement....................................
4.3 Form of Certificate of Designation for Registrant's
Cumulative Participating Junior Preferred Stock.............
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton, counsel to
the Registrant, as to the legality of the shares of Common
Stock being registered*.....................................
9.1 Management Voting Trust Agreement, dated as of December 12,
1996+.......................................................
9.2 Young & Rubicam Inc. Restricted Stock Trust Agreement, dated
as of December 12, 1996+....................................
10.1 $700,000,000 Credit and Guarantee Agreement, dated as of
December 12, 1996+..........................................
10.2 Amended Stockholders' Agreement*............................
10.3 Contribution Agreement dated October 30, 1996+..............
10.4 Young & Rubicam Holdings Inc. Restricted Stock Plan+........
10.5 Young & Rubicam Holdings Inc. Management Stock Option
Plan+.......................................................
10.6 Young & Rubicam Inc. 1997 Incentive Compensation Plan.......
10.7 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with Peter
Georgescu+..................................................
10.8 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995, with Peter Georgescu+....
10.9 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1986, with Peter Georgescu+....
10.10 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with John McGarry+.....
10.11 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1986, with John McGarry+.......
10.12 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 31, 1994, with John McGarry+.....
10.13 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997, with Edward Vick+......
10.14 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995, with Edward Vick+........
10.15 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of December 19, 1997 with Alan J.
Sheldon+....................................................
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.16 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1995 with Alan Sheldon+........
10.17 Young & Rubicam Inc. Select Executive Retirement Income
Plan, dated as of January 1, 1988 with Alan Sheldon+........
10.18 Registration Rights Agreement, dated as of December 12,
1996+.......................................................
10.19 Letter Agreement dated as of October 16, 1997 by and between
Young & Rubicam Inc. and Michael J. Dolan+..................
10.20 Letter Agreement dated June 28, 1996 by and between Young &
Rubicam Inc. and Michael J. Dolan+..........................
10.21 Lease agreement for 230 Park Avenue South+..................
10.22 H&F Option Agreement, dated as of December 12, 1996, among
Y&R Holdings, Y&R Inc., Y&R Inc., and H&F Capital Partners
III, L.P.+..................................................
10.23 H&F Option Agreement, dated as of December 12, 1996, among
Y&R Holdings, Y&R Inc., Y&R Inc., and H&F Orchard Partners
III, L.P.+..................................................
10.24 Form of Young & Rubicam Inc. Key Corporation Managers Bonus
Plan........................................................
10.25 Amendment No. 1 to Restricted Stock Trust Agreement dated as
of March 13, 1998...........................................
10.26 Young & Rubicam Inc. Deferred Compensation Plan.............
10.27 Young & Rubicam Inc. Grantor Trust Agreement*...............
21.1 List of Subsidiaries........................................
23.1 Consent of Price Waterhouse LLP.............................
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
opinion to be filed as Exhibit 5.1)*........................
24.1 Powers of Attorney (included on signature pages)+...........
</TABLE>
- ------------------------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
YOUNG & RUBICAM INC.
ARTICLE I - NAME
The name of the corporation (which is hereinafter referred to as
the "Corporation") is:
Young & Rubicam Inc.
ARTICLE II - AGENT
The registered office of the Corporation is located at 1209 Orange
Street, in the City of Wilmington, in the County of New Castle, in the State of
Delaware. The name of its registered agent at that address is The Corporation
Trust Company.
ARTICLE III - PURPOSE
The purposes for which the Corporation is formed are to engage in
any lawful act or activity for which corporations may be organized and
incorporated under the General Corporation Law of the State of Delaware.
ARTICLE IV - STOCK
Section 1. Authorized Stock. The aggregate number of shares which
the Corporation shall have authority to issue is 10,100,000. 100,000 of said
shares shall be without par value, and shall be designated Preference Stock, and
10,000,000 of said shares shall be of the par value of $0.01 per share, and
shall be designated Common Stock.
Section 2. Preference Stock. Subject to the limitations and in the
manner provided by law, shares of the Preference Stock may be issued from time
to time in series and, except as otherwise provided in Section 3 of this Article
IV with respect to the initial series of the Preference Stock (the "Money Market
Preferred Stock"), the Board of Directors of the Corporation is hereby
authorized to establish and designate series in addition to the Money Market
Preferred Stock, to fix the number of shares constituting each series, and to
fix the designations and the relative rights, preferences and limitations of the
shares of each series and the variations in the relative rights, preferences and
limitations as between series, and to increase and to decrease the number of
shares constituting each series. Subject to the limitations and in the manner
provided by law, the authority of the Board of Directors of the Corporation with
respect to each series shall include but shall not be limited to the authority
to determine the following:
(a) The designation of such series.
(b) The number of shares initially constituting such series.
<PAGE> 2
(c) The increase, and the decrease to a number not less than the
number of the outstanding shares of such series, of the number of shares
constituting such series theretofore fixed.
(d) The rate or rates and the times at which dividends on the
shares of such series shall be paid and whether or not such dividends
shall be cumulative and, if such dividends shall be cumulative, the date
or dates from and after which they shall accumulate; provided, however,
that, if the stated dividends are not paid in full, the shares of all
series of the Preference Stock ranking pari passu with the Money Market
Preferred Stock (including the shares of the Money Market Preferred
Stock) shall share ratably in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be
payable on such shares if all dividends were declared and paid in full.
(e) Whether or not the shares of such series shall be redeemable
and, if such shares shall be redeemable, the terms and conditions of
such redemption, including but not limited to the date or dates upon or
after which such shares shall be redeemable and the amount per share
which shall be payable upon such redemption, which amount may vary under
different conditions and at different redemption dates.
(f) The amount payable on the shares of such series in the event
of the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; provided, however, that the holders of such shares
shall be entitled to be paid, or to have set apart for payment, not less
than $.01 per share before the holders of shares of the Common Stock or
the holders of any other class or series of stock ranking junior to the
Preference Stock as to rights on liquidation shall be entitled to be
paid any amount or to have any amount set apart for payment; provided,
further, that, if the amounts payable on liquidation are not paid in
full, the shares of all series of the Preference Stock ranking pari
passu with the Money Market Preferred Stock (including the shares of
Money Market Preferred Stock) shall share ratably in any distribution of
assets other than by way of dividends in accordance with the sums which
would be payable in such distribution if all sums payable were
discharged in full. A liquidation, dissolution or winding up of the
Corporation, as such terms are used in this paragraph (f), shall not be
deemed to be occasioned by or to include any consolidation or merger of
the Corporation with or into any other corporation or corporations or a
sale, lease or conveyance of all or a part of its assets.
(g) Whether or not the shares of such series shall have voting
rights, in addition to the voting rights provided by law and, if such
shares shall have such voting rights, the terms and conditions thereof,
including but not limited to the right of the holders of such shares to
vote as a separate class either alone or with the holders of shares of
one or more other series of Preference Stock and the right to have more
than one vote per share.
(h) Whether or not a sinking fund shall be provided for the
redemption of the shares of such series and, if such a sinking fund
shall be provided, the terms and conditions thereof.
2
<PAGE> 3
(i) Whether or not a purchase fund shall be provided for the
shares of such series, and, if such a purchase fund shall be provided,
the terms and conditions thereof.
(j) Whether or not the shares of such series shall have conversion
privileges, and, if such shares shall have conversion privileges, the
terms and conditions of conversion, including but not limited to any
provision for the adjustment of the conversion rate or the conversion
price.
(k) Any other relative rights, preferences and limitations.
Section 3. Money Market Preferred Stock. The initial series of the
Preference Stock is hereby established, consisting initially of 50,000 shares
and designated Money Market Preferred Stock. Subject to the limitations provided
by law and to the provisions of Sections 1, 2 and 4 of this Article IV, the
relative rights, preferences and limitations of the shares of the Money Market
Preferred Stock are as follows:
(a) Dividends. The holders of Money Market Preferred Stock shall
not be entitled to any dividends, except as set forth below. The holders
of the Money Market Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors of the Corporation, cash
dividends at the Applicable Rate per share per annum, and no more,
payable for each quarterly dividend period ending on December 31, March
31, June 30, and September 30 (each, a "Dividend Period") (to be paid on
January 15, April 15, July 15 and October 15, respectively (the
"Dividend Payment Dates"), commencing with the Dividend Period ending
March 31, 1997). Dividends shall accrue and be cumulative with respect
to shares issued in the merger (the "Merger") with Young & Rubicam Inc.
(a New York corporation) (the "Predecessor") in exchange for shares of
substantially identical shares of the Predecessor from December 12, 1996
(the "Initial Issue Date") and with respect to shares issued subsequent
to the Merger, from the first day of the quarterly dividend period next
succeeding the quarterly dividend period in which such shares are
issued. Dividends on the Money Market Preferred Stock shall be paid in
full for all prior dividend periods, and shall be paid or declared and
set apart for payment in full for the current dividend period, before
the payment of any dividends, other than dividends payable in shares of
the Common Stock, on the Common Stock or any other class of stock
ranking junior to the Money Market Preferred Stock as to dividends.
Accumulations of dividends on the Money Market Preferred Stock shall
bear interest at the Applicable Rate per annum.
"Applicable Rate" means the rate per annum quoted by Bank of
America National Trust and Savings Association, a national banking
association ("B of A") at approximately 11:00 a.m. London time (or as
soon thereafter as practicable) for the offering by B of A to leading
banks in the London interbank market of dollar deposits having a term of
three months, as in effect on the first business day of the applicable
Dividend Period (or, in the case of the Dividend Periods ending December
31, 1996 and March 31, 1997, such rate as in effect on the Initial Issue
Date), plus 250 basis points.
(b) Redemption. (1) The Corporation, at the option of its Board of
Directors, may on or at any time and from time to time subsequent to
December 12, 2001 redeem all
3
<PAGE> 4
or less than all of the shares of the Money Market Preferred Stock then
outstanding at a redemption price per share of $115 (together with the
amount of all dividends accrued and unpaid thereon to the date fixed for
redemption); provided however, that no share of Money Market Preferred
Stock shall be redeemed on or prior to the fifth anniversary of the date
such share of Money Market Preferred Stock was issued.
(2) Notice of redemption shall be given by the Corporation by
causing a notice thereof to be mailed to each holder of record of the
Money Market Preferred Stock (as of the date of mailing) of the shares
to be redeemed or as of a record date fixed for the determination of the
holders entitled to such notice, addressed to such holder at his address
appearing on the books of the Corporation or given by him to the
Corporation for the purpose of notice, or, if no such address appears or
is given, at the place where the principal office of the Corporation is
located, not less than 30 or more than 90 days before the date fixed for
redemption. Such notice of redemption shall set forth the date fixed for
redemption, the redemption price, the shares, and the total number
thereof, to be redeemed and the place (in the Borough of Manhattan, The
City of New York), at which the stockholders may obtain payment of the
redemption price upon the surrender of the certificates representing
their shares. No defect in any such notice or in the mailing thereof
shall affect the validity of the proceeding for the redemption of the
shares so to be redeemed.
(3) On or after the date fixed for redemption and stated in such
notice, each holder of shares called for redemption shall, upon
surrender of certificates representing such shares to the Corporation at
the place designated in such notice, be entitled to receive payment of
the redemption price thereof. In case less than all of the shares
represented by any such surrendered certificates are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(4) If, on or prior to the date fixed for redemption of any
shares, the Corporation shall deposit with any bank or trust company
organized under the laws of the United States or of the State of New
York having an office in the Borough of Manhattan, The City of New York,
and having capital, surplus and undivided profits aggregating at least
$5,000,000, as a trust fund, a sum sufficient to redeem, on the date
fixed for redemption thereof, the shares called for redemption, with
irrevocable instructions and authority to the bank or trust company to
give the notice of redemption thereof, if such notice shall not
previously have been given by the Corporation, or to complete the giving
of such notice if theretofore commenced, and to pay, on and after the
date fixed for redemption (or, at the election of the Corporation, prior
thereto) the redemption price of such shares to the respective holders
upon the surrender of their certificates representing such shares, then,
(i) from and after the date of such deposit (although prior to the date
fixed for redemption), such shares shall be deemed to be redeemed and
dividends thereon shall cease to accrue after the date fixed for
redemption, and (ii) from and after the date of such deposit, such
shares shall be deemed to be no longer outstanding, and the holders
thereof shall cease to be stockholders with respect to such shares, and
shall have no rights with respect thereto except the right to receive
from the bank or trust company (or from the Corporation) payment of the
redemption price of such shares, without interest, upon the surrender of
the certificates representing such shares. Any moneys so deposited by
4
<PAGE> 5
the Corporation and unclaimed at the end of six years from the date
fixed for redemption shall, upon the request of the Corporation, be
repaid to it, in which event, the persons entitled thereto shall look
only to the Corporation for payment thereof and may apply for and
receive said moneys, without interest, from the Corporation; provided,
however, that, if the Corporation shall, as required or permitted by
law, pay to any state authority under applicable escheat or unclaimed
property laws any unclaimed moneys so repaid to the Corporation, said
persons shall thereafter look only to such state authorities for payment
thereof.
(5) Shares of the Money Market Preferred Stock so redeemed may be
reissued as shares of such series or as shares of such other series of
the Preference Stock as shall be determined by the Board of Directors of
the Corporation.
(c) Conversion. Shares of Money Market Preferred Stock shall not
be convertible into any other shares of capital stock of the
Corporation.
(d) Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders
of shares of the Money Market Preferred Stock shall be entitled to
receive from the assets of the Corporation the sum of $115 per share
together with the amount of all dividends accrued and unpaid thereon to
the date that payment is made available to such holders, before the
payment or declaration and setting apart for payment of any amount for,
or the distribution of any assets of the Corporation to, the holders of
shares of the Common Stock or the holders of shares of any other class
or series of stock ranking junior to the Money Market Preferred Stock in
connection with such liquidation, dissolution or winding up.
(e) Voting. The holders of shares of the Money Market Preferred
Stock shall have the right to vote, together with the holders of all the
outstanding shares of Common Stock and not as a class, except as
otherwise provided herein or as required by the Delaware General
Corporation Law, on all matters on which holders of Common Stock shall
have the right to vote. The holders of shares of Money Market Preferred
Stock shall have the right to cast one-tenth of one vote for each share
of Money Market Preferred Stock held by them.
Section 4. Except as otherwise provided by law, or in Section 3(e)
of this Article IV, the Common Stock shall have the exclusive right to vote for
the election of directors and for all other purposes. Each share of Common Stock
shall have one vote, and the Common Stock shall vote together as a single class.
ARTICLE V - ELECTION OF DIRECTORS
Unless and except to the extent that the By-Laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
ARTICLE VI - AMENDMENT OF BY-LAWS
Subject to the supermajority voting requirements specified in
Article IV of the Corporation's By-laws, in furtherance and not in limitation of
the powers conferred by law, the
5
<PAGE> 6
Board of Directors of the Corporation (the "Board") is expressly authorized and
empowered to make, alter and repeal the By-Laws of the Corporation by a majority
vote at any regular or special meeting of the Board or by written consent,
subject to the power of the stockholders of the Corporation to alter or repeal
any By-Laws made by the Board.
ARTICLE VII - AMENDMENT OF CHARTER
Subject to the supermajority voting requirements specified in
Article IV of the Corporation's By-laws, the Corporation reserves the right at
any time from time to time to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or here-after prescribed by law; and all
rights, preferences and privileges of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the right reserved in this Article.
ARTICLE VIII TRANSFER RESTRICTIONS
Section 1. Limitations on Transfers. (a) Any Transfer of legal or
beneficial ownership of Common Stock in breach of the Stockholders' Agreement
shall be prohibited and be void ab initio, regardless of whether such Transfer
has been recorded in the books of the Corporation and new certificates have been
issued.
(b) No employee or agent of the Corporation shall record any
prohibited Transfer, and the purported transferee of such a prohibited Transfer
(the "Purported Transferee") shall not be recognized as a stockholder of the
Corporation for any purpose whatsoever in respect of the Common Stock that is
the subject of the prohibited Transfer. The Purported Transferee shall not be
entitled, with respect to such stock, to any rights of a stockholder of the
Corporation, including without any limitation, the right to vote such Common
Stock or to receive dividends or distributions in respect thereof, if any.
(c) Insofar as necessary or appropriate, the By-Laws of the
Corporation shall make appropriate provisions to effectuate the requirements of
this Article VIII. All certificates representing Common Stock shall bear a
legend to the effect that such Common Stock is subject to the restrictions set
forth in this Article VIII.
(d) The Corporation shall be entitled to treat the person in whose
name any share of its stock is registered as the owner thereof for all purposes
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
Section 2. Transfer. As used in this Article VIII, the term
"Transfer" shall mean the direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition of any shares (or any related
voting trust certificates).
6
<PAGE> 7
ARTICLE IX - BOARD OF DIRECTORS
Section 1. Number. The number of the directors of the Corporation
shall be as from time to time fixed by, or in the manner provided in, the
By-Laws of the Corporation.
Section 2. Removal. Any director may be removed from office with
or without cause by the affirmative vote of the holders of at least a majority
of the voting power of the Corporation's capital stock entitled to vote
generally in the election of directors ("Voting Stock") then outstanding, voting
together as a single class.
ARTICLE X - STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders
of the Corporation may be taken by the written consent of stockholders holding a
majority of the outstanding shares of Voting Stock.
ARTICLE XI - LIABILITY OF DIRECTORS & OFFICERS, ETC.
Section 1. Elimination of Certain Liability of Directors. A
director of the Corporation shall not be personally liable to the Corporation 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 Corporation 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 Corporation or is or was serving at the request of the Corporation 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 Corporation 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 Corporation to provide broader indemnification rights than said law
permitted the Corporation 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 Corporation shall
7
<PAGE> 8
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in this Section shall be a contract right and shall include the right
to be paid by the Corporation 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 Corporation 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
Corporation may, by action of the Board, provide indemnification to employees
and agents of the Corporation 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 Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation 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 Corporation) 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 Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board, 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 Corporation (including its Board, 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 Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
8
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
YOUNG & RUBICAM INC.
The name of the corporation is Young & Rubicam Inc. (the "Corporation").
The date of filing of the Corporation's original certificate of incorporation
with the Secretary of State is October 17, 1996, which certificate of
incorporation was amended and restated by the filing of an amended and restated
certificate of incorporation with the Secretary of State on December 13, 1996.
The amendment to the amended and restated certificate of incorporation was duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
Article IV, Section 1 of the Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
"ARTICLE IV - STOCK
Section 1. Authorized Stock. The aggregate number of shares which the
Corporation shall have authority to issue is 260,000,000. 10,000,000 of said
shares shall be of the par value of $0.01 per share, and shall be designated
Preference Stock, and 250,000,000 of said shares shall be of the par value of
$0.01 per share, and shall be designated Common Stock."
IN WITNESS WHEREOF, Young & Rubicam Inc. has caused this Certificate of
Amendment to its Amended and Restated Certificate of Incorporation to be signed
by Renee E. Becnel, its Senior Vice President, and attested by Mark T. McEnroe,
its Assistant Secretary, this 8th day of April, 1998.
By: /s/ Renee E. Becnel
----------------------------
Name: Renee E. Becnel
Title: Senior Vice President
ATTEST:
By: /s/ Mark T. McEnroe
-------------------------------
Name: Mark T. McEnroe
Title: Assistant Secretary
<PAGE> 1
Exhibit 3.3
AMENDED AND RESTATED BY-LAWS
OF
YOUNG & RUBICAM INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE -- The registered office of Young &
Rubicam Inc. (the "Corporation") is located at 1209 Orange Street, in the City
of Wilmington, in the County of New Castle, in the State of Delaware. The name
of its registered agent at that address is The Corporation Trust Company.
SECTION 2. OTHER OFFICES -- The Corporation may have other
offices, either within or without the State of Delaware, at such place or places
as the Board of Directors may from time to time select or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS -- Annual meetings of stockholders for
the election of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. If
the Board of Directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the principal
office of the Corporation in the State of New York on the first Tuesday in
April. If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect, by a plurality vote, a
Board of Directors and they may transact such other corporate business as shall
be stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS -- Special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board, the President or the Secretary and shall be called by such persons at the
request in writing of at least two Directors.
SECTION 3. VOTING -- Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation of the Corporation
and these By-Laws may vote in person or by proxy executed in writing by the
stockholder or by his or her duly authorized attorney-in-fact. If a quorum is
present, the affirmative vote of a majority of the votes cast at a meeting of
the stockholders by the holders of shares entitled to vote thereon shall be the
act of the stockholders, unless the vote of a greater or lesser number of shares
of stock is required by law, the Certificate of Incorporation of the Corporation
or these Bylaws.
<PAGE> 2
A complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is entitled to be present.
SECTION 4. QUORUM-- Except as otherwise required by law, by the
Certificate of Incorporation of the Corporation or by these By-Laws, the
presence, in person or by proxy, of stockholders holding shares of capital stock
constituting a majority of the shares of capital stock of the Corporation issued
and outstanding and entitled to vote thereat, shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders present in person or by
proxy and entitled to vote thereat, shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
the requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote shall
be represented, any business may be transacted that might have been transacted
at the meeting as originally noticed; but only those stockholders entitled to
vote at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
SECTION 5. NOTICE OF MEETINGS -- Written notice, stating the
place, date and time of the meeting, and the general nature of the business to
be considered, shall be given to each stockholder entitled to vote thereat, at
his or her address as it appears on the records of the Corporation, not less
than ten nor more than sixty days before the date of the meeting. No business
other than that stated in the notice shall be transacted at any meeting without
the unanimous consent of all the stockholders entitled to vote thereat.
SECTION 6. ACTION WITHOUT MEETING -- Unless otherwise provided by
the Certificate of Incorporation of the Corporation, any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
shares of outstanding capital stock of the Corporation having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER -- The number of the directors of the
Corporation shall initially be fixed at nine, provided however, that in
accordance with Section 5.01(b) of the Stockholders' Agreement dated as of
December 12, 1996, by and among the HFCP Investors (as defined therein), the
Initial Management Investors (as defined therein), the Management Voting
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Trust (as defined therein), and the Director Investors (as defined therein),
Young & Rubicam Holdings Inc., Young & Rubicam Inc., a New York corporation, the
Corporation, and such other parties as may be added from time to time (the
"Stockholders' Agreement"), in the event the Corporation fails to satisfy the
Minimum Performance Standard (as defined in the Stockholders' Agreement), the
size of the Board shall be increased to such number as is necessary, such that
the HFCP Designees (as defined in the Stockholders' Agreement) then in office,
plus additional individuals then designated by the HFCP Investors (as defined in
the Stockholders' Agreement) would constitute a majority of the total number of
directors which the Corporation would have if there were no vacancies (the
"Whole Board").
SECTION 2. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled in accordance with
Article V of the Stockholders' Agreement, by the affirmative vote of a majority
of the remaining directors then in office, even though less than a quorum of the
Board of Directors, or by the stockholders.
SECTION 4. REMOVAL -- Subject to Article V of the Stockholders'
Agreement any director or directors may be removed with or without cause at any
time by the affirmative vote of the holders of a majority of the voting power
entitled to vote for the election of directors.
SECTION 5. COMMITTEES-- The Board of Directors may, by resolution
or resolutions passed by a majority of the Whole Board, designate one or more
committees, each committee to consist of one or more directors of the
Corporation, selected in accordance with Section 5.02 of the Stockholders'
Agreement.
Except as expressly set forth in Article IV of these By-laws with
respect to certain powers of the Compensation Committee, no such committee shall
have and or exercise any of the powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation with respect to
the matters set forth in Article IV of these By-laws.
SECTION 6. MEETINGS -- The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent of
all the Directors.
Regular meetings of the Board of Directors may be held without
notice at such places and times as shall be determined from time to time by
resolution of the Board of Directors.
Special meetings of the Board of Directors may be called by the
Chairman of the Board or the President, and shall be called by the Secretary on
the written request of any two directors, on at least one day's notice to each
director (except that notice to any director may be waived in writing by such
director) and shall be held at such place or places as may be determined by the
Board of Directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation of
the Corporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board
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of Directors, may participate in any meeting of the Board of Directors or any
committee thereof by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 7. QUORUM-- A majority of the Whole Board shall constitute
a quorum for the transaction of business. If at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time until a quorum is obtained, and no
further notice thereof need be given other than by announcement at the meeting
which shall be so adjourned. Subject to the supermajority voting requirements
set forth in Article IV hereof, the vote of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors unless the Certificate of Incorporation of the Corporation or these
By-Laws shall require the vote of a greater number.
SECTION 8. COMPENSATION -- The Joint Designees (as defined in the
Stockholders' Agreement) but no other member of the Board of Directors, shall be
compensated for their service as directors of the Corporation; provided,
however, that expenses for attendance at meetings of the Board of Directors and
committees of the Board of Directors shall be reimbursed for all members of the
Board of Directors. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity as an officer, agent
or otherwise, and receiving compensation therefor.
SECTION 9. ACTION WITHOUT MEETING -- Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE IV
RESTRICTED ACTIVITIES
SECTION 1. RESTRICTIONS -- (a) Except as contemplated in Section
5.04(a) of the Stockholders' Agreement (unless otherwise defined herein,
capitalized terms used in this Section shall have the meaning ascribed to them
in the Stockholders' Agreement), without the approval (i) by the unanimous vote
of all members of the Board of Directors present at a duly held meeting of the
Board of Directors at which (A) all Management Designees and (B) at least one
HFCP Designee are present, (ii) by the unanimous written consent of all the
members of the Board of Directors (at a time when there is no more than one
vacancy among the HFCP Designees, or the Management Designees, respectively) or
(iii) by each of (A) the majority vote of the Board of Directors at a duly held
meeting of the Board of Directors, (B) the Management Voting Trust (as evidenced
by a written consent) and (C) the HFCP Investors (as evidenced by a written
consent), the Corporation will not, and will not permit any of its Subsidiaries
to, take any of the following actions:
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<PAGE> 5
(1) amend its certificate of incorporation, by-laws, or other
organizational documents, or amend, terminate or waive any provision under, the
Contribution Agreement, the Merger Agreements, the Special Compensation
Arrangements or any Closing Agreement;
(2) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock or other equity interests, or
purchase or redeem, directly or indirectly, any shares of its capital stock or
other equity interests (other than (x) the repurchase of Shares pursuant to
Articles II, Ill and IV of the Stockholders' Agreement, (y) dividends by a
Subsidiary of the Corporation to the Corporation or a Subsidiary of the
Corporation and (z) dividends or other distributions made by any entity in which
the Corporation or any Subsidiary owns a minority interest, made in the normal
course of business, consistent with past practice);
(3) other than with respect to grant or exercise of the HFCP
Options, the Roll-Over Options or the Executive Options, or pursuant to grants
under the Restricted Stock Plan, issue, deliver or sell, or authorize the
issuance, delivery or sale of, any shares of its capital stock of any class, any
equity interest, or any Derivative Security, or any options, warrants,
conversion or other rights to purchase any such shares, equity interests or
Derivative Securities, or any securities convertible into or exchangeable for
such shares, equity interests or Derivative Securities, or issue or authorize
the issuance of any other security in respect of or in lieu of or in
substitution for shares of its capital stock, equity interests or Derivative
Securities, or enter into any agreements restricting the transfer of, or
affecting the rights of holders of, shares of Common Stock, grant any preemptive
or anti-dilutive rights to any holder of any class of securities of the
Corporation, or grant registration rights with respect to any of the
Corporation's securities;
(4) except for amounts available for draw under the Credit
Agreement, incur any indebtedness for borrowed money, guarantee any such
indebtedness or issue or sell any debt securities, in excess of $20 million in
the aggregate, or (other than pursuant to the revolving credit facility under
the Credit Agreement) prepay or refinance any indebtedness for borrowed money;
(5) engage in any Interested Party Transaction;
(6) except as contemplated by the capital expenditure budget
approved pursuant to clause (14) of this Article IV, acquire any assets or
properties for cash or otherwise for an amount in excess of $10 million in the
aggregate in one year;
(7) replace the independent auditors of the Corporation or make
any material change in any method of financial accounting or accounting
practice, except for any such change required by reason of a concurrent change
in generally accepted accounting principles;
(8) utilize, release or eliminate reserves that will have an
impact on Proportionate EBITA in an amount in excess of $2 million in the
aggregate during either the twelve month period ending on December 31, 1998 or
the twelve month period ending December 31, 2000;
(9) sell or otherwise dispose of assets material to the
Corporation and its Subsidiaries taken as a whole, including any operating group
or line of business;
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<PAGE> 6
(10) except with the approval of the Compensation Committee,
increase by twenty percent or more the annual base compensation of any officer
or key employee of the Corporation whose annual base compensation exceeded
$250,000 in the preceding twelve months, or enter into or make any material
change in any severance contract or arrangement with any such officer or key
employee;
(11) make any material change in the Bonus Pool or the overall
compensation structure of the Corporation and its Subsidiaries;
(12) consummate a complete liquidation or dissolution of the
Corporation, a merger or consolidation (x) in which the Corporation is a
constituent corporation or (y) with respect to which the shares of Common Stock
would have the right to vote under applicable state law, a sale of all or
substantially all of the Corporation's assets, or any similar business
combination (provided, however, that nothing in this clause (12) shall prohibit
the HFCP Investors from Transferring the Shares held by them in accordance with
Articles II and III of the Stockholders' Agreement);
(13) enter into any transaction involving in excess of $1 million
other than in the ordinary course of business;
(14) approve the annual capital expenditure budget of the
Corporation and its Subsidiaries, taken as a whole;
(15) appoint a new Chief Executive Officer of the Corporation; or
(16) enter into any agreement (except the Stockholders' Agreement,
the Merger Agreements and the Closing Agreements) with respect to the foregoing.
(b) Clauses (a)(i)(A) and (a)(iii)(B) of Section 1 of this Article
IV shall not apply if the Corporation as of the date such approval would
otherwise be required hereunder is not in compliance with the Minimum
Performance Standard. Clause (15) does not apply to removal of an existing
officer.
SECTION 2. TERM -- Upon the termination of the Stockholders'
Agreement, this Article IV shall have no further force or effect.
ARTICLE V
OFFICERS
SECTION 1. ELECTION; QUALIFICATIONS -- As soon as practicable
after each annual meeting of shareholders, the Board of Directors shall elect or
appoint a Chairman of the Board, one or more Vice Chairmen, a President, one or
more Executive Vice Presidents, one or more Senior Vice Presidents, one or more
Vice Presidents, a Secretary, a Treasurer, and such other officers, including
assistant officers, as the Board of Directors may from time to time deem
advisable. No officer need be a director of the Corporation. Any two or more
offices may be held by the same person, except the offices of President and
Secretary.
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SECTION 2. TERM OF OFFICE; VACANCIES -- All officers shall be
elected or appointed to hold office until the meeting of the Board of Directors
following the next annual meeting of shareholders. Each officer shall hold
office for such term, and until his or her successor has been elected or
appointed and qualified unless he or she shall earlier resign, die, or be
removed. Any vacancy occurring in any office, whether because of death,
resignation or removal, with or without cause, or any other reason, shall be
filled by the Board of Directors.
SECTION 3. REMOVAL; RESIGNATION. Any officer may be removed by the
Board of Directors with or without cause. Any officer may resign his or her
office at any time, such resignation to be made in writing and to take effect
immediately or on any future date stated in such writing, without acceptance by
the Corporation.
SECTION 4. POWERS AND DUTIES OF OFFICERS. Officers of the
Corporation shall, unless otherwise provided by the Board of Directors, each
have such powers and duties as generally pertain to their respective offices as
well as such powers and duties as may be set forth in these By-Laws or may from
time to time be specifically conferred or imposed by the Board of Directors. The
President shall be the chief executive officer of the Corporation, unless
otherwise designated by the Board of Directors.
SECTION 5. SHARES OF OTHER CORPORATIONS. Whenever the Corporation
is the holder of shares of any other corporation, any right or power of the
Corporation as such shareholder (including the attendance, acting and voting at
shareholders' meetings and execution of waivers, consents, proxies or other
instruments) may be exercised on behalf of the Corporation by the Chairman, any
Vice Chairman, the President, any Executive Vice President, any Senior Vice
President, Secretary or such other person as the Board of Directors may
authorize from time to time.
SECTION 6. DELEGATION. In the event of the absence of any officer
of the Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may at any time and from time to time
delegate all or any part of the powers or duties of any officer to any other
officer or officers or to any director or directors.
ARTICLE VI
TRANSFER RESTRICTIONS
SECTION 1. LIMITATIONS ON TRANSFERS. (a) Any Transfer of legal or
beneficial ownership of Common Stock in breach of the Stockholders' Agreement
shall be prohibited and be void ab initio, regardless of whether such Transfer
has been recorded in the books of the Corporation and new certificates have been
issued.
(b) No employee or agent of the Corporation shall record any
prohibited Transfer, and the purported transferee of such a prohibited Transfer
(the "Purported Transferee") shall not be recognized as a stockholder of the
Corporation for any purpose whatsoever in respect of the Common Stock that is
the subject of the prohibited Transfer. The Purported Transferee shall not be
entitled, with respect to such stock, to any rights of a stockholder of the
Corporation, including without any limitation, the right to vote such Common
Stock or to receive dividends or distributions in respect thereof, if any.
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(c) All certificates representing Common Stock shall bear a legend
to the effect that such Common Stock is subject to the restrictions set forth in
this Article VI.
(d) The Corporation shall be entitled to treat the person in whose
name any share of its stock is registered as the owner thereof for all purposes
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
SECTION 2. TRANSFER. As used in this Article VI, the term
"Transfer" shall mean the direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition of any shares (or any related
voting trust certificates).
ARTICLE VII
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK -- A certificate of stock shall
be issued to each stockholder certifying the number of shares owned by such
stockholder in the Corporation. Certificates of stock of the Corporation shall
be of such form and device as the Board of Directors may from time to time
determine.
SECTION 2. LOST CERTIFICATES -- A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representatives, to give the Corporation a bond, in such sum as
they may direct, not exceeding double the value of the stock, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate, or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be canceled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE -- In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days
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before the date of such meeting; (2) in the case of determination of
stockholders entitled to express consent to corporate action in writing without
a meeting, shall not be more than ten days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and (3)
in the case of any other action, shall not be more than sixty days prior to such
other action. If no record date is fixed: (1) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (2) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first day on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS -- Subject to the provisions of the
Certificate of Incorporation of the Corporation, the Board of Directors may, out
of funds legally available therefor at any regular or special meeting, declare
dividends upon stock of the Corporation as and when they deem appropriate.
Before declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends, such sum or sums as the Board of Directors
from time to time in their discretion deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such other
purposes as the Board of Directors shall deem conducive to the interests of the
Corporation.
SECTION 6. SEAL -- The corporate seal of the Corporation shall be
in such form as shall be determined by resolution of the Board of Directors.
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 7. FISCAL YEAR -- The fiscal year of the Corporation shall
be the calendar year unless otherwise determined by resolution of the Board of
Directors.
SECTION 8. CHECKS -- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, or agent or agents,
of the Corporation, and in such manner as shall be determined from time to time
by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever any notice is
required to be given under these By-Laws, personal notice is not required
(except in the case of notices pursuant to Article III, Section 6), and any
notice so required shall be deemed to be sufficient if given by depositing the
same in the United States mail, postage prepaid, addressed to the person
entitled thereto at his or her address as it appears on the records of the
Corporation,
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and such notice shall be deemed to have been given on the day of such mailing.
Stockholders not entitled to vote shall not be entitled to receive notice of any
meetings except as otherwise provided by law. Whenever any notice is required to
be given under the provisions of any law, or under the provisions of the
Certificate of Incorporation of the Corporation or of these By-Laws, a waiver
thereof, in writing and signed by the person or persons entitled to said notice,
whether before or after the time stated thereon, shall be deemed equivalent to
such required notice.
ARTICLE VIII
AMENDMENTS
Subject to the approval required by Article IV hereof, these
By-Laws may be altered, amended or repealed, or new By-laws may be adopted (a)
by the affirmative vote of the holders of shares constituting a majority of the
voting power of the Corporation, or (b) the Board of Directors by majority vote
of those present at any meeting at which a quorum is present.
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Exhibit 3.4
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
YOUNG & RUBICAM INC.
The name of the corporation is Young & Rubicam Inc. (the
"Corporation"). The date of filing of the Corporation's original certificate of
incorporation with the Secretary of State is October 17, 1996, which certificate
of incorporation was amended and restated by the filing of an amended and
restated certificate of incorporation with the Secretary of State on December
13, 1996 and further amended by the filing of a certificate of amendment with
the Secretary of State on April 9, 1998. This Amended and Restated Certificate
of Incorporation was duly adopted in accordance with the provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended and restated to read as follows:
ARTICLE I - NAME
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
Young & Rubicam Inc.
ARTICLE II - AGENT
The registered office of the Corporation is located at 1209 Orange
Street, in the City of Wilmington, in the County of New Castle, in the State of
Delaware. The name of its registered agent at that address is The Corporation
Trust Company.
ARTICLE III - PURPOSE
The purposes for which the Corporation is formed are to engage in
any lawful act or activity for which corporations may be organized and
incorporated under the General Corporation Law of the State of Delaware.
ARTICLE IV - STOCK
Section 1. Authorized Stock. The aggregate number of shares which
the Corporation shall have authority to issue is 260,00,000. 10,000,000 of said
shares shall be of the par value of $0.01 per share, and shall be designated
Preference Stock, and 250,000,000 of said shares shall be of the par value of
$0.01 per share, and shall be designated Common Stock.
Section 2. Preference Stock. Subject to the limitations and in the
manner provided by law, shares of the Preference Stock may be issued from time
to time in series and, except as otherwise provided in Section 3 of this Article
IV with respect to the initial series of the Preference Stock (the "Money Market
Preferred Stock"), the Board of Directors of the Corporation is hereby
authorized to establish and designate series of the Preference Stock in addition
to the Money Market Preferred Stock, to fix the number of shares constituting
each
<PAGE> 2
series, and to fix the designations and the relative rights, preferences and
limitations of the shares of each series and the variations in the relative
rights, preferences and limitations as between series, and to increase and to
decrease the number of shares constituting each series. Subject to the
limitations and in the manner provided by law, the authority of the Board of
Directors of the Corporation with respect to each series shall include but shall
not be limited to the authority to determine the following:
(a) The designation of such series.
(b) The number of shares initially constituting such series.
(c) The increase, and the decrease to a number not less than the
number of the outstanding shares of such series, of the number of shares
constituting such series theretofore fixed.
(d) The rate or rates and the times at which dividends on the shares
of such series shall be paid and whether or not such dividends shall be
cumulative and, if such dividends shall be cumulative, the date or dates
from and after which they shall accumulate; provided, however, that, if
the stated dividends are not paid in full, the shares of all series of the
Preference Stock ranking pari passu with the Money Market Preferred Stock
(including the shares of the Money Market Preferred Stock) shall share
ratably in the payment of dividends, including accumulations, if any, in
accordance with the sums which would be payable on such shares if all
dividends were declared and paid in full.
(e) Whether or not the shares of such series shall be redeemable
and, if such shares shall be redeemable, the terms and conditions of such
redemption, including but not limited to the date or dates upon or after
which such shares shall be redeemable and the amount per share which shall
be payable upon such redemption, which amount may vary under different
conditions and at different redemption dates.
(f) The amount payable on the shares of such series in the event of
the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided, however, that the holders of such shares shall be
entitled to be paid, or to have set apart for payment, not less than $.01
per share before the holders of shares of the Common Stock or the holders
of any other class or series of stock ranking junior to the Preference
Stock as to rights on liquidation shall be entitled to be paid any amount
or to have any amount set apart for payment; provided, further, that, if
the amounts payable on liquidation are not paid in full, the shares of all
series of the Preference Stock ranking pari passu with the Money Market
Preferred Stock (including the shares of Money Market Preferred Stock)
shall share ratably in any distribution of assets other than by way of
dividends in accordance with the sums which would be payable in such
distribution if all sums payable were discharged in full. A liquidation,
dissolution or winding up of the Corporation, as such terms are used in
this paragraph (f), shall not be deemed to be occasioned by or to include
any consolidation or merger of the Corporation with or into any other
corporation or other entity or corporations or other entities or a sale,
lease or conveyance of all or a part of its assets.
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(g) Whether or not the shares of such series shall have voting
rights, in addition to the voting rights provided by law and, if such
shares shall have such voting rights, the terms and conditions thereof,
including but not limited to the right of the holders of such shares to
vote as a separate class either alone or with the holders of shares of one
or more other series of Preference Stock and the right to have more than
one vote per share.
(h) Whether or not a sinking fund shall be provided for the
redemption of the shares of such series and, if such a sinking fund shall
be provided, the terms and conditions thereof.
(i) Whether or not a purchase fund shall be provided for the shares
of such series, and, if such a purchase fund shall be provided, the terms
and conditions thereof.
(j) Whether or not the shares of such series shall have conversion
privileges, and, if such shares shall have conversion privileges, the
terms and conditions of conversion, including but not limited to any
provision for the adjustment of the conversion rate or the conversion
price.
(k) Any other relative rights, preferences and limitations.
Section 3. Money Market Preferred Stock. The initial series of the
Preference Stock is hereby established, consisting initially of 50,000 shares
and designated Money Market Preferred Stock. Subject to the limitations provided
by law and to the provisions of Sections 1, 2 and 4 of this Article IV, the
relative rights, preferences and limitations of the shares of the Money Market
Preferred Stock are as follows:
(a) Dividends. The holders of Money Market Preferred Stock shall not
be entitled to any dividends, except as set forth below. The holders of
the Money Market Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors of the Corporation, cash dividends at
the Applicable Rate per share per annum, and no more, payable for each
quarterly dividend period ending on December 31, March 31, June 30, and
September 30 (each, a "Dividend Period") (to be paid on January 15, April
15, July 15 and October 15, respectively (the "Dividend Payment Dates"),
commencing with the Dividend Period ending March 31, 1997). Dividends
shall accrue and be cumulative with respect to shares issued in the merger
(the "Merger") with Young & Rubicam Inc. (a New York corporation) (the
"Predecessor") in exchange for shares of substantially identical shares of
the Predecessor from December 12, 1996 (the "Initial Issue Date") and with
respect to shares issued subsequent to the Merger, from the first day of
the quarterly dividend period next succeeding the quarterly dividend
period in which such shares are issued. Dividends on the Money Market
Preferred Stock shall be paid in full for all prior dividend periods, and
shall be paid or declared and set apart for payment in full for the
current dividend period, before the payment of any dividends, other than
dividends payable in shares of the Common Stock, on the Common Stock or
any other class of stock ranking junior to the Money Market Preferred
Stock as to dividends. Accumulations of dividends on the Money Market
Preferred Stock shall bear interest at the Applicable Rate per annum.
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<PAGE> 4
"Applicable Rate" means the rate per annum quoted by Bank of America
National Trust and Savings Association, a national banking association ("B
of A") at approximately 11:00 a.m. London time (or as soon thereafter as
practicable) for the offering by B of A to leading banks in the London
interbank market of dollar deposits having a term of three months, as in
effect on the first business day of the applicable Dividend Period (or, in
the case of the Dividend Periods ending December 31, 1996 and March 31,
1997, such rate as in effect on the Initial Issue Date), plus 250 basis
points.
(b) Redemption. (1) The Corporation, at the option of its Board of
Directors, may on or at any time and from time to time subsequent to
December 12, 2001 redeem all or less than all of the shares of the Money
Market Preferred Stock then outstanding at a redemption price per share of
$115 (together with the amount of all dividends accrued and unpaid thereon
to the date fixed for redemption); provided however, that no share of
Money Market Preferred Stock shall be redeemed on or prior to the fifth
anniversary of the date such share of Money Market Preferred Stock was
issued.
(2) Notice of redemption shall be given by the Corporation by
causing a notice thereof to be mailed to each holder of record of the
Money Market Preferred Stock (as of the date of mailing) of the shares to
be redeemed or as of a record date fixed for the determination of the
holders entitled to such notice, addressed to such holder at his address
appearing on the books of the Corporation or given by him to the
Corporation for the purpose of notice, or, if no such address appears or
is given, at the place where the principal office of the Corporation is
located, not less than 30 or more than 90 days before the date fixed for
redemption. Such notice of redemption shall set forth the date fixed for
redemption, the redemption price, the shares, and the total number
thereof, to be redeemed and the place (in the Borough of Manhattan, The
City of New York), at which the stockholders may obtain payment of the
redemption price upon the surrender of the certificates representing their
shares. No defect in any such notice or in the mailing thereof shall
affect the validity of the proceeding for the redemption of the shares so
to be redeemed.
(3) On or after the date fixed for redemption and stated in such
notice, each holder of shares called for redemption shall, upon surrender
of certificates representing such shares to the Corporation at the place
designated in such notice, be entitled to receive payment of the
redemption price thereof. In case less than all of the shares represented
by any such surrendered certificates are redeemed, a new certificate shall
be issued representing the unredeemed shares.
(4) If, on or prior to the date fixed for redemption of any shares,
the Corporation shall deposit with any bank or trust company organized
under the laws of the United States or of the State of New York having an
office in the Borough of Manhattan, The City of New York, and having
capital, surplus and undivided profits aggregating at least $5,000,000, as
a trust fund, a sum sufficient to redeem, on the date fixed for redemption
thereof, the shares called for redemption, with irrevocable instructions
and authority to the bank or trust company to give the notice of
redemption thereof, if such notice shall not previously have been given by
the Corporation, or to complete the giving of such notice if theretofore
commenced, and to pay, on and after the date fixed for redemption (or, at
the election of the Corporation, prior thereto) the redemption price of
such shares to the respective holders upon the surrender of their
certificates representing such shares, then, (i) from and after the date
of such deposit (although prior to the date fixed for
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redemption), such shares shall be deemed to be redeemed and dividends
thereon shall cease to accrue after the date fixed for redemption, and
(ii) from and after the date of such deposit, such shares shall be deemed
to be no longer outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares, and shall have no rights with
respect thereto except the right to receive from the bank or trust company
(or from the Corporation) payment of the redemption price of such shares,
without interest, upon the surrender of the certificates representing such
shares. Any moneys so deposited by the Corporation and unclaimed at the
end of six years from the date fixed for redemption shall, upon the
request of the Corporation, be repaid to it, in which event, the persons
entitled thereto shall look only to the Corporation for payment thereof
and may apply for and receive said moneys, without interest, from the
Corporation; provided, however, that, if the Corporation shall, as
required or permitted by law, pay to any state authority under applicable
escheat or unclaimed property laws any unclaimed moneys so repaid to the
Corporation, said persons shall thereafter look only to such state
authorities for payment thereof.
(5) Shares of the Money Market Preferred Stock so redeemed may be
reissued as shares of such series or as shares of such other series of the
Preference Stock as shall be determined by the Board of Directors of the
Corporation.
(c) Conversion. Shares of Money Market Preferred Stock shall not be
convertible into any other shares of capital stock of the Corporation.
(d) Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
shares of the Money Market Preferred Stock shall be entitled to receive
from the assets of the Corporation the sum of $115 per share together with
the amount of all dividends accrued and unpaid thereon to the date that
payment is made available to such holders, before the payment or
declaration and setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of shares of
the Common Stock or the holders of shares of any other class or series of
stock ranking junior to the Money Market Preferred Stock in connection
with such liquidation, dissolution or winding up.
(e) Voting. The holders of shares of the Money Market Preferred
Stock shall have the right to vote, together with the holders of all the
outstanding shares of Common Stock and not as a class, except as otherwise
provided herein or as required by the Delaware General Corporation Law, on
all matters on which holders of Common Stock shall have the right to vote.
The holders of shares of Money Market Preferred Stock shall have the right
to cast one-tenth of one vote for each share of Money Market Preferred
Stock held by them.
Section 4. Except as otherwise provided by law, in Section 3(e) of
this Article IV or by the resolution or resolutions providing for the issue of
any series of Preference Stock, the holders of outstanding shares of Common
Stock shall have the exclusive right to vote for the
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election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in such holder's name on the books of the Corporation.
ARTICLE V - ELECTION OF DIRECTORS
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VI - AMENDMENT OF BY-LAWS
In furtherance and not in limitation of the powers conferred by law,
the Board of Directors of the Corporation (the "Board") is expressly authorized
and empowered to adopt, amend and repeal the By-Laws of the Corporation by a
majority vote at any regular or special meeting of the Board or by written
consent, subject to the power of the stockholders of the Corporation to amend or
repeal any By-Laws made by the Board. Notwithstanding any other provision of
this Certificate of Incorporation or the By-Laws (and notwithstanding that a
lesser percentage may be specified by law), the provisions of Article II,
Sections 1, 2 and 5, Article III, Section 1, and Article VII of the By-Laws may
not be amended or repealed, nor may any By-Law provision inconsistent therewith
be adopted, by the stockholders of the Corporation unless such action is
approved by the affirmative vote of the holders of not less than eighty percent
(80%) of the voting power of all of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors,
considered for purposes of this Article VI as a single class.
ARTICLE VII - AMENDMENT OF CHARTER
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article. Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding that a
lesser percentage may be specified by law), the provisions of this Article VII,
Article VI, Article VIII, Article IX, Section 1 of Article X, Article XI,
Article XII, Article XIII and Article XIV hereof may not be amended or repealed,
nor may any Certificate of Incorporation provision inconsistent therewith be
adopted, by the stockholders of the Corporation unless such action is approved
by the affirmative vote of the holders of not less than eighty percent (80%) of
the voting power of all of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, considered
for purposes of this Article VII as a single class.
ARTICLE VIII - BOARD OF DIRECTORS
Section 1. Number. The business and affairs of the Corporation shall
be managed by or under the direction of a Board of Directors consisting of not
fewer than five (5) nor more than fifteen (15) directors (exclusive of directors
referred to in the following paragraph), the exact
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number to be determined from time to time by resolution adopted by affirmative
vote of a majority of such directors then in office. Upon the filing of this
Amended and Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware, the directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors determined by
the Board pursuant to this Section 1. Class I directors shall serve for an
initial term ending at the annual meeting of stockholders held in 1999, Class II
directors for an initial term ending at the annual meeting of stockholders held
in 2000 and Class III directors for an initial term ending at the annual meeting
of stockholders held in 2001. At each annual meeting of stockholders beginning
in 1999, successors to the directors in the class whose term expires at that
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for the remaining
term of that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office until
the annual meeting for the year in which his or her term expires and until his
or her successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preference Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the number of such directors and the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the provisions of Article IV of this
Certificate of Incorporation and any resolution or resolutions adopted by the
Board pursuant thereto, and such directors shall not be divided into classes
unless expressly so provided therein.
Section 2. Removal. Subject to the rights of the holders of any one
or more classes or series of Preference Stock issued by the Corporation, any
director, or the entire Board, may be removed from office at any time, but only
for cause and only by the affirmative vote of the holders of not less than
eighty percent (80%) of the voting power of all of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, considered for purposes of this sentence as a single class. Any
vacancy in the Board that results from an increase in the number of directors
may be filled by a majority of the directors then in office, provided that a
quorum is present, and any other vacancy may be filled only by a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall hold office for the remaining term of his or
her predecessor.
ARTICLE IX - STOCKHOLDER ACTION
No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Corporation may be taken by
stockholders of the Corporation except at such a meeting of stockholders.
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ARTICLE X - LIABILITY OF DIRECTORS & OFFICERS, ETC.
Section 1. Elimination of Certain Liability of Directors. A director
of the Corporation shall not be personally liable to the Corporation 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
Corporation 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 Corporation or is or was serving at the request of the Corporation as a
director, officer, trustee, partner, member, employee or agent of another
corporation or of a partnership, limited liability company, 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, trustee, partner, member, employee or agent or in any
other capacity while serving as a director, officer, trustee, partner, member,
employee or agent, shall be indemnified and held harmless by the Corporation 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 Corporation to provide broader indemnification
rights than said law permitted the Corporation 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 Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in this Section shall be a contract right and shall include the right
to be paid by the Corporation 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 Corporation 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, but no bond or other security shall
be required. The Corporation may, by action of the
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Board, provide indemnification to employees and agents of the Corporation 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 Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation 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 Corporation) 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 Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board, 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 Corporation (including its Board, 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 Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, trustee, partner, member,
employee or agent of the Corporation or another corporation, partnership,
limited liability company, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
General Corporation Law of the State of Delaware.
ARTICLE XI - ISSUANCE OF STOCK AND RIGHTS
The Board shall have authority to authorize the issuance, from time
to time without any vote or other action by the stockholders, of any or all
shares of stock of the Corporation of any class at any time authorized, any
securities convertible into or exchangeable for any such shares so authorized,
and any warrant, option or right to purchase, subscribe for or otherwise
acquire, shares of stock of the Corporation for any such consideration and on
such terms as the Board from time to time in its discretion lawfully may
determine, which terms and conditions may include, without limitation,
restrictions or conditions that preclude or limit the exercise, transfer or
receipt thereof or that invalidate or void any such securities, warrants,
options or rights; provided, however, that the consideration for the issuance of
shares of stock of the Corporation having par value shall not be less than such
par value. Stock so issued, for
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which the consideration has been paid to the Corporation, shall be fully paid
stock, and the holders of such stock shall not be liable to any further call or
assessments thereon. Nothing in this Article XI shall be interpreted to limit
the authority of the Board under the Delaware General Corporation Law or under
any other provision of this Certificate of Incorporation, to authorize the
issuance of shares, warrants, options or rights or other securities or to take
any other action.
ARTICLE XII - CONSIDERATION OF OTHER CONSTITUENCIES
In addition to any other considerations which the Board may lawfully
take into account in determining whether to take or to refrain from taking
corporate action on any matter, including proposing any matter to the
stockholders of the Corporation, the Board may, but shall not be obligated to,
take into account the interests of clients or other customers, creditors,
current and retired employees and other constituencies of the Corporation and
its subsidiaries and the effect upon communities in which the Corporation and
its subsidiaries do business.
ARTICLE XIII - SHAREHOLDER PROPOSAL AND NOMINATION PROCEDURES
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.
ARTICLE XIV - BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Corporation shall be governed in all manner and respects by the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"); provided, however, that in no case shall Hellman & Friedman Capital
Partners III, L.P., a California limited partnership, H&F Orchard Partners III,
L.P., a California limited partnership, H&F International Partners III, L.P., a
California limited partnership, or any successor to all or substantially all of
their assets, or any affiliate thereof (collectively, "H&F Investors"), or any
person who is a Transferee (as defined below) of the H&F Investors, regardless
of the total percentage of the Corporation'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. As used in this Article XIV, the
terms "interested stockholder", "owned", "person" and "voting stock" shall have
the meanings ascribed to such terms in Section 203(c) of the Delaware General
Corporation Law, and the term "Transferee" shall mean any person to which any
H&F Investor sells, distributes or otherwise transfers Common Stock, or other
voting stock of the Corporation, provided that (i) the transfer to such
Transferee either is not restricted under, or occurs in compliance with, the
transfer restrictions set forth in Articles II and III of the Amended and
Restated Stockholders' Agreement dated as of April __, 1998 by and among the H&F
Investors, the Management Investors and the Management Voting Trust (as such
terms are defined therein), such additional signatories as may be deemed added
from time to time pursuant thereto, and the Company (the "Stockholders'
Agreement"), and (ii) such Transferee becomes a party to the Stockholders'
Agreement if required thereby.
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IN WITNESS WHEREOF, Young & Rubicam Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by _________________, its
[title], and attested by ____________________, its [secretary], this __ day of
_________, 1998.
By: _____________________________
Name:
Title:
ATTEST:
By: ________________________
Name:
Title:
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Exhibit 3.5
AMENDED AND RESTATED BY-LAWS
of
YOUNG & RUBICAM INC.
============================
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE -- The registered office of Young &
Rubicam Inc. (the "Corporation") is located at 1209 Orange Street, in the City
of Wilmington, in the County of New Castle, in the State of Delaware. The name
of its registered agent at that address is The Corporation Trust Company.
SECTION 2. OTHER OFFICES -- The Corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time select or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS -- Annual meetings of stockholders for
the election of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. If
the Board of Directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the principal
office of the Corporation in the State of New York on the first Tuesday in June.
If the date of the annual meeting shall fall upon a legal holiday, the meeting
shall be held on the next succeeding business day. At each annual meeting, the
stockholders entitled to vote shall elect directors by a plurality vote, in
accordance with Article VIII of the Certificate of Incorporation, and the
stockholders may transact such other corporate business as shall be stated in
the notice of the meeting.
SECTION 2. SPECIAL MEETINGS -- Except as provided in the Certificate
of Incorporation, special meetings of the stockholders may be called only on the
order of the Chairman of the Board or the Board of Directors and shall be held
at such date, time and place as may be specified by such order. The business
permitted to be conducted at any special meeting of the stockholders is limited
to the purpose or purposes specified by such order.
SECTION 3. VOTING -- Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation of the Corporation and these
By-Laws may vote in person or by proxy executed in writing by the stockholder or
by his or her duly authorized attorney-in-fact. If a quorum is present, the
affirmative vote of a majority of the votes cast at a meeting of the
stockholders by the holders of shares entitled to vote thereon shall be the act
of
<PAGE> 2
the stockholders, unless the vote of a greater or lesser number of shares of
stock is required by law, the Certificate of Incorporation of the Corporation or
these Bylaws.
A complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, with the address of each, and the number of
shares held by each, shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is entitled to be present.
SECTION 4. QUORUM -- Except as otherwise required by law, by the
Certificate of Incorporation of the Corporation or by these By-Laws, the
presence, in person or by proxy, of stockholders holding shares of capital stock
constituting a majority of the shares of capital stock of the Corporation issued
and outstanding and entitled to vote thereat, shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders present in person or by
proxy and entitled to vote thereat, shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
the requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote shall
be represented, any business may be transacted that might have been transacted
at the meeting as originally noticed; but, unless the Board of Directors fixes a
new record date, only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. NOTICE OF MEETINGS -- Written notice of all meetings of
the stockholders shall be mailed or delivered to each stockholder not less than
ten nor more than sixty days before the meeting. The notice or an accompanying
document shall identify the business to be transacted at the meeting as
determined by the Board of Directors and, if directors are to be elected, the
nominees therefor proposed by the Board of Directors.
Other business may be transacted at the annual meeting (but not at
any special meeting), only if the Secretary of the Corporation has received from
the sponsoring stockholder (a) not less than ninety nor more than one hundred
twenty days before the first Tuesday in June (or, if the Board of Directors has
designated another date for the annual meeting pursuant to Section 1 of this
Article II, 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 initial public disclosure or announcement) a written notice
setting forth (i) as to each matter the stockholder proposes to bring before the
annual meeting, a brief description of the proposal desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
which are owned beneficially and of record by the stockholder on the date of
such stockholder's notice and (iv) any material interest of the stockholder in
such proposal, and (b) not more than ten days after receipt by the sponsoring
stockholder of a written request from the Secretary, such additional information
as the Secretary
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<PAGE> 3
may reasonably require. Notwithstanding anything in these By-Laws to the
contrary, no business shall be brought before or conducted at an annual meeting
except in accordance with the provisions of this Section 5 of Article II. The
officer of the Corporation or other person presiding over the annual meeting
shall, if the facts so warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 5 of Article II and, if he or she should so
determine, such officer shall so declare to the meeting and any business so
determined to be not properly brought before the meeting shall not be
transacted.
Candidates for election to the Board of Directors of the Corporation
(other than nominees proposed by the Board of Directors) may be nominated at the
annual meeting (but not at any special meeting), only if the Secretary of the
Corporation has received from the nominating stockholder (a) not less than
ninety nor more than one hundred twenty days before the first Tuesday in June
(or, if the Board of Directors has designated another date for the annual
meeting pursuant to Section 1 of this Article II, 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 initial public disclosure or
announcement) a written notice setting forth (i) with respect to each person
whom such stockholder proposes to nominate for election or re-election as a
director, all information relating to such person that would be required to be
disclosed in solicitations of proxies for election of directors, or would
otherwise be required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, if such Regulation 14A were
applicable (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected) or any successor
regulation or statute, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and (iii) the
class and number of shares which are owned beneficially and of record by the
stockholder on the date of such stockholder's notice, and (b) not more than ten
days after receipt by the nominating stockholder of a written request from the
Secretary, such additional information as the Secretary may reasonably require.
Notwithstanding anything in these By-Laws to the contrary, no person shall be
eligible for election as a director except in accordance with the provisions of
this Section 5 of Article II. The officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
provisions of this Section 5 of Article II and, if he or she should so
determine, such officer shall so declare to the meeting and any such defective
nomination shall be disregarded.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER -- Subject to the provisions of the Certificate
of Incorporation, the number of directors of the Corporation shall initially be
fixed at nine and thereafter shall be determined from time to time by
resolution adopted by affirmative vote of a majority of such directors then in
office.
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<PAGE> 4
SECTION 2. COMMITTEES -- The Board of Directors may, by resolution
or resolutions passed by a majority of the entire Board of Directors, designate
one or more committees, each committee to consist of one or more directors of
the Corporation.
SECTION 3. MEETINGS -- The Board of Directors may hold an annual
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent of all the directors.
Regular meetings of the Board of Directors or any committee may be
held without notice at such places and times as shall be determined from time to
time by resolution of the Board of Directors or such committee, respectively.
Special meetings of the Board of Directors may be called by the
Chairman of the Board or the President, and shall be called by the Secretary on
the written request of any two directors, on at least one day's notice to each
director (except that notice to any director may be waived in writing by such
director) and shall be held at such place or places as may be determined by the
Board of Directors, or as shall be stated in the call of the meeting.
Special meetings of a committee of the Board of Directors may be
called by the chairman of the committee, and shall be called by the secretary of
the committee on the written request of any two members, on at least one day's
notice to each member (except that notice to any member may be waived in writing
by such member) and shall be held at such place or places as may be determined
by the committee, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation of
the Corporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in any meeting
of the Board of Directors or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
SECTION 4. QUORUM -- A majority of the entire Board of Directors or
a majority of an entire committee shall constitute a quorum of the Board of
Directors or such committee for the transaction of business. If at any meeting
of the Board of Directors or a committee there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum is obtained, and no further notice thereof need be given other
than by announcement at the meeting which shall be so adjourned. The vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless the Certificate of
Incorporation of the Corporation or these By-Laws shall require the vote of a
greater number.
SECTION 5. COMPENSATION -- The directors shall receive such
compensation for their services as may be prescribed by the Board of Directors.
Expenses for attendance at meetings of the Board of Directors and committees of
the Board of Directors shall be reimbursed for all members of the Board of
Directors. Nothing herein contained shall be
4
<PAGE> 5
construed to preclude any director from serving the Corporation in any
other capacity as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 6. ACTION WITHOUT MEETING -- Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE IV
OFFICERS
SECTION 1. ELECTION; QUALIFICATIONS -- As soon as practicable after
each annual meeting of shareholders, the Board of Directors shall elect or
appoint a Chairman of the Board, one or more Vice Chairmen, a President, one or
more Executive Vice Presidents, one or more Senior Vice Presidents, one or more
Vice Presidents, a Secretary, a Treasurer, and such other officers, including
assistant officers, as the Board of Directors may from time to time deem
advisable. No officer need be a director of the Corporation. Any two or more
offices may be held by the same person, except the offices of President and
Secretary.
SECTION 2. TERM OF OFFICE; VACANCIES -- All officers shall be
elected or appointed to hold office until the meeting of the Board of Directors
following the next annual meeting of stockholders. Each officer shall hold
office for such term, and until his or her successor has been elected or
appointed and qualified unless he or she shall earlier resign, die, or be
removed. Any vacancy occurring in any office, whether because of death,
resignation or removal, with or without cause, or any other reason, shall be
filled by the Board of Directors.
SECTION 3. REMOVAL; RESIGNATION. Any officer may be removed by the
Board of Directors with or without cause. Any officer may resign his or her
office at any time, such resignation to be made in writing and to take effect
immediately or on any future date stated in such writing, without acceptance by
the Corporation.
SECTION 4. POWERS AND DUTIES OF OFFICERS. Officers of the
Corporation shall, unless otherwise provided by the Board of Directors, each
have such powers and duties as generally pertain to their respective offices as
well as such powers and duties as may be set forth in these By-Laws or may from
time to time be specifically conferred or imposed by the Board of Directors. The
Board of Directors shall designate either the Chairman of the Board or the
President as the chief executive officer of the Corporation.
SECTION 5. SHARES OF OTHER CORPORATIONS. Whenever the Corporation is
the holder of shares of any other corporation, any right or power of the
Corporation as such shareholder (including the attendance, acting and voting at
shareholders' meetings and execution of waivers, consents, proxies or other
instruments) may be exercised on behalf of the Corporation by the Chairman, any
Vice Chairman, the President, any Executive Vice President, any Senior Vice
President, the Secretary or such other person as the Board of Directors may
authorize from time to time.
5
<PAGE> 6
SECTION 6. DELEGATION. In the event of the absence of any officer of
the Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may at any time and from time to time
delegate all or any part of the powers or duties of any officer to any other
officer or officers or to any director or directors.
ARTICLE V
TRANSFER RESTRICTIONS
Any direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition (a "Transfer") of legal or
beneficial ownership of any stock heretofore or hereafter issued and sold by the
Corporation 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 Corporation nor any employee or
agent of the Corporation shall record any Transfer prohibited by the preceding
sentence, and the purported transferee of such a prohibited Transfer (the
"Purported Transferee") shall not be recognized as a securityholder of the
Corporation for any purpose whatsoever in respect of the security or securities
that are the subject of the prohibited Transfer. The Purported Transferee shall
not be entitled, with respect to such securities, to any rights of a
securityholder of the Corporation, including without limitation, in the case of
securities that are Common Stock, the right to vote such Common Stock or to
receive dividends or distributions in respect thereof, if any. All certificates
representing securities subject to the transfer restrictions set forth in this
Article V shall bear a legend to the effect that the securities represented by
such certificates are subject to such restrictions, unless and until the Company
determines in its sole discretion that such legend may be removed consistent
with applicable law.
ARTICLE VI
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK -- A certificate of stock shall be
issued to each stockholder certifying the number of shares owned by such
stockholder in the Corporation. Certificates of stock of the Corporation shall
be in such form as the Board of Directors may from time to time determine.
SECTION 2. LOST CERTIFICATES -- A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representatives, to give the Corporation a bond, in such sum as
they may direct, not exceeding double the value of the stock, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate, or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and
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<PAGE> 7
transfer books and ledgers, or to such other person as the Board of Directors
may designate, by whom they shall be canceled, and new certificates shall
thereupon be issued. A record shall be made of each transfer and whenever a
transfer shall be made for collateral security, and not absolutely, it shall be
so expressed in the entry of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE -- In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before the date
of such meeting; and (2) in the case of any other action, shall not be more than
sixty days prior to such other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; and (2) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS -- Subject to the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors may, out of funds
legally available therefor at any regular or special meeting, declare dividends
upon stock of the Corporation as and when they deem appropriate. Before
declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends, such sum or sums as the Board of Directors
from time to time in their discretion deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such other
purposes as the Board of Directors shall deem conducive to the interests of the
Corporation.
SECTION 6. SEAL -- The corporate seal of the Corporation shall be in
such form as shall be determined by resolution of the Board of Directors. Said
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 7. FISCAL YEAR -- The fiscal year of the Corporation shall
be the calendar year unless otherwise determined by resolution of the Board of
Directors.
SECTION 8. CHECKS -- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, or agent or agents,
of the Corporation, and in such manner as shall be determined from time to time
by resolution of the Board of Directors.
7
<PAGE> 8
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever any notice is
required to be given under these By-Laws, personal notice is not required
(except in the case of notices pursuant to Article III, Section 3), and any
notice so required shall be deemed to be sufficient if given by depositing the
same in the United States mail, postage prepaid, addressed to the person
entitled thereto at his or her address as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by law. Whenever any notice
is required to be given under the provisions of any law, or under the provisions
of the Certificate of Incorporation of the Corporation or of these By-Laws, a
waiver thereof, in writing and signed by the person or persons entitled to said
notice, whether before or after the time stated thereon, shall be deemed
equivalent to such required notice.
ARTICLE VII
AMENDMENTS
In furtherance and not in limitation of the powers conferred by law,
the Board of Directors of the Corporation is expressly authorized and empowered
to adopt, amend and repeal the By-Laws of the Corporation by a majority vote at
any regular or special meeting of the Board of Directors or by written consent,
subject to the power of the stockholders of the Corporation to amend or repeal
any By-Laws made by the Board of Directors. Notwithstanding any other provisions
of the Certificate of Incorporation or the By-Laws (and notwithstanding that a
lesser percentage may be specified by law), the provisions of Article II,
Sections 1, 2 and 5, Article III, Section 1, and this Article VII of the By-Laws
may not be amended or repealed, nor may any By-Law provision inconsistent
herewith or therewith be adopted, by the stockholders of the Corporation unless
such action is approved by the affirmative vote of the holders of not less than
eighty percent (80%) of the voting power of all of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, considered for purposes of this Article VII as a single class.
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<PAGE> 1
Exhibit 4.2
- --------------------------------------------------------------------------------
YOUNG & RUBICAM INC.
AND
THE BANK OF NEW YORK
-----------------------------
Rights Agent
Rights Agreement
Dated as of April __, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Section Page
- ------- ----
1 Certain Definitions................................................... 1
2 Appointment of Rights Agent........................................... 7
3 Issue of Right Certificates........................................... 7
4 Form of Right Certificates............................................ 9
5 Countersignature and Registration..................................... 9
6 Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or
Stolen Right Certificates............................................. 10
7 Exercise of Rights; Purchase Price; Expiration Date of Rights......... 11
8 Cancellation of Right Certificates.................................... 13
9 Reservation and Availability of Capital Stock......................... 13
10 Preferred Share Record Date........................................... 15
11 Adjustment of Purchase Price, Number of Shares or
Number of Rights...................................................... 15
12 Certification of Adjusted Purchase Price or Number of Shares.......... 23
13 Consolidation, Merger or Sale or Transfer of Assets
or Earning Power...................................................... 24
14 Fractional Rights and Fractional Shares............................... 27
15 Rights of Action...................................................... 28
16 Agreement of Right Holders............................................ 29
17 Right Certificate Holder Not Deemed a Stockholder..................... 30
18 Concerning the Rights Agent........................................... 30
i
<PAGE> 3
Section Page
- ------- ----
19 Merger or Consolidation or Change of Name of Rights Agent............. 30
20 Duties of Rights Agent................................................ 31
21 Change of Rights Agent................................................ 34
22 Issuance of New Right Certificates.................................... 35
23 Redemption............................................................ 35
24 Exchange.............................................................. 36
25 Notice of Certain Events.............................................. 37
26 Notices............................................................... 38
27 Supplements and Amendments............................................ 39
28 Successors............................................................ 40
29 Benefits of this Agreement............................................ 40
30 Severability.......................................................... 40
31 Determination and Actions by the Board of Directors, etc.............. 40
32 Governing Law......................................................... 41
33 Counterparts.......................................................... 41
34 Descriptive Headings.................................................. 41
Exhibit A Form of Certificate of Designations
Exhibit B Form of Right Certificate
ii
<PAGE> 4
RIGHTS AGREEMENT
This Rights Agreement, dated as of April __, 1998, between Young
& Rubicam Inc., a Delaware corporation (the "Company"), and The Bank of New
York, a New York banking corporation, as Rights Agent (the "Rights Agent").
W I T N E S S E T H:
WHEREAS, the board of directors of the Company (the "Board of
Directors") has authorized and declared a dividend of one right (a "Right") for
each share of Common Stock of the Company outstanding immediately prior to the
date and time of consummation of the Company's initial public offering of shares
of Common Stock (the "Record Date"), and has further authorized and directed the
issuance of one Right (subject to adjustment) with respect to each share of
Common Stock that shall become outstanding (whether originally issued or
delivered from the Company's treasury) between the Record Date and the earlier
of the Distribution Date and the Expiration Date, including any shares of Common
Stock issued in connection with the initial public offering of the shares of
Common Stock, each Right initially representing the right to purchase one
one-hundredth of a Preferred Share upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings indicated:
(a) "Acquiring Person" shall mean (i) any Person (other than the H&F
Investors and other than any Permitted H&F 15% Transferee), who or which,
together with all Affiliates and Associates of such Person, shall be or become
the Beneficial Owner of fifteen percent (15%) or more of the then outstanding
shares of Common Stock (other than as a result of an Approved Offer), (ii) the
H&F Investors, if after the Record Date, the H&F Investors, together with all of
their Affiliates and Associates, shall acquire Beneficial Ownership of any
additional shares of Common Stock, such that following the acquisition of such
additional shares of Common Stock, (A) the H&F Investors beneficially own
fifteen percent (15%) or more of the then outstanding shares of Common Stock,
and, (B) if the Management Voting Trust is then in existence, following the
acquisition of such additional shares of Common Stock, the H&F Investors
beneficially own a greater percentage of the Diluted Shares Outstanding than the
percentage of the Diluted Shares Outstanding subject to the Management Voting
Trust at the time of the acquisition of such additional shares of Common Stock
(it being understood that neither sales by, nor termination of, the Management
Voting Trust shall result in the H&F Investors becoming an Acquiring Person
pursuant to this clause (ii) absent a subsequent acquisition of beneficial
ownership of additional shares of Common Stock by the H&F Investors or any of
their Affiliates or
<PAGE> 5
Associates) or (iii) any person who or which is a 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 of its Affiliates and
Associates, shall purchase or otherwise become the Beneficial Owner of any
additional shares of Common Stock; provided, however, that (w) a Person shall
not become an Acquiring Person if such Person, together with all of its
Affiliates and Associates, shall become the Beneficial Owner of fifteen percent
(15%) or more of the then outstanding shares of Common Stock (in the case of
clause (i) above) 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 shall purchase or otherwise
become (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; (x)
"Acquiring Person" shall not include any Company Entity; and (y) "Acquiring
Person" shall not include any Person who or which, together with all Affiliates
and Associates of such Person, becomes the Beneficial Owner of fifteen percent
(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
ten (10) Business Days after being so requested by the Company) enters into an
irrevocable commitment satisfactory to the Board of Directors promptly (and in
any event within twenty (20) Business Days or such shorter period as shall be
determined by the Board of Directors) 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 fifteen percent (15%) or more of the then outstanding shares
of Common Stock (in the case of clause (i) above) or such additional shares of
Common Stock (in the case of clauses (ii) and (iii) above).
(b) "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as in effect on the date of this
Agreement.
(c) "Approved Offer" shall mean a tender or exchange offer for all
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 of Directors.
(d) "Associate" shall include (x) any Person included in the
definition of "Associate" in Rule 12b-2 under the Exchange Act, as in effect on
the date of this Agreement, and (y) any Affiliate of any such Person.
(e) A Person shall be deemed the "Beneficial Owner" of, and to have
"beneficial ownership" of, and to "beneficially own" any securities:
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<PAGE> 6
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns or may be deemed to beneficially own, directly or
indirectly (as determined pursuant to Rule 13d-3 or 13d-5 under the Exchange Act
as in effect on the date of this Agreement);
(ii) which such Person or any of such Person's Affiliates or
Associates has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time or the
satisfaction of one or more conditions or both) pursuant to any agreement (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), arrangement
or understanding (whether in writing or not), or upon the exercise of conversion
rights, exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed to be the
Beneficial Owner of, or to beneficially own, any security solely because such
security has been tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such tendered
security is accepted for payment or exchange); or (B) the right to vote or
dispose of, or to direct the vote or disposition of, alone or in concert with
others, pursuant to any agreement, arrangement or understanding (whether in
writing or not); provided, however, that a Person shall not be deemed pursuant
to this clause (ii)(B) to be the Beneficial Owner of, or to beneficially own,
any security if the agreement, arrangement or understanding to vote, or direct
the vote of, such security (1) arises solely from a revocable proxy or consent
given to such Person or any of such Person's Affiliates or Associates in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations under the Exchange Act and
(2) is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report), other than solely by reason of the existence of
such revocable proxy or consent; or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy or consent as described in clause (ii)(B) of this paragraph) or
disposing of any securities of the Company.
Except as otherwise provided in Section 2(k) hereof, if a Person shall be deemed
to be the Beneficial Owner of any securities which are not outstanding, such
securities shall be deemed to be outstanding for purposes of determining the
percentage of the then outstanding shares of Common Stock beneficially owned by
such Person but all other securities (including securities of the same class)
not actually outstanding shall not be deemed outstanding for such purposes.
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<PAGE> 7
(g) "Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
(h) "close of business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding
Business Day.
(i) "Common Stock" shall mean the Common Stock, par value $0.01 per
share, of the Company (as it may be constituted from time to time during the
term of this Agreement), except that "Common Stock" when used with reference to
any Person other than the Company (or, in the case of a transaction referred to
in Section 13 hereof, if the Company is the successor to the other Person
referred to in Section 13, or is the surviving corporation, when thereafter used
with reference to the Company) shall mean the capital stock (or, in the case of
a partnership or other unincorporated entity, the equivalent equity interest)
with the greatest voting power of such Person, together with all rights and
benefits (however denominated or constituted) relating to such capital stock
(including, without limitation, any rights or warrants to acquire additional
shares of such capital stock or other securities or assets, or to participate in
any trust for the benefit of holders of such shares, or to share in the benefits
of any agreements or other arrangements for the benefit of such holders),
whether or not such rights are yet exercisable, and together with any other
securities which are represented by the certificates for such shares or are
transferred in connection with transfers of such shares.
(j) "Company Entity" shall mean any of the Company, any wholly owned
Subsidiary of the Company, any employee benefit plan or employee stock plan of
the Company or of any wholly owned Subsidiary of the Company, 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 Young & Rubicam
Restricted Stock 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.
(k) "Diluted Shares Outstanding" as of any given time shall mean the
sum of (a) the number of shares of Common Stock then issued and outstanding
(including all shares of Common Stock held in the Restricted Stock Trust) and
(b) the number of shares of Common Stock issuable upon exercise of (1) the HFCP
Options and the Roll-Over Options and (2) all other options, warrants and rights
to acquire, and the conversion of any securities convertible into, shares of
Common Stock, to the extent such rights to acquire shares of Common Stock are
then exercisable. For purposes of Section 1(a)(ii)(B), when calculating
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<PAGE> 8
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.
(l) "H&F Investors" shall mean, 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 Partners III, L.P.,
a California limited partnership.
(m) "HFCP Options" shall have the meaning given such term in the
Stockholders' Agreement.
(n) "Management Voting Trust" shall mean the trust established
pursuant to the management voting trust agreement dated as of December 12, 1996
by and among the Company, the Restricted Stock Trust, the Voting Trustees (as
defined therein) and each other party thereto.
(o) "Permitted H&F Transferee" shall mean any transferee of Shares
(as defined in the Stockholders' Agreement) from an H&F Investor in a Transfer
that either is not restricted by, or occurs in compliance with, the transfer
restrictions set forth in Articles II and III of the Stockholders' Agreement,
which transferee becomes a party to the Stockholders' Agreement if required
thereby.
(p) "Permitted H&F 15% Transferee" shall mean any Person who is a
Permitted H&F Transferee 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.
(q) "Person" shall mean any individual, firm, limited liability
company, corporation, partnership, trust, association or other entity.
(r) "Preferred Shares" shall mean shares of Cumulative Participating
Junior Preferred Stock, no par value, of the Company having the rights,
preferences and limitations set forth in the form of Certificate of Designations
attached to this Agreement as Exhibit A and, to the extent that there are not a
sufficient number of shares of Cumulative Participating Junior Preferred Stock
authorized to permit the full exercise of the then outstanding Rights, any other
series of preferred stock of the Company designated for such purpose by the
Board
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<PAGE> 9
of Directors containing terms substantially similar to the terms of the
Cumulative Participating Junior Preferred Stock.
(s) "Roll-Over Options" shall have the meaning set forth in the
Stockholders' Agreement.
(t) "Stock Acquisition Date" shall mean the time and day of the
first public announcement (which for purposes of this definition, shall include,
without limitation, the filing of a report pursuant to the Exchange Act) by the
Company or an Acquiring Person indicating that an Acquiring Person has become
such.
(u) "Stockholders' Agreement" shall mean the amended and restated
stockholders' agreement dated as of April [_], 1998 by and among the H&F
Investors, the Management Investors and the Management Voting Trust (as such
terms are defined therein), such additional signatories as may be deemed added
from time to time pursuant thereto, and the Company.
(v) "Stock Split" shall mean any and all dividends declared on the
outstanding shares of Common Stock payable in shares of Common Stock, if the
declaration of such dividends occurs prior to the date on which the class of
shares of Common Stock is registered under the Exchange Act, regardless of when
such dividends are payable or paid.
(w) "Subsidiary" shall mean, with respect to any Person, any
corporation or other entity as to which such Person beneficially owns, directly
or indirectly, sufficient voting securities or other ownership interests having
ordinary voting power sufficient, in the absence of contingencies, to elect at
least a majority of its directors (or individuals performing similar functions).
(x) "Transfer" shall have the meaning set forth in the Stockholders'
Agreement.
(y) The terms set forth below are defined in the Sections indicated
below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Act 7(c)
Board of Directors Recitals
Common Stock Equivalent 11(a)(iii)(B)
current market price 11(d)
Current Value 11(a)(iii)(A)
Distribution Date 3(a)
Equivalent Preferred Shares 11(b)
Exchange Act 1(b)
Exchange Ratio 24
Expiration Date 7(a)
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C>
Final Expiration Date 7(a)
NASDAQ 11(d)(i)
NYSE 11(d)(i)
Principal Party 13(b)
Purchase Price 7(b)
Record Date Recitals
Redemption Date 7(a)
Redemption Price 23
Restricted Stock Trust 1(j)
Right Recitals
Right Certificates 3(a)
Rights Agent Recitals
Section 13 Event 13(a)
Security 11(d)(i)
Spread 11(a)(iii)(A)
Substitution Period 11(a)(iii)
Trading Day 11(d)(i)
Trigger Date 11(a)(iii)
</TABLE>
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable upon ten (10) days' prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any such Co-Rights Agent. In the event
that the Company appoints one or more Co-Rights Agents, the respective duties of
the Rights Agent and any Co-Rights Agents shall be as the Company shall
determine.
Section 3. Issue of Right Certificates. (a) Until the close of
business on the earlier of (i) the tenth (10th) Business Day after the Stock
Acquisition Date and (ii) the tenth (10th) Business Day (or such later day as
may be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement by any
Person (other than any Company Entity) 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 (5) Business Days after such
announcement), a tender or exchange offer the consummation of which would result
in any Person becoming an Acquiring Person (the earlier of the dates referred to
in clauses (i) and (ii) above being herein referred to as the "Distribution
Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph
(b) of this Section 3) by the certificates for the shares of Common Stock
registered in the names of the holders of the shares of Common Stock (which
certificates for shares of Common Stock shall also be deemed (other than for
purposes of this Section 3 and any provision of this Agreement referring to the
issuance of
7
<PAGE> 11
Rights Certificates) to be Right Certificates) and not by separate Right
Certificates, and (y) the Rights (and the right to receive Right Certificates)
will be transferable only simultaneously and together with the transfer of the
underlying shares of Common Stock. The Company shall give the Rights Agent
prompt written notice of the Distribution Date. As soon as practicable after the
Distribution Date, and receipt by the Rights Agent of written notice of the
Distribution Date from the Company, subject to Section 7(e) hereof, the Company
will prepare and execute, the Rights Agent will countersign, and the Company
will send or cause to be sent (and the Rights Agent will, if requested, send, at
the expense of the Company) by first-class, postage-prepaid mail, to each record
holder of shares of Common Stock as of the close of business on the Distribution
Date, as shown by the records of the Company, at the address of such holder
shown on such records, a right certificate, substantially in the form of Exhibit
B hereto (a "Right Certificate"), evidencing one Right for each share of Common
Stock so held, subject to adjustment as herein provided. As of and after the
close of business on the Distribution Date, the Rights will be evidenced solely
by such Right Certificates and may be transferred only by the transfer of the
Rights Certificates as permitted hereby, separately and apart from any transfer
of one or more shares of Common Stock.
(b) With respect to certificates for shares of Common Stock
outstanding as of the Record Date or issued prior to the Distribution Date,
until the Distribution Date the Rights will be evidenced solely by such
certificates registered in the names of the holders thereof. Until the
Distribution Date (or the earlier of the Redemption Date or the Expiration
Date), the surrender for transfer of any certificate for shares of Common Stock
outstanding as of the Record Date shall also constitute the transfer of the
Rights associated with the shares of Common Stock represented thereby.
The Company will mail to any record holder of a Right (including,
prior to the Distribution Date, a record holder of shares of Common Stock) a
copy of this Rights Agreement, without charge, promptly after receipt of a
written request therefor.
(c) Rights shall be issued in respect of all shares of Common Stock
that become outstanding after the Record Date and prior to the earlier of the
Distribution Date and the Expiration Date, and all certificates for shares of
Common Stock which become outstanding after the Record Date, but prior to the
earlier of the Distribution Date and the Expiration Date shall have impressed
on, printed on, written on or otherwise affixed to them substantially the
following legend:
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement between Young & Rubicam Inc. and
The Bank of New York, dated as of April [_], 1998, as it may from time to
time be supplemented or amended pursuant to its terms (the "Rights
Agreement"), the terms of which are hereby incorporated by reference and a
copy of which is on file at the principal executive offices of Young &
Rubicam Inc. Under certain circumstances as set forth
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<PAGE> 12
in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. Young &
Rubicam Inc. will mail to the registered holder of this certificate a copy
of the Rights Agreement without charge promptly after receipt of a written
request therefor. Under certain circumstances provided for in the Rights
Agreement, Rights issued to or beneficially owned by any Person who is an
Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement) or any subsequent holder of such Rights
shall become null and void.
In the event that the Company purchases or acquires any shares of Common Stock
after the Record Date but prior to the Distribution Date, any Rights associated
with such shares of Common Stock shall be deemed cancelled and retired so that
the Company shall not be entitled to exercise any Rights associated with the
shares of Common Stock which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially in the form of Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange or quotation system on which the
Rights may from time to time be listed, or to conform to usage. Subject to the
provisions of Sections 11 and 22 hereof, the Right Certificates, whenever
distributed, shall be dated as of the Record Date, shall show the date of
countersignature and on their face shall entitle the holders thereof to purchase
such number of one-hundredths of a Preferred Share as shall be set forth therein
at the Purchase Price, but the number and type of securities purchasable upon
the exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
Section 5. Countersignature and Registration. (a) The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President or any Senior Vice President
or Vice President, or its Treasurer, either manually or by facsimile signature.
The Right Certificates shall be manually countersigned by the Rights Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Right Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent, and issued and delivered with the same
force and effect as though the person who signed
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<PAGE> 13
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any person who,
at the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal stock transfer office or such other office
designated by it for such purpose, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the name(s) and
address(es) of the holder(s) of each Right Certificate, the number of Rights
evidenced on its face by each Right Certificate, the certificate number of each
Right Certificate and the date of each Right Certificate.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections 7(e), 7(f) and 14 hereof, at any time
after the close of business on the Distribution Date, and at or prior to the
close of business on the Expiration Date, any Right Certificate or Right
Certificates may be transferred, split up, combined or exchanged for another
Right Certificate or other Right Certificates entitling the registered holder to
purchase a like number of one one-hundredths of a Preferred Share (or other
securities, cash and/or assets, as the case may be) as the Right Certificate or
Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the principal
stock transfer office of the Rights Agent or such other office of the Rights
Agent designated for such purpose. Neither the Rights Agent nor the Company
shall be obligated to take any action whatsoever with respect to the transfer of
any such surrendered Right Certificate unless and until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side thereof and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Associates and Affiliates of the foregoing as the Company shall reasonably
request. Thereupon the Rights Agent shall, subject to Sections 7(e), 7(f) and 14
hereof, countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment, by the holders of the Rights, of a sum sufficient
to cover any tax or governmental charge that may be imposed in connection with
any transfer, split up, combination or exchange of Right Certificates.
(b) Subject to the provisions of Sections 7(e), 7(f) and 14 hereof,
upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of an indemnity or
security reasonably satisfactory to the Company and the Rights Agent, and
reimbursement to the Company and the Rights Agent of all reasonable
10
<PAGE> 14
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Right Certificate if mutilated, the Company will make and
deliver a new Right Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price, Expiration Date of
Rights. (a) Subject to Sections 7(e), 7(f), 9(e) and 11(a)(iii) hereof, the
registered holder of any Right Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein) in whole or in part at any time
after the Distribution Date upon surrender of the Right Certificate, with the
form of election to purchase and the certificate on the reverse side thereof
duly executed, to the Rights Agent at its principal office or such other office
designated by it for such purpose, together with payment of the Purchase Price
for each one-hundredth of a Preferred Share (or other securities, cash and/or
assets, as the case may be) as to which the Rights are exercised, at or prior to
the earliest of (i) the close of business on May 1, 2008 (the "Final Expiration
Date"), (ii) the date and time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date"), (iii) the date and time at which the
Rights are exchanged as provided in Section 24 hereof, or (iv) the date and time
at which the Rights expire pursuant to Section 13(d) (such earliest date and
time being referred to herein as the "Expiration Date").
(b) The purchase price for each one one-hundredth of a Preferred
Share purchasable pursuant to the exercise of a Right shall initially be
$[____], shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below (the "Purchase Price").
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase and the certificate duly executed, accompanied by payment of the
Purchase Price for the Preferred Shares (or other securities, cash and/or
assets, as the case may be) to be purchased and an amount equal to any
applicable transfer tax (as determined by the Rights Agent) in cash, or by
certified check or bank draft payable to the order of the Company, the Rights
Agent shall, subject to Section 20(j) hereof, thereupon promptly (i) (A)
requisition from any transfer agent of the Preferred Shares certificates (or
make available, if the Rights Agent is the transfer agent) for the number of
Preferred Shares to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests or (B) if the Company has
elected to deposit the Preferred Shares issuable upon exercise of the Rights
hereunder into a depositary, requisition from the depositary agent depositary
receipts representing such number of one one-hundredths of a Preferred Share as
are to be purchased (in which case certificates for the Preferred Shares
represented by such receipts shall be deposited by the transfer agent of the
Preferred Shares with the depositary agent) and the Company hereby directs the
depositary agent to comply with such request, (ii) when appropriate, requisition
from the Company the amount of cash to be paid in lieu of issuance of fractional
shares in
11
<PAGE> 15
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Right Certificate, registered in such name or names as
may be designated by such holder and (iv) when appropriate, promptly after
receipt thereof, deliver any such cash to or upon the order of the registered
holder of such Right Certificate. In the event that the Company is obligated to
issue other securities of the Company, pay cash and/or distribute other property
pursuant to Section 11 hereof, the Company will make all arrangements necessary
so that such other securities, cash and/or property are available for
distribution by the Rights Agent, if and when appropriate. Notwithstanding the
foregoing provisions of this Section 7(c), the Company may suspend the issuance
of Preferred Shares or shares of Common Stock or other securities upon exercise
of a Right for a reasonable period, not in excess of ninety (90) calendar days,
during which the Company seeks to register under the Securities Act of 1933, as
amended (the "Act"), and any applicable securities law of any other
jurisdiction, the Preferred Shares or shares of Common Stock or such other
securities to be issued pursuant to the Rights.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Sections 7(e), 7(f) and 14
hereof, or the Rights Agent shall place an appropriate notation on the Right
Certificate with respect to those Rights exercised.
(e) Notwithstanding any other provision of this Agreement to the
contrary, from and after the Stock Acquisition Date, any Rights beneficially
owned by (i) an Acquiring Person or any Affiliate or Associate thereof, (ii) a
transferee of an Acquiring Person (or of any Affiliate or Associate thereof) who
becomes a transferee concurrently with or after the Acquiring Person becomes
such, (iii) a transferee of an Acquiring Person (or of any Affiliate or
Associate thereof) who becomes a transferee prior to the Acquiring Person
becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) by the Acquiring Person to holders of equity
interests in such Acquiring Person (or any Affiliate or Associate thereof) or to
any Person with whom the Acquiring Person (or any Affiliate or Associate
thereof) has any continuing agreement, arrangement or understanding (whether or
not in writing) regarding the transferred Rights or (B) a transfer which the
Board of Directors has determined is part of a plan, arrangement or
understanding (whether or not in writing) which has as a purpose or effect the
avoidance of this Section 7(e) or of Section 11 or 13 with respect to the
limitation of rights beneficially owned by an Acquiring Person (or any Associate
or Affiliate thereof), or (iv) a subsequent transferee of any of the foregoing,
shall become null and void without any further action and no existing or
subsequent holder of such Rights shall have any rights whatsoever with respect
to such Rights, whether under any provision of this Agreement or otherwise. No
Right Certificate shall be issued pursuant to Section 3 hereof that represents
Rights beneficially owned by an Acquiring Person whose Rights would be void
pursuant to the provisions of this Section 7(e)
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<PAGE> 16
or any Associate or Affiliate thereof; no Right Certificate shall be issued at
any time upon the transfer of any Rights to an Acquiring Person whose Rights
would be void pursuant to the provisions of this Section 7(e) or any Associate
or Affiliate thereof or to any nominee of such Acquiring Person, Associate or
Affiliate; and any Right Certificate delivered to the Rights Agent for transfer
to an Acquiring Person whose Rights would be void pursuant to the provisions of
this Section 7(e) shall be cancelled; provided, that if any Right Certificate
that should not have been issued, or should have been cancelled, pursuant to
this sentence is issued or is not cancelled, it shall nevertheless be void as
provided above in this Section 7(e). The Company shall use all reasonable
efforts to insure that the provisions of this Section 7(e) hereof are complied
with, but shall have no liability to any holder of Right Certificates or any
other Person as a result of the failure to make any determination with respect
to an Acquiring Person or its Affiliates or Associates or to transferees of the
foregoing. The Rights Agent shall use all reasonable efforts to comply with the
provisions hereof to the extent it has received instructions from the Company
concerning such matters.
(f) Notwithstanding any other provision of this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to take
any action whatsoever with respect to a registered holder of any Right
Certificate upon the occurrence of any purported transfer or exercise as set
forth in this Section 7 unless and until the registered holder shall have
completed and signed the certificate contained in the form of election to
purchase shares set forth on the reverse side thereof and shall have provided
such additional evidence of the identity of the Beneficial Owner and former
Beneficial Owner (and Associates and Affiliates of the foregoing) as the Company
shall reasonably request.
Section 8. Cancellation of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificate shall be issued in lieu thereof except as expressly permitted by any
of the provisions of this Rights Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company.
Section 9. Reservation and Availability of Capital Stock. (a) The
Company covenants and agrees that at all times prior to the Stock Acquisition
Date, it will cause to be reserved and kept available out of its authorized and
unissued Preferred Shares or any authorized and issued Preferred Shares held in
its treasury, the number of Preferred Shares that will be sufficient to permit
the exercise in full of all outstanding Rights and, after the Stock Acquisition
Date, shall to the extent reasonably practicable, so reserve and keep available
a sufficient number of its authorized and unissued shares of Common Stock and/or
other securities or out of its authorized and issued shares of Common Stock
and/or other
13
<PAGE> 17
securities held in its treasury which may be required to permit the exercise in
full of the Rights pursuant to this Agreement.
(b) The Company covenants and agrees that it will take all such
action as may be necessary to insure that all Preferred Shares (and following
the Stock Acquisition Date, shares of Common Stock and/or other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and nonassessable shares.
(c) The Company covenants and agrees that it will pay when due and
payable any and all U.S. federal and state transfer taxes and charges which may
be payable in respect of the issuance or delivery of the Right Certificates or
of any Preferred Shares (or shares of Common Stock and/or other securities, as
the case may be) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
involved in the transfer or delivery of Right Certificates to a person other
than, or the issuance or delivery of certificates or depositary receipts for
Preferred Shares (or shares of Common Stock and/or other securities, as the case
may be) in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or deliver
any certificates or depositary receipts for Preferred Shares (or shares of
Common Stock and/or other securities, as the case may be) upon the exercise of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company's satisfaction that no such tax is due.
(d) So long as the Preferred Shares (or shares of Common Stock
and/or other securities, as the case may be) issuable upon the exercise of the
Rights may be listed on any national securities exchange, the Company shall use
its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such exchange
upon official notice of issuance upon such exercise.
(e) The Company shall use its best efforts to (i) file as soon as
practicable following the Stock Acquisition Date (or, if required by law, at
such earlier time following the Distribution Date as so required) a registration
statement under the Act with respect to the securities purchasable upon exercise
of the Rights on an appropriate form, (ii) cause such registration statement to
become effective as soon as practicable after such filing and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act and the rules and regulations thereunder)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities and (B) the expiration of the Rights. The
Company will also take such action as may be appropriate to ensure compliance
with the securities or "blue sky" laws of the various states. The Company may
temporarily suspend, in accordance with applicable law, for a period of time not
to exceed ninety (90) calendar days after the date set forth in clause (i) of
the first
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<PAGE> 18
sentence of this Section 9(e), the exercisability of the Rights in order to
prepare and file such registration statement and permit it to become effective.
Upon any such suspension, the Company shall issue a public announcement, and
shall simultaneously send written notice to the Rights Agent, stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction if the requisite qualification in
such jurisdiction shall not have been obtained, the exercise thereof shall not
be permitted under applicable law or a registration statement shall not have
been declared effective. The Rights Agent may assume that any Right exercised is
permitted to be exercised under applicable law and shall have no liability for
acting in reliance upon such assumption.
Section 10. Preferred Share Record Date. Each Person in whose name
any certificate or depositary receipt for Preferred Shares (or shares of Common
Stock and/or other securities, as the case may be) is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of the Preferred Shares (or shares of Common Stock and/or other securities, as
the case may be) represented thereby on, and such certificate or depositary
receipt shall be dated, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate or depositary receipt shall be dated, the next
succeeding Business Day on which the transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Right
Certificate shall not be entitled to any rights of a stockholder of the Company
with respect to shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number
of Rights. The Purchase Price, the number and kind of securities, or fractions
thereof, covered by each Right and the number of Rights outstanding are subject
to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare or pay a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide or split the outstanding Preferred Shares, (C)
combine or consolidate the outstanding Preferred Shares into a smaller number of
Preferred Shares or (D) issue any shares of its capital stock in a
reclassification of the Preferred Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11(a)
and Section 7(e), the Purchase Price in effect at the time of the record date
for such dividend or
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<PAGE> 19
of the effective date of such subdivision, split, combination, consolidation or
reclassification, and the number and kind of shares of Preferred Shares or
capital stock, as the case may be, issuable upon exercise of a Right on such
date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the
Purchase Price then in effect, the aggregate number and kind of shares of
Preferred Shares or capital stock, as the case may be, which, if such Right had
been exercised immediately prior to such date and at a time when the transfer
books of the Company were open, such holder would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision, split,
combination, consolidation or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of Preferred Shares or capital stock,
as the case may be, issuable upon exercise of one Right. If an event occurs
which would require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii).
(ii) Immediately upon the Stock Acquisition Date, proper provision
shall be made so that each holder of a Right (except as otherwise provided in
Section 7(e) hereof) shall thereafter have the right to receive, upon exercise
thereof at the then current Purchase Price in accordance with the terms of this
Agreement and subject to Sections 9(e), 11(a)(iii) and 24, in lieu of Preferred
Shares, such number of shares of Common Stock of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by the then
number of one one-hundredths of a Preferred Share for which a Right was or would
have been exercisable immediately prior to the Stock Acquisition Date (whether
or not such Right was then exercisable) and (y) dividing that product by fifty
percent (50%) of the current market price per share of the Common Stock
(determined pursuant to Section 11(d) hereof) on the Stock Acquisition Date
(such number of shares being hereinafter referred to as the "Adjustment
Shares"); provided, however, if the transaction that would otherwise give rise
to the foregoing adjustment is also subject to the provisions of Section 13
hereof, then only the provisions of Section 13 hereof shall apply and no
adjustment shall be made pursuant to this Section 11(a)(ii).
(iii) In the event that the number of shares of Common Stock which
are authorized by the Company's certificate of incorporation but not outstanding
or reserved for issuance for purposes other than upon exercise of the Rights is
not sufficient to permit the exercise in full of the Rights in accordance with
the foregoing clause (ii) of this Section 11(a), and the Rights become so
exercisable, the Company (acting by resolution of the Board of Directors) shall:
(A) determine the excess of (1) the value of the Adjustment
Shares issuable upon the exercise of a Right (the "Current Value") over
(2) the then current Purchase Price attributable to each Right (such
excess being referred to herein as the "Spread"), and
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<PAGE> 20
(B) with respect to each Right, make adequate provision to
substitute for the Adjustment Shares, upon payment of the Purchase Price,
(1) shares of Common Stock or other equity securities of the Company
(including, without limitation, shares, or units of shares, of preferred
stock which the Board of Directors has deemed to have substantially the
same value as shares of Common Stock (such shares of preferred stock being
referred to herein as "Common Stock Equivalents")), (2) a reduction in the
Purchase Price, (3) cash, (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing (provided, that in making
any such provision, Rights shall, to the fullest extent feasible in view
of the number of authorized shares of Common Stock not outstanding or
reserved for issuance for purposes other than upon exercise of the rights,
be exercisable for shares of Common Stock), in each case having an
aggregate value equal to the Current Value, where such aggregate value has
been determined by the Board of Directors based upon the advice of a
nationally recognized investment banking firm selected by the Board of
Directors;
provided, however, that if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within thirty (30) calendar days
following the Stock Acquisition Date (the "Trigger Date"), then the Company
shall be obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of Common Stock (to the
extent available) and then, if necessary, cash, securities and/or assets that
have an aggregate value equal to the Spread. Notwithstanding the immediately
preceding sentence, if the Board of Directors shall determine in good faith that
it is likely that sufficient additional shares of Common Stock could be
authorized for issuance upon exercise in full of the Rights, the thirty (30)
calendar day period set forth above may be extended to the extent necessary, but
not to more than ninety (90) calendar days after the Trigger Date, in order that
the Company may seek stockholder approval for the authorization of such
additional shares (such period, as it may be extended, being referred to herein
as the "Substitution Period"). To the extent that the Company determines that
some action need be taken pursuant to the foregoing provisions of this Section
11(a)(iii), the Company (x) shall provide, subject to Section 7(e), that such
action shall apply uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution Period in
order to seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to the first sentence of
this Section 11(a)(iii) and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect, in each case
with simultaneous notice to the Rights Agent. For purposes of this Section
11(a)(iii), the terms of any Common Stock Equivalent shall be determined so that
the per share or per unit value of such Common Stock Equivalent shall have the
same value as the "current market price" per
17
<PAGE> 21
share of Common Stock (as determined pursuant to Section 11(d) hereof on the
date of the first occurrence of the Stock Acquisition Date).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within forty-five (45) calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having
substantially the same rights, privileges, and preferences as the Preferred
Shares ("Equivalent Preferred Shares")) or securities convertible into Preferred
Shares or Equivalent Preferred Shares at a price per Preferred Share or
Equivalent Preferred Share (or having a conversion price per share, if a
security convertible into Preferred Shares or Equivalent Preferred Shares) less
than the current market price per Preferred Share (as determined pursuant to
Section 11(d) hereof) on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, of which the
numerator shall be the number of Preferred Shares and Equivalent Preferred
Shares outstanding on such record date plus the number of Preferred Shares which
the aggregate offering price of the total number of Preferred Shares and/or
Equivalent Preferred Shares to be so offered (and/or the aggregate initial
conversion price of the convertible securities to be so offered) would purchase
at such current market price and of which the denominator shall be the number of
Preferred Shares and Equivalent Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or Equivalent Preferred
Shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors, whose determination shall be
described in a statement filed with the Rights Agent. Preferred Shares owned by
or held for the account of the Company or any of its Subsidiaries shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Preferred Shares (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness or assets
(other than a regular quarterly cash dividend at a rate per Preferred Share not
in excess of the greater of (x) two hundred (200) times the rate of the last
quarterly cash dividend per share of Common Stock theretofore paid and (y) $5.00
per quarter, or a dividend payable in Preferred Shares) or subscription rights
or warrants (excluding those referred to in Section 11(b) hereof), the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the current market price per Preferred
Share (as determined pursuant to
18
<PAGE> 22
Section 11(d) hereof) on such record date, less the fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and of which the
denominator shall be such current market price per Preferred Share. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, and subject to
Section 11(d)(ii), the "current market price" for any security (a "Security" for
purposes of this Section 11(d)(i)) on any date shall be deemed to be the average
of the daily closing prices per share of such Security for the thirty (30)
consecutive Trading Days immediately prior to such date; provided, however, that
in the event that the current market price per share of the Security is
determined during a period following the announcement by the issuer of such
Security of a dividend or distribution on such Security payable in such Security
or securities convertible into or exercisable or exchangeable for such Security,
or any subdivision, split, combination, consolidation or reclassification of
such Security, and prior to the expiration of thirty (30) Trading Days after the
ex-dividend date for such dividend or distribution or the record date for such
subdivision, split, combination, consolidation or reclassification, then, and in
each such case, the current market price shall be appropriately adjusted to
reflect ex-dividend or ex-distribution trading. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange, Inc. ("NYSE") or, if the Security is not listed or admitted to
trading on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System or
any successor ("NASDAQ") or such other system then in use, or, if on any such
date the Security is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Security selected by the Board of Directors. If on such date no
such market maker is making a market in the Security, the fair value of such
shares on such date as determined in good faith by the Board of Directors shall
be used, such determination to be described in a statement filed with the Rights
Agent. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange but is quoted on NASDAQ,
a day on which NASDAQ is
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<PAGE> 23
in operation or if the Security is neither listed nor admitted to trading on any
national securities exchange nor quoted on NASDAQ, a Business Day.
(ii) For the purpose of any computation hereunder, the "current
market price" of the Preferred Shares shall be determined in accordance with the
method set forth in Section 11(d)(i), except that if the Preferred Shares are
not publicly traded, the "current market price" of the Preferred Shares shall be
conclusively deemed to be the current per share market price of the Common Stock
as determined pursuant to Section 11(d)(i), multiplied by one hundred (as such
number may be appropriately adjusted for stock splits, stock dividends,
recapitalizations and similar events after the date of this Agreement). If
neither the shares of Common Stock nor the Preferred Shares are publicly held or
so listed or traded, the "current per share market price" shall mean the fair
value per share as determined in good faith by an independent investment banking
firm selected in good faith by the Board of Directors, whose determination shall
be described in a statement filed with the Rights Agent and shall be conclusive
for all purposes.
(e) Notwithstanding any other provision of this Agreement to the
contrary, no adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least one percent (1%) in
such price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest ten-thousandth of a share
of Common Stock or other security or to the nearest one one-millionth of a
Preferred Share. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which mandates such
adjustment and (ii) the date of the expiration of the right to exercise any
Rights.
(f) In the event that at any time, as a result of an adjustment made
pursuant to Section 11(a) or Section 13(a), the holder of any Right thereafter
exercised shall become entitled to receive any securities other than Preferred
Shares, thereafter the number or amount of such other securities so receivable
upon exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the securities contained in Sections 11(a), (b), (c), (e), (g), (h),
(i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 of
this Agreement with respect to the Preferred Shares shall apply on like terms to
any such other securities.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
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<PAGE> 24
(h) Unless the Company shall have exercised its election as provided
in Section 11(i) of this Agreement, upon each adjustment of the Purchase Price
as a result of the calculations made in Section 11(b) and (c) of this Agreement,
each Right outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price, that
number of one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a Preferred Share covered by a Right immediately prior
to such adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which it was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment of
the number of Rights shall become that number of Rights (calculated to the
nearest one ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least ten (10) calendar days later
than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i) the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date, Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
(and may bear, at the option of the Company, the adjusted Purchase Price) and
shall be registered in the names of the holders of record of Right Certificates
on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase
21
<PAGE> 25
Price per share and the number of one one-hundredths of a Preferred Share which
were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Notwithstanding any provision of this Section 11 to the
contrary, the Company shall be entitled to make such reductions in the Purchase
Price, in addition to those adjustments expressly required by this Section 11,
as and to the extent that the Board of Directors shall, in its sole discretion
determine to be advisable in order that any (i) consolidation or subdivision of
the Preferred Shares, (ii) issuance wholly for cash of any Preferred Shares at
less than the current market price, (iii) issuance wholly for cash of Preferred
Shares or securities which by their terms are convertible into or exercisable or
exchangeable for Preferred Shares, (iv) stock dividends or (v) issuance of
rights, options or warrants referred to hereinabove in this Section 11,
hereafter made by the Company to holders of its Preferred Shares shall not be
taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
wholly-owned Subsidiary of the Company in a transaction which does not violate
Section 11(o) hereof), (ii) merge with or into any other Person (other than a
wholly-owned Subsidiary of the Company in a transaction which does not violate
Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to
sell or transfer), in one transaction, or a series of related transactions,
assets or earning power aggregating more than fifty percent (50%) of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company and/or any of its Subsidiaries
in one or more transactions each of which does not violate Section 11(o)
hereof), if (x) at the time of or immediately after such consolidation, merger,
sale or transfer there are any charter or by-law provisions or any rights,
warrants or other instruments or securities outstanding or
22
<PAGE> 26
agreements in effect or other actions taken, which would materially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale, the stockholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such other Person shall
have executed and delivered to the Rights Agent a supplemental agreement
evidencing compliance with this Section 11(n).
(o) The Company covenants and agrees that, after a Stock Acquisition
Date it will not, except as permitted by Section 24 or Section 27 hereof, take
(or permit any Subsidiary to take) any action the purpose of which is to, or if
at the time such action is taken it is reasonably foreseeable that the effect of
such action is to, materially diminish or eliminate the benefits intended to be
afforded by the Rights.
(p) Notwithstanding any other provision of this Agreement to the
contrary, in the event that the Company shall, at any time after the date of
this Agreement and prior to the Distribution Date, (i) declare or pay any
dividend on the outstanding shares of Common Stock payable in shares of Common
Stock (other than the Stock Split), (ii) subdivide the outstanding shares of
Common Stock, (iii) combine or consolidate the outstanding shares of Common
Stock into a smaller number of shares, or (iv) effect a reclassification of its
outstanding shares of Common Stock, the number of one one-hundredths of a
Preferred Share so purchasable after such event upon proper exercise of each
Right shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction,
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which shall
be the total number of shares of Common Stock outstanding immediately following
such event. The adjustments provided for in this Section 11(p) shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected. If an event occurs which would require
an adjustment under Section 11(a)(ii) and this Section 11(p), the adjustments
provided for in this Section 11(p) shall be in addition and prior to any
adjustment required pursuant to Section 11(a)(ii).
Section 12. Certification of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Sections 11 or 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Preferred Shares or the shares of Common Stock a copy of such certificate. The
Rights Agent shall be fully protected in relying on such certificate and on any
adjustment contained therein and shall not be deemed to have knowledge of any
such adjustment unless and until it shall have received such certificate.
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<PAGE> 27
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. (a) In the event (a "Section 13 Event") that, following the Stock
Acquisition Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with and into, any Person or Persons, (y) any Person or Persons
shall consolidate with, or merge with and into, the Company, and the Company
shall be the continuing or surviving corporation of such consolidation or merger
(other than, in the case of any transaction described in (x) or (y), a merger or
consolidation which would result in all of the securities generally entitled to
vote in the election of directors ("voting securities") of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into securities of the surviving
entity) 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
(z) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or a series of related
transactions, assets or earning power aggregating more than fifty percent (50%)
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole and calculated on the basis of the Company's most recent regularly
prepared financial statements) to any Person or Persons (other than the Company
or any Subsidiary of the Company in one or more transactions each of which does
not violate Section 11(o) hereof), then, and in each such case (except as
provided in Section 13(d) hereof), proper provision shall be made so that (i)
each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement and in
lieu of the Preferred Shares, shares of Common Stock and other securities or
assets of the Company, such number of validly authorized and issued, fully paid,
non-assessable and freely tradable shares of Common Stock of the Principal
Party, not subject to any liens, encumbrances, rights of first refusal,
preemptive rights or other adverse claims, as shall be equal to the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Section 13 Event (without taking
into account any adjustment previously made pursuant to Section 11(a)(ii)) and
(y) dividing that product by fifty percent (50%) of the current market price per
share of the Common Stock of such Principal Party (determined pursuant to
Section 11(d) hereof) on the date of consummation of such Section 13 Event; (ii)
such Principal Party shall thereafter be liable for, and shall assume, by virtue
of such Section 13 Event, all the obligations and duties of the Company pursuant
to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer
to such Principal Party, it being specifically intended that the provisions of
Section 11 hereof shall apply only to such Principal Party following the first
occurrence of a Section 13 Event; and (iv) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
shares of its Common Stock in accordance with Section 9 hereof (applying the
provisions thereof with respect to Preferred Shares of the Company to the shares
of Common Stock of such Principal Party)) in connection with such consummation
as may be necessary to assure that the provisions hereof shall thereafter be
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applicable, as nearly as reasonably may be possible, in relation to the shares
of its Common Stock thereafter deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a): (A) the Person that is the
issuer of any securities into which Common Stock of the Company is
converted in such merger or consolidation, or, if there is more than one
such issuer, the issuer of whose Common Stock has the greatest aggregate
market value or (B) if no securities are so issued, the Person that is the
other party to such merger or consolidation, or, if there is more than one
such Person, the Person whose Common Stock has the greatest aggregate
market value (including, if applicable, the Company if it is the surviving
corporation); and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions or if the Person receiving
the greatest portion of the assets or earning power cannot be determined,
whichever of such Persons whose Common Stock has the greatest aggregate
market value;
provided, however, that in any of the cases described in Section 13(b)(i) or
(b)(ii) above, (1) if the shares of Common Stock of such Person are not at such
time and have not been continuously over the preceding twelve (12) month period
registered under Section 12 of the Exchange Act, and such Person is a direct or
indirect Subsidiary of another Person the shares of Common Stock of which are
and have been so registered, "Principal Party" shall refer to such other Person;
(2) in case such Person is a Subsidiary, directly or indirectly, of more than
one Person, the shares of Common Stock of two or more of which are and have been
so registered, "Principal Party" shall refer to whichever of such Persons whose
Common Stock has the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint ventures and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
its authorized shares of Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a
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supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and that all rights of first refusal or preemptive rights
in respect of the issuance of shares of Common Stock of the Principal Party upon
exercise of the outstanding Rights have been waived and that such transaction
shall not result in a default by the Principal Party under this Agreement, and
further providing that, as soon as practicable after the date of any
consolidation, merger, sale or transfer mentioned in paragraph (a) of this
Section 13, the Principal Party at its own expense shall:
(i) prepare and file a registration statement under the Act
with respect to the Rights and the securities purchasable upon the exercise of
the Rights on an appropriate form, and use its best efforts to cause such
registration statement to become effective as soon as practicable after such
filing and to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Final Expiration Date;
(ii) use its best efforts to qualify or register the Rights
and the securities purchasable upon exercise of the Rights under the blue sky
laws of such jurisdictions as may be necessary or appropriate;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 under the Exchange Act; and
(iv) use its best efforts to list (or continue the listing of)
the Rights and the securities purchasable upon exercise of the Rights on a
national securities exchange or to meet the eligibility requirements for
quotation on NASDAQ.
The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers. In the event
that a Section 13 Event shall occur at any time after the occurrence of a Stock
Acquisition Date, the Rights which have not theretofore been exercised pursuant
to Section 11(a)(ii) shall thereafter become exercisable in the manner described
in Section 13(a).
(d) Notwithstanding any other provision of this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if: (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to an Approved Offer (or an Affiliate of any such Person or Persons) as
promptly as reasonably practical (and in any event within one year) following
consummation of such Approved Offer; (ii) the price per share of Common Stock
offered in such transaction is not less than the price per share of Common Stock
paid to all holders of Common Stock whose shares were purchased pursuant to such
Approved Offer; and (iii) the form of consideration offered in such transaction
is the same as the form of consideration paid pursuant to such Approved Offer.
Upon consummation of any such transaction contemplated by this Section 13(d),
all Rights hereunder shall expire.
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(e) In case the Principal Party which is to be a party to a
transaction referred to in this Section 13 has provision in any of its
authorized securities or in its Certificate of Incorporation or By-Laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue, in connection with, or as a
consequence of, the consummation of a transaction referred to in this Section
13, shares of Common Stock of such Principal Party at less than the then current
market price per share (determined pursuant to Section 11(d) hereof) or
securities exercisable or exchangeable for, or convertible into, Common Stock of
such Principal Party at less than such then current market price (other than to
holders of Rights pursuant to this Section 13) or (ii) providing for any special
payment, tax or similar provisions in connection with the issuance of the Common
Stock of such Principal Party pursuant to the provisions of Section 13, then, in
such event, the Company shall not consummate any such transaction unless prior
thereto the Company and such Principal Party shall have executed and delivered
to the Rights Agent a supplemental agreement providing that the provision in
question of such Principal Party shall have been cancelled, waived or amended,
or that the authorized securities shall be redeemed, so that the applicable
provision will have no effect in connection with, or as a consequence of, the
consummation of the proposed transaction.
(f) In no event shall the Rights Agent have any liability in respect
of any such Principal Party transaction, including without limitation, the
propriety thereof. The Rights Agent may rely and be fully protected in relying
upon a certificate of the Company stating that the provisions of this Section 13
have been fulfilled. Notwithstanding anything in this Agreement to the contrary,
the prior written consent of the Rights Agent must be obtained in connection
with any supplemental agreement which alters the rights or duties of the Rights
Agent.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights (except, prior to the
Distribution Date, as provided in Section 11 hereof) or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price of the Rights for any day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the NYSE or, if the Rights are
not listed or admitted to trading on the NYSE, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and
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<PAGE> 31
low asked prices in the over-the-counter market, as reported by NASDAQ or such
other system then in use or, if on any such date the Rights are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights, as
selected by the Board of Directors. If on any such date the Rights are not
quoted by any such organization and no professional market maker is making such
a market in the Rights, the fair value of the Rights on such date as determined
in good faith by the Board of Directors shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Shared).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it, provided that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) Following the occurrence of the Stock Acquisition Date or a
Section 13 Event, the Company shall not be required to issue fractions of shares
of its Common Stock upon exercise of the Rights or to distribute certificates
which evidence fractional shares of its Common Stock. In lieu of fractional
shares of its Common Stock, the Company may pay to the registered holders of
Right Certificates at the time such Rights are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of one
share of its Common Stock. For purposes of this Section 14(c), the current
market value of one share of Common Stock of the Company shall be the closing
price of one share of Common Stock of the Company (as determined pursuant to
11(d)(i)) for the Trading Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance thereof expressly waives
any right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, other than the rights of action vested in the Rights Agent
pursuant to Section 18,
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<PAGE> 32
are vested in the respective registered holders of the Right Certificates (and,
prior to the Distribution Date, the registered holders of the shares of Common
Stock); and any registered holder of any Right Certificate (or, prior to the
Distribution Date, of the shares of Common Stock), without the consent of the
Rights Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, any holder of the shares of Common Stock), may, on his or her
own behalf and for his or her own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his or her right to exercise the Rights evidenced
by such Right Certificate in the manner provided in such Right Certificate and
in this Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this Agreement
and will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only simultaneously and together with the transfer of shares of Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or such other office of the Rights Agent designated for
such purpose, duly endorsed or accompanied by a proper instrument of transfer
and with the appropriate forms and certificates fully executed;
(c) subject to Section 6, Section 7(f) and Section 11(a) hereof, the
Company and the Rights Agent may deem and treat the person in whose name the
Right Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be required to be affected by any
notice to the contrary; and
(d) notwithstanding any other provision of this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of
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<PAGE> 33
such obligation; provided, however, that the Company must use its best efforts
to have any such injunction, order, decree or ruling lifted, dissolved or
otherwise overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or other distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay
to the Rights Agent such compensation as shall be agreed in writing between the
Company and the Rights Agent for all services rendered by it hereunder and, from
time to time, on demand of the Rights Agent, its reasonable expenses and counsel
fees and other disbursements incurred in the administration and execution of
this Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it harmless
against, any and all loss, liability, damage, claim or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability.
The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in connection with
its administration of this Agreement in reliance upon any Right Certificate or
certificate for Common Stock or for other securities of the Company, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, opinion, statement, or other paper or
document believed by it to be genuine and to be signed and executed by the
proper person or persons and, where necessary, to be verified or acknowledged.
The provisions of this Section 18 shall survive the expiration of
the Rights and the termination of this Agreement.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent. Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or
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<PAGE> 34
consolidation to which the Rights Agent or any successor Rights Agent shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust or stock transfer business of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificate so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificate either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificate shall have the full force provided in the Right Certificate
and in this Agreement.
In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes only
those duties and obligations imposed by this Agreement upon the following terms
and conditions, and no implied duties or obligations shall be read into this
Agreement against the Rights Agent, by all of which the Company and the holders
of Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel of its own
selection (who may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person or any
Affiliate or Associate thereof and the determination of the current market price
per share of any Security) be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by a certificate signed by the Chairman
of the Board, the Chief Executive Officer, the President, any Vice President,
the Treasurer or the Secretary of the Company and delivered to the Rights Agent;
and such certificate shall be full
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<PAGE> 35
authorization to the Rights Agent for any action taken or omitted by it in good
faith under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof), or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including Rights becoming null and void pursuant to Section 7(e) hereof); nor
shall it be responsible for any adjustment required under the provisions of
Sections 11 or 13 hereof or responsible for the manner, method or amount of any
such adjustment or the ascertaining of the existence of facts that would require
any such adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after the Rights Agent's actual receipt of a certificate
described in Section 12 hereof); nor shall it by any act hereunder be deemed to
make any representation or warranty as to the authorization or reservation of
any Preferred Shares or shares of Common Stock or other securities to be issued
pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares or shares of Common Stock or other securities will, when
issued, be validly authorized and issued, fully paid and nonassessable; and nor
shall it be responsible for the legality of the terms hereof in its capacity as
an administrative agent.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with instructions of any such officer or for any delay in acting
while waiting for such instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action
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proposed to be taken or omitted by the Rights Agent under this Rights Agreement
and the date on and/or after which such action shall be taken or such omission
shall be effective. The Rights Agent shall not be liable for any action taken
by, or omission of, the Rights Agent in accordance with a proposal included in
any such application on or after the date specified in such application (which
date shall not be less than five (5) Business Days after the date any officer of
the Company actually receives such application, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the Rights Agent
shall have received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity, except it
may not act for an Acquiring Person in an investment banking capacity, or
otherwise assist an Acquiring Person in ways hostile to the Company, without the
written consent of the Company.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, omission, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act,
omission, default, neglect or misconduct, provided reasonable care was exercised
in the selection thereof.
(j) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to any item therein, the
Rights Agent shall not take any further action with respect to such requested
exercise or transfer without first consulting with the Company.
(k) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for
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<PAGE> 37
believing that repayment of such funds or adequate indemnification against such
risk or liability is not reasonably assured to it.
(l) In addition to the foregoing, the Rights Agent shall be
protected and shall incur no liability for, or in respect of, any action taken
or omitted by it in connection with its administration of this Agreement if such
acts or omissions are in reliance upon (i) the proper execution of the
certificates concerning beneficial ownership appended to the form of assignment
and the form of election to purchase attached hereto unless the Rights Agent
shall have actual knowledge that, as executed, any such certificate is untrue,
or (ii) the non-execution of any such certificate including, without limitation,
any refusal to honor any otherwise permissible assignment or election by reason
of such non-execution.
(m) The Company agrees to give the Rights Agent prompt written
notice of any event or ownership which would prohibit the exercise or transfer
of the Right Certificates.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company and to
each transfer agent of the Common Stock by registered or certified mail. The
Company may remove the Rights Agent or any successor Rights Agent upon thirty
(30) days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and
Preferred Shares by registered or certified mail. If the Rights Agent shall
resign or be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of sixty (60) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his or her Right
Certificate for inspection by the Company), then the Rights Agent or the
registered holder of any Right Certificate may apply at the expense of the
Company to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation, bank or trust company organized and doing
business under the laws of the United States or of the State of New York (or any
other state of the United States so long as such corporation is authorized to do
business as a banking institution in the State of New York) in good standing,
having an office in the State of New York, which is authorized under such laws
to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50,000,000. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further
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assurance, conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment, the Company shall file notice thereof in
writing with the predecessor Rights Agent and each transfer agent of the Common
Stock and Preferred Shares, and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Notwithstanding the foregoing provision, in the event of resignation, removal or
incapacity of the Rights Agent, the Company shall have the authority to act as
the Rights Agent until a successor Rights Agent shall have assumed the duties of
the Rights Agent hereunder.
Section 22. Issuance of New Right Certificate. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by the Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares of
stock or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of shares of
Common Stock following the Distribution Date (other than upon exercise or
exchange of a Right) and prior to the Expiration Date, the Company, subject to
Section 7(e) hereof, (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities, notes
or debentures issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors, issue Right Certificates
representing the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (i) the Company shall not be obligated to issue
any Right Certificate if, and to the extent that, the Company shall be advised
by counsel that such issuance would create a significant risk of material
adverse tax consequences to the Company or the Person to whom such Rights
Certificate would be issued, and (ii) no such Rights Certificate shall be issued
if, and to the extent that, appropriate adjustment shall otherwise have been
made in lieu of the issuance thereof.
Section 23. Redemption. (a) The Company may, by resolution of the
Board of Directors, at its option, at any time prior to the earlier of (x) the
Stock Acquisition Date and (y) the close of business on the Final Expiration
Date, redeem all but not less than all of the then outstanding Rights at a
redemption price of $0.01 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"). The redemption of the Rights by the
Board of Directors may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
The Company may, at its option, pay the Redemption Price in cash, shares of
Common Stock (based on the current market price of the Common Stock
35
<PAGE> 39
determined pursuant to Section 11(d)(i) hereof) or any other form of
consideration deemed appropriate by the Board of Directors.
(b) Immediately upon adoption of an effective resolution of the
Board of Directors ordering the redemption of the Rights in compliance with
Section 23(a) (or upon the subsequent satisfaction of all conditions to such
redemption established by such resolution), evidence of which shall have been
filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
Within ten (10) Business Days after the action of the Board of Directors
ordering the redemption of the Rights (or such subsequent satisfaction of all
such conditions), the Company shall give notice of such redemption to the
holders of the then outstanding Rights by mailing such notice to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the shares of Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase any Rights at any time
in any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the repurchase of shares of
Common Stock of the Company prior to the Distribution Date.
(c) In the event that the Board of Directors adopts an effective
resolution ordering the redemption of the Rights in compliance with Section
23(a), the Company may, at its option, discharge all of its obligations with
respect to the Rights by (i) issuing a press release announcing the manner of
redemption of the Rights in accordance with this Agreement and (ii) mailing
payment of the Redemption Price to the registered holders of the Rights at their
last addresses as they appear on the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent of
the Common Stock, and upon such action, all outstanding Rights and Right
Certificates shall be null and void without any further action by the Company.
Section 24. Exchange. (a) The Board of Directors may, at its option,
at any time after the Stock Acquisition Date exchange all or part of the
then-outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 7(e) hereof) for shares
of Common Stock (or Common Stock Equivalents) at an exchange ratio of one share
of Common Stock per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than any Company
Entity), together with all
36
<PAGE> 40
Affiliates and Associates of such Person, becomes the Beneficial Owner of fifty
percent (50%) or more of the shares of Common Stock then outstanding.
(b) Immediately upon the action of the Board of Directors ordering
the exchange of Rights pursuant to and in compliance with subsection (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights, which excludes Rights that have become void pursuant to the
provisions of Section 7(e) hereof, shall be to receive that number of shares of
Common Stock, or Common Stock Equivalents, equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall promptly
file notice of such Board action with the Rights Agent and give public notice of
any such exchange; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
shall promptly mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the shares of Common
Stock for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights which have become void
pursuant to the provisions of Section 7(e)) held by each holder of Rights.
(c) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.
(d) The Company shall not be required, pursuant to this Section 24,
to issue fractions of shares of Common Stock or to distribute certificates which
evidence fractional shares of Common Stock. In lieu of such fractional shares of
Common Stock, the Company shall pay to the registered holders of the Right
Certificates, with regard to which such fractional shares of Common Stock would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole share of Common Stock. For the purposes of this
paragraph (d), the current market value of a whole share of Common Stock shall
be the closing price of a share of Common Stock (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24, and the value of any
Common Stock Equivalent shall be deemed to have the same current market value as
the Common Stock on such date.
Section 25. Notice of Certain Events. (a) In case the Company shall
propose (a) to pay any dividend payable in stock of any class to the holders of
its Preferred Shares (or, after the Distribution Date, holders of the shares of
Common Stock) or to make any
37
<PAGE> 41
other distribution to the holders of its Preferred Shares (or, after the
Distribution Date, holders of the shares of Common Stock), other than a regular
quarterly cash dividend at a rate per Preferred Share not in excess of the
greater of (x) two hundred (200) times the rate of the last quarterly cash
dividend per share of Common Stock theretofore paid and (y) $5.00 per quarter or
(b) to offer to the holders of its Preferred Shares (or, after the Distribution
Date, holders of the shares of Common Stock) rights, options or warrants to
subscribe for or to purchase any additional Preferred Shares or shares of stock
of any class or any other securities, rights or options, or (c) to effect any
reclassification of its Preferred Shares (other than a reclassification
involving only the subdivision of outstanding Preferred Shares), or (d) after
the Distribution Date, to effect any merger, consolidation or other combination
with or into any Person (other than a Subsidiary of the Company in a transaction
which does not violate Section 11(o) hereof), or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of more than fifty percent (50%)
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to any Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which does not violate Section
11(o) hereof), or (e) after the Distribution Date, to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Right, in accordance with Section 26 hereof, a
notice of such proposed action to the extent feasible and file a certificate
with the Rights Agent to that effect, which shall specify the record date for
the purposes of such stock dividend, distribution of rights or Rights, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of shares of Common Stock and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (a) or (b) above at least ten (10) days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of shares of Common Stock and/or
Preferred Shares, whichever shall be earlier. The failure to give notice
required by this Section 24 or any defect therein shall not affect the legality
or validity of the action taken by the Company or the vote upon any such action.
(b) Upon the Stock Acquisition Date (i) the Company shall as soon as
practicable thereafter give to the Rights Agent and each holder of a Right
Certificate, to the extent feasible and in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Sections 7(e) and
11(a) hereof and (ii) all references in Section 25(a) hereof to Preferred Shares
shall be deemed thereafter to refer also to shares of Common Stock or other
securities issuable in respect of the Rights.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the
38
<PAGE> 42
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Rights
Agent) as follows:
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: General Counsel
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Right
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
The Bank of New York
101 Barclay Street, Floor 12W
New York, New York 10286
Attention: Stock Transfer Administration
Notices or demands authorized by this Agreement to be given or made
by the Company or the Rights Agent to the holder of any Right Certificate (or,
if prior to the Distribution Date, to the holder of any certificate for shares
of Common Stock) shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed to such holder at the address of such holder as
shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Stock
Acquisition Date, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend this Agreement without the approval of any holders
of Rights Certificates or certificates representing shares of Common Stock. From
and after the Stock Acquisition Date, the Company and the Rights Agent shall, if
the Company so directs, supplement or amend this Agreement without the approval
of any holders of Right Certificates or certificates representing shares of
Common Stock in order (i) to cure any ambiguity, (ii) to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, (iii) to shorten or lengthen any time period hereunder
or (iv) to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Right Certificates (other than an Acquiring Person
or an Affiliate or Associate thereof); provided, however, that this Agreement
may not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed or to
modify the ability (or inability) of the Board of Directors to redeem the
Rights, in either case at such time as the Rights are not then redeemable or (B)
any other time period unless such lengthening is for the purpose of protecting,
enhancing or clarifying the rights of and/or the benefits to the holders of
Rights (other than an Acquiring Person or an Affiliate or Associate of any such
Person). Upon the delivery of a certificate
39
<PAGE> 43
from an appropriate officer of the Company which states that the proposed
supplement or amendment is in compliance with the terms of this Section 27, the
Rights Agent shall execute such supplement or amendment provided that such
supplement or amendment does not adversely affect the rights or obligations of
the Rights Agent under Section 18 or Section 20 hereof. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of shares of Common Stock.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, of the shares of Common Stock of the Company) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, of the shares of Common Stock of the Company).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement or the Rights is held by a court of competent
jurisdiction or other authority to be invalid, void or unenforceable, the
remainder of this Agreement and the Rights shall remain in full force and effect
and shall in no way be affected, impaired or invalidated; provided, however,
that notwithstanding any other provision of this Agreement to the contrary, if
any such term, provision, covenant or restriction is held by such court or
authority to be invalid, void or unenforceable and the Board of Directors
determines in its good faith judgment that severing the invalid language from
this Agreement would adversely affect the purpose or effect of this Agreement,
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the close of business on the tenth (10th) Business Day
following the date of such determination by the Board of Directors.
Section 31. Determination and Actions by the Board of Directors,
etc. The Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not to redeem the Rights pursuant to Section 23
hereof or to supplement or amend the Agreement and whether any proposed
supplement or amendment adversely affects the interests of the holders of Right
Certificates and comports with the requirements of Section 27 hereof, or to
approve any tender offer or exchange offer for
40
<PAGE> 44
purposes of the definition of "Approved Offer," or to determine whether any
acquisition of beneficial ownership of shares of Common Stock is inadvertent
within the meaning of the definition of "Acquiring Person," or to find or to
announce publicly that any Person has become an Acquiring Person). All such
actions, calculations, interpretations and determinations (including for purpose
of clause (y) below, all omissions with respect to the foregoing) which are done
or made by the Board of Directors in good faith, shall (x) be final, conclusive
and binding on the Company, the Rights Agent, the holders of the Right
Certificates and all other parties, and (y) not subject the Board of Directors
or any director to any liability to the holders of the Right Certificates.
Section 32. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State, provided, however, that the rights and
obligations of the Rights Agent shall be governed by and construed in accordance
with the laws of the State of New York.
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
41
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the date and the year first above written.
Young & Rubicam Inc.
By
-----------------------------
Name:
Title:
The Bank of New York, as Rights Agent
By
-----------------------------
Name:
Title:
42
<PAGE> 46
Exhibit A
FORM
of
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 at a meeting duly called and held on [__________], 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, no par value, 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
<PAGE> 47
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 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
A-2
<PAGE> 48
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
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
A-3
<PAGE> 49
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).
(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
A-4
<PAGE> 50
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.
(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-5
<PAGE> 51
(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
A-6
<PAGE> 52
their cancellation 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
A-7
<PAGE> 53
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, 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.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its [Chief Executive Officer] as of the ___ day of
________, 1998.
A-8
<PAGE> 54
-------------------------------
[Chief Executive Officer]
A-9
<PAGE> 55
Exhibit B
[Form of Right Certificate]
Certificate No. R-_____________ Rights
NOT EXERCISABLE AFTER May 1, 2008 OR EARLIER IF NOTICE OF
REDEMPTION IS GIVEN BY THE COMPANY OR IF EXCHANGED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
AT $0.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY
OWNED BY AN ACQUIRING PERSON OR ANY ASSOCIATES OR AFFILIATES THEREOF
(AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND ANY
SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID.
Right Certificate
YOUNG & RUBICAM INC.
This certifies that , or registered assigns, is the registered owner
of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights Agreement
dated as of April [_], 1998 (the "Rights Agreement") between Young & Rubicam
Inc., a Delaware corporation (the "Company"), and The Bank of New York (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date and prior to 5:00 P.M. (New York City time) on the Expiration Date (as such
terms are defined in the Rights Agreement) at the principal stock transfer
office or such other office of the Rights Agent designated for such purpose, or
of its successors as Rights Agent, one one-hundredth of a fully-paid,
nonassessable share of Cumulative Participating Junior Preferred Stock, no par
value (the "Junior Preferred Shares"), of the Company, at a purchase price of
$[____] per one one-hundredth of a Junior Preferred Share (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase Shares and related Certificate duly executed. The number
of Rights evidenced by this Right Certificate (and the number of shares which
may be purchased upon exercise thereof) set forth above, and the Purchase Price
per share set forth above, are the number and Purchase Price as of April [_],
1998.
<PAGE> 56
From and after the Stock Acquisition Date (as such term is defined
in the Rights Agreement), if the Rights evidenced by any Right Certificate are
beneficially owned by (i) an Acquiring Person or any Affiliate or Associate
thereof (as such terms are defined in the Rights Agreement), (ii) a transferee
of an Acquiring Person (or of any Affiliate or Associate thereof), (iii) under
certain circumstances specified in the Rights Agreement, a transferee of a
person who, after such transfer, became an Acquiring Person or any Affiliate or
Associate thereof or (iv) a subsequent transferee of any of the foregoing, such
Rights shall become null and void and no holder hereof shall have any rights
whatsoever with respect to such Rights, whether under any provision of the
Rights Agreement or otherwise.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of Junior Preferred Shares or other securities which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events,
and in certain circumstances may be exercised to purchase securities of issuers
other than the Company.
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the circumstances set forth in the Rights Agreement. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent and are available free of charge upon written request from the Company at:
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Attention: General Counsel
This Right Certificate, with or without other Right Certificates,
upon surrender at the principal office of the Rights Agent or such other office
designated by it for such purpose, may be exchanged for another Right
Certificate or Right Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of one one-hundredths
of a Junior Preferred Share as the Rights evidenced by the Right Certificate or
Right Certificates surrendered shall have entitled such holder to purchase. If
this Right Certificate shall be exercised in part, the holder shall be entitled
to receive, upon surrender hereof, another Right Certificate or Right
certificates for the number of whole Rights not exercised.
B-2
<PAGE> 57
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate (i) may be redeemed by the Company at its
option at a redemption price of $0.01 per Right (payable in cash, shares of
Common Stock or other consideration), appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof, at any time prior to the earlier of (x) the Stock Acquisition Date and
(y) the Final Expiration Date, or (ii) exchanged, in whole or in part, for
Common Stock or Common Stock Equivalents.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate (and the Rights Agreement itself) may be
amended by action of the Company's Board of Directors without the approval of
the holders of any of the Rights.
No fractional Junior Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth, which may, at the election of the
Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of Junior
Preferred Shares or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE> 58
WITNESS the facsimile signature of the proper officers of the
Company.
Dated as of _____________, 19__
YOUNG & RUBICAM INC.
By
---------------------------------
Name:
Title:
Countersigned:
The Bank of New York, as Rights Agent
By
----------------------------
Authorized Signatory
Date of Countersignature:
B-4
<PAGE> 59
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED ________________________ hereby sells, assigns
and transfers unto _______________________________________________
_____________________________________________ (Please print name and address of
transferee) this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
__________________________ Attorney, to transfer the within Right Certificate on
the books of the within-named Company, with full power of substitution.
Dated: _________________, 19__
-----------------------------
Signature
Signature Guaranteed:
B-5
<PAGE> 60
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate is |_| is not |_| being sold,
assigned or transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it did |_| did not |_| acquire the Rights evidenced by this Right
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ________________, 19__ ----------------------------
Signature
Signature Guaranteed:
NOTICE
The signature of the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-6
<PAGE> 61
FORM OF ELECTION TO PURCHASE SHARES
(To be executed if holder desires
to exercise Rights represented by the Right Certificate)
To Young & Rubicam Inc.:
The undersigned hereby irrevocably elects to exercise
_________________ Rights represented by this Right Certificate to purchase the
Junior Preferred Shares issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert Social Security or other identifying number: ____________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
Please insert Social Security or other identifying number: ____________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
B-7
<PAGE> 62
Dated: __________________, 19__
------------------------------
Signature
Signature Guaranteed:
B-8
<PAGE> 63
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate are |_| are
not |_| being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it did |_| did not |_| acquire the Rights evidenced by this Right
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: ___________________, 19__
-----------------------------
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Right Certificate
in every particular, without alteration or enlargement or any change whatsoever.
B-9
<PAGE> 1
Exhibit 4.3
FORM
of
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 at a meeting duly called and held on [__________], 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, no par value, 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
<PAGE> 2
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 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
2
<PAGE> 3
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
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
3
<PAGE> 4
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).
(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
4
<PAGE> 5
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.
(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.
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(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
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their cancellation 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
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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, 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.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its [Chief Executive Officer] as of the ___ day of
________, 1998.
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-------------------------------
[Chief Executive Officer]
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<PAGE> 1
Exhibit 10.6
YOUNG & RUBICAM INC.
1997 Incentive Compensation Plan
3/16/98
<PAGE> 2
YOUNG & RUBICAM INC.
1997 Incentive Compensation Plan
Page
----
1. Purpose....................................................... 1
2. Definitions................................................... 1
3. Administration................................................ 4
(a) Authority of the Committee............................. 4
(b) Manner of Exercise of Committee Authority.............. 4
(c) Limitation of Liability................................ 5
4. Stock Subject to Plan......................................... 5
(a) Overall Number of Shares Available for Delivery........ 5
(b) Application of Limitation to Grants of Awards.......... 5
(c) Availability of Shares Not Delivered under Awards...... 5
5. Eligibility; Per-Person Award Limitations..................... 6
6. Specific Terms of Awards...................................... 6
(a) General................................................ 6
(b) Options................................................ 6
(c) Stock Appreciation Rights.............................. 7
(d) Restricted Stock....................................... 7
(e) Deferred Stock......................................... 8
(f) Bonus Stock and Awards in Lieu of Obligations.......... 9
(g) Dividend Equivalents................................... 9
(h) Other Stock-Based Awards............................... 10
7. Certain Provisions Applicable to Awards....................... 10
(a) Stand-Alone, Additional, Tandem, and Substitute Awards 10
(b) Term of Awards......................................... 10
(c) Form and Timing of Payment under Awards; Deferrals .... 10
(d) Exemptions from Section 16(b) Liability................ 11
(e) Cancellation and Rescission of Awards ................. 11
3/16/98
<PAGE> 3
YOUNG & RUBICAM INC.
1997 Incentive Compensation Plan
Page
----
8. Performance and Annual Incentive Awards....................... 12
(a) Performance Conditions................................. 12
(b) Performance Awards Granted to
Designated Covered Employees........................... 12
(c) Annual Incentive Awards Granted to
Designated Covered Employees. 14
(d) Written Determinations................................. 15
(e) Status of Section 8(b) and 8(c)
Awards under Code Section 162(m)....................... 15
9. Change in Control............................................. 16
(a) Effect of "Change in Control".......................... 16
(b) Definition of "Change in Control"...................... 16
(c) Tender Offer........................................... 18
10. General Provisions............................................ 18
(a) Compliance with Legal and Other Requirements........... 18
(b) Limits on Transferability; Beneficiaries............... 19
(c) Adjustments............................................ 19
(d) Taxes.................................................. 20
(e) Changes to the Plan and Awards......................... 20
(f) Limitation on Rights Conferred under Plan.............. 21
(g) Unfunded Status of Awards; Creation of Trusts.......... 21
(h) Nonexclusivity of the Plan............................. 22
(i) Payments in the Event of Forfeitures;
Fractional Shares..................................... 22
(j) Governing Law.......................................... 22
(k) Awards under Preexisting Plans......................... 22
(l) Plan Effective Date and Shareholder Approval........... 22
3/16/98
<PAGE> 4
YOUNG & RUBICAM INC.
1997 Incentive Compensation Plan
1. Purpose. The purpose of this 1997 Incentive Compensation
Plan (the "Plan"), which is an amendment and restatement of the
Young & Rubicam Holdings Inc. Restricted Stock Plan, is to assist
Young & Rubicam Inc., a Delaware corporation (the "Corporation"),
and its Affiliates in attracting, retaining, and rewarding
high-quality executives, employees, and other persons who provide
services to the Corporation and/or its Affiliates, enabling such
persons to acquire or increase a proprietary interest in the
Corporation in order to strengthen the mutuality of interests
between such persons and the Corporation's shareholders, and
providing such persons with annual and long-term performance
incentives to expend their maximum efforts in the creation of
shareholder value. The Plan is also intended to qualify certain
compensation awarded under the Plan for tax deductibility under
Code Section 162(m) (as hereafter defined) to the extent deemed
appropriate by the Committee (or any successor committee) of the
Board of Directors of the Corporation.
2. Definitions. For purposes of the Plan, the following terms
shall be defined as set forth below, in addition to such terms
defined in Section 1 hereof:
(a) "Affiliate" shall mean any entity (whether or not
incorporated) which, by reason of its relationship with the
Corporation, is required to be aggregated with the
Corporation under Section 414(b), 414(c), 414(m) or 414(o) of
the Code, and any joint venture or partnership 10% or more of
the profits or capital interest of which is owned by the
Corporation or an Affiliate.
(b) "Annual Incentive Award" means a conditional right
granted to a Participant under Section 8(c) hereof to receive
a cash payment, Stock or other Award, unless otherwise
determined by the Committee, after the end of a specified
fiscal year.
(c) "Award" means any Option, SAR (including Limited
SAR), Restricted Stock, Deferred Stock, Stock granted as a
bonus or in lieu of another award, Dividend Equivalent, Other
Stock-Based Award, Performance Award or Annual Incentive
Award, together with any other right or interest granted to a
Participant under the Plan.
(d) "Beneficiary" means the person, persons, trust or
trusts which have been designated by a Participant in his or
her most recent written beneficiary designation filed with
the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted
under Section 10(b) hereof. If, upon a Participant's death,
there is no
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designated Beneficiary or surviving designated Beneficiary,
then the term Beneficiary means person, persons, trust or
trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(e) "Beneficial Owner" shall have the meaning ascribed
to such term in Rule 13d-3 under the Exchange Act and any
successor to such Rule.
(f) "Board" means the Corporation's Board of Directors.
(g) "Change in Control" means Change in Control as
defined with related terms in Section 9 of the Plan.
(h) "Code" means the Internal Revenue Code of 1986, as
amended from time to time, including regulations thereunder
and successor provisions and regulations thereto.
(i) "Committee" means a committee of two or more
directors designated by the Board to administer the Plan;
provided, however, that, unless otherwise determined by the
Board, the Committee shall consist solely of two or more
directors, each of whom shall be (i) a "non-employee
director" within the meaning of Rule 16b-3 under the Exchange
Act, unless administration of the Plan by "non-employee
directors" is not then required in order for exemptions under
Rule 16b-3 to apply to transactions under the Plan, and (ii)
an "outside director" as defined under Code Section 162(m),
unless administration of the Plan by "outside directors" is
not then required in order to qualify for tax deductibility
under Code Section 162(m).
(j) "Covered Employee" means an Eligible Person who is a
Covered Employee as specified in Section 8(e) of the Plan.
(k) "Deferred Stock" means a right, granted to a
Participant under Section 6(e) hereof, to receive Stock, cash
or a combination thereof at the end of a specified deferral
period.
(l) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g), to receive cash, Stock, other
Awards or other property equal in value to dividends paid
with respect to a specified number of shares of Stock, or
other periodic payments.
(m) "Effective Date" means December 16, 1997.
(n) "Eligible Person" means each Executive Officer and
other officers and employees of the Corporation or of any
Affiliate, including such persons who may also be directors
of the Corporation, and each other person who provides
services to the Corporation and/or its Affiliates. An
employee on leave of absence may be considered as still in
the employ of the Corporation or an Affiliate for purposes of
eligibility for participation in the Plan.
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<PAGE> 6
(o) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, including rules
thereunder and successor provisions and rules thereto.
(p) "Executive Officer" means an executive officer of the
Corporation as defined under the Exchange Act.
(q) "Fair Market Value" means the fair market value of
Stock, Awards or other property as determined by the
Committee or under procedures established by the Committee.
Unless otherwise determined by the Committee, the Fair Market
Value of Stock following the date the Stock is listed or
admitted to trading on the New York Stock Exchange shall be
the average closing price per share of Stock for the ten
trading day period ending on such given day, as reported in
the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading in the
New York Stock Exchange or, if the Stock is not listed or
admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal
national securities exchange on which the Stock is listed or
admitted to trading or, if the Stock is not listed or
admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the
high bid and low asked prices in the over-the counter market,
as reported by NASDAQ.
(r) "Incentive Stock Option" or "ISO" means any Option
intended to be and designated as an incentive stock option
within the meaning of Code Section 422 or any successor
provision thereto.
(s) "Limited SAR" means a right granted to a Participant
under Section 6(c) hereof.
(t) "Option" means a right, granted to a Participant
under Section 6(b) hereof, to purchase Stock at a specified
price during specified time periods.
(u) "Other Stock Based Awards" means Awards granted to a
Participant under Section 6(h) hereof.
(v) "Participant" means a person who has been granted an
Award under the Plan which remains outstanding, including a
person who is no longer an Eligible Person.
(w) "Performance Award" means a right, granted to a
Participant under Section 8 hereof, to receive Awards based
upon performance criteria specified by the Committee.
(x) "Person" shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, and shall include a "group" as
defined in Section 13(d) thereof.
(y) "Preexisting Plans" mean the Young & Rubicam Holdings
Inc. Restricted Stock Plan and the Young & Rubicam Holdings
Inc. Management Stock Option Plan.
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<PAGE> 7
(z) "Qualified Member" means a member of the Committee
who is a "Non- Employee Director" within the meaning of Rule
16b-3(b)(3) and an "outside director" within the meaning of
Regulation 1.162-27 under Code Section 162(m).
(aa) "Restricted Stock" means Stock, granted to a
Participant under Section 6(d) hereof, that is subject to
certain restrictions and to a risk of forfeiture.
(bb) "Rule 16b-3" means Rule 16b-3, as from time to time
in effect and applicable to the Plan and Participants,
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
(cc) "Stock" means the Corporation's Common Stock, and
such other securities as may be substituted (or
resubstituted) for Stock pursuant to Section 10(c) hereof.
(dd) "Stock Appreciation Rights" or "SAR" means a right
granted to a Participant under Section 6(c) hereof.
3. Administration.
(a) Authority of the Committee. The Plan shall be
administered by the Committee except to the extent the Board
elects to administer the Plan, in which case references
herein to the "Committee" shall be deemed to include
references to the "Board". The Committee shall have full and
final authority, in each case subject to and consistent with
the provisions of the Plan, to select Eligible Persons to
become Participants, grant
Awards, determine the type, number and other terms and
conditions of, and all other matters relating to, Awards,
prescribe Award agreements (which need not be identical for
each Participant) and rules and regulations for the
administration of the Plan, construe and interpret the Plan
and Award agreements and correct defects, supply omissions or
reconcile inconsistencies therein, and to make all other
decisions and determinations as the Committee may deem
necessary or advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. At any
time that a member of the Committee is not a Qualified
Member, any action of the Committee relating to an Award
granted or to be granted to a Participant who is then subject
to Section 16 of the Exchange Act in respect of the
Corporation, or relating to an Award intended by the
Committee to qualify as "performance-based compensation"
within the meaning of Code Section 162(m) and regulations
thereunder, may be taken either (i) by a subcommittee,
designated by the Committee, composed solely of two or more
Qualified Members, or (ii) by the Committee but with each
such member who is not a Qualified Member abstaining or
recusing himself or herself from such action; provided,
however, that, upon such abstention or recusal, the Committee
remains composed solely of two or more Qualified Members.
Such action, authorized by such a subcommittee or by the
Committee upon the abstention or recusal of such
non-Qualified Member(s), shall be the action of the Committee
for purposes of the Plan. Any action of the Committee shall
be final, conclusive and binding on all persons, including
the Corporation, its Affiliates, Participants,
4
<PAGE> 8
Beneficiaries, transferees under Section 10(b) hereof or
other persons claiming rights from or through a Participant,
and shareholders. The express grant of any specific power to
the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of
the Committee. The Committee may delegate to officers or
managers of the Corporation or any Affiliate, or committees
thereof, the authority, subject to such terms as the
Committee shall determine, to perform such functions,
including administrative functions, as the Committee may
determine, to the extent that such delegation will not result
in the loss of an exemption under Rule 16b- 3(d)(1) for
Awards granted to Participants subject to Section 16 of the
Exchange Act in respect of the Corporation and will not cause
Awards intended to qualify as "performance-based
compensation" under Code Section 162(m) to fail to so
qualify. The Committee may appoint agents to assist it in
administering the Plan.
(c) Limitation of Liability. The Committee and each
member thereof shall be entitled to, in good faith, rely or
act upon any report or other information furnished to him or
her by any executive officer, other officer or employee of
the Corporation or an Affiliate, the Corporation's
independent auditors, consultants or any other agents
assisting in the administration of the Plan. Members of the
Committee and any officer or employee of the Corporation or
an Affiliate acting at the direction or on behalf of the
Committee shall not be personally liable for any action or
determination taken or made in good faith with respect to the
Plan, and shall, to the extent permitted by law, be fully
indemnified and protected by the Corporation with respect to
any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery.
Subject to adjustment as provided in Section 10(c) hereof,
the total number of shares of Stock reserved and available
for delivery in connection with Awards under the Plan shall
be (i) 1.275 million, plus (ii) the number of shares of Stock
subject to awards under Preexisting Plans that become
available in accordance with Section 4(c) hereof after the
Effective Date; provided, however, that the total number of
shares of Stock with respect to which ISOs may be granted
shall not exceed one million. Any shares of Stock delivered
under the Plan shall consist of authorized and unissued
shares or treasury shares.
(b) Application of Limitation to Grants of Awards. No
Award may be granted if the number of shares of Stock to be
delivered in connection with such Award or, in the case of an
Award relating to shares of Stock but settleable only in cash
(such as cash-only SARs), the number of shares to which such
Award relates, exceeds the number of shares of Stock
remaining available under the Plan minus the number of shares
of Stock issuable in
settlement of or relating to then-outstanding Awards. The
Committee may adopt reasonable counting procedures to ensure
appropriate counting, avoid double counting (as, for example,
in the case of tandem or substitute awards) and make
adjustments if the number of shares of Stock actually
delivered differs from the number of shares previously
counted in connection with an Award.
(c) Availability of Shares Not Delivered under Awards.
Shares of Stock subject to
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<PAGE> 9
an Award under the Plan or award under a Preexisting Plan
that is canceled, expired, forfeited, settled in cash or
otherwise terminated without a delivery of shares to the
Participant or the participant in such Preexisting Plan will
again be available for Awards under the Plan, except that if
any such shares could not again be available for Awards to a
particular Participant under any applicable law or
regulation, such shares shall be available exclusively for
Awards to Participants who are not subject to such
limitation.
5. Eligibility; Per-Person Award Limitations. Awards may be
granted under the Plan only to Eligible Persons. In each fiscal
year during any part of which the Plan is in effect, an Eligible
Person may not be granted Awards relating to more than 200,000
shares of Stock, subject to adjustment as provided in Section
10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f), 6(g),
6(h), 8(b) and 8(c). In addition, the maximum cash amount that
may be earned under the Plan as a final Annual Incentive Award or
other cash annual Award in respect of any fiscal year by any one
Participant shall be $10 million, and the maximum cash amount
that may be earned under the Plan as a final Performance Award or
other cash Award in respect of a performance period other than an
annual period by any one Participant on an annualized basis shall
be $10 million.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and
conditions set forth in this Section 6. In addition, the
Committee may impose on any Award or the exercise thereof,
at the date of grant or thereafter (subject to Section
10(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the
Committee shall determine, including terms requiring
forfeiture of Awards in the event of termination of
employment or service by the Participant and terms permitting
a Participant to make elections relating to his or her Award.
The Committee shall retain full power and discretion to
accelerate, waive or modify, at any time, any term or
condition of an Award that is not mandatory under the Plan.
Except in cases in which the Committee is authorized to
require other forms of consideration under the Plan, or to
the extent other forms of consideration must by paid to
satisfy the requirements of the Delaware General Corporation
Law, no consideration other than services may be required for
the grant (but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options
to Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of
Stock purchasable under an Option shall be determined by
the Committee, provided that such exercise price shall be
not less than the Fair Market Value of a share of Stock
on the date of grant of such Option except as provided
under Section 7(a) hereof.
(ii) Time and Method of Exercise. The Committee shall
determine the time or times at which or the circumstances
under which an Option may be exercised in whole or in
part (including based on achievement of performance goals
and/or future service requirements), the methods by which
such exercise price may be paid or
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<PAGE> 10
deemed to be paid, the form of such payment, including,
without limitation, cash, Stock, other Awards or awards
granted under other plans of the Corporation or any
Affiliate, or other property (including notes or other
contractual obligations of Participants to make payment
on a deferred basis), and the methods by or forms in
which Stock will be delivered or deemed to be delivered
to Participants.
(iii) ISOs. The terms of any ISO granted under the
Plan shall comply in all respects with the provisions of
Code Section 422. Any Award agreement relating to an ISO
shall contain all provisions required to be included in
order to comply with Code Section 422. Anything in the
Plan to the contrary notwithstanding, no term of the Plan
relating to ISOs (including any SAR in tandem therewith)
shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any ISO
under Code Section 422, unless the Participant has first
requested the change that will result in such
disqualification.
(c) Stock Appreciation Rights. The Committee is
authorized to grant SAR's to Participants on the following
terms and conditions:
(i) Right to Payment. A SAR shall confer on the
Participant to whom it is granted a right to receive,
upon exercise thereof, the excess of (A) the Fair Market
Value of one share of Stock on the date of exercise over
(B) the grant price of the SAR as determined by the
Committee, provided that such grant price shall not be
less than the Fair Market Value of a share of Stock on
the date of grant of such SAR except as provided under
Section 7(a) hereof.
(ii) Other Terms. The Committee shall determine at
the date of grant or thereafter, the time or times at
which and the circumstances under which a SAR may be
exercised in whole or in part (including based on
achievement of performance goals and/or future service
requirements), the method of exercise, method of
settlement, form of consideration payable in settlement,
method by or forms in which Stock will be delivered or
deemed to be delivered to Participants, whether or not a
SAR shall be in tandem or in combination with any other
Award, and any other terms and conditions of any SAR.
Limited SARs that may only be exercised in connection
with a Change in Control or other event as specified by
the Committee may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may
determine. SARs and Limited SARs may be either
freestanding or in tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to
grant Restricted Stock to Participants on the following terms
and conditions:
(i) Grant and Restrictions. Restricted Stock shall be
subject to such restrictions on transferability, risk of
forfeiture and other restrictions, if any, as the
Committee may impose, which restrictions may lapse
separately or in combination at such times, under such
circumstances (including based on achievement of
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<PAGE> 11
performance goals and/or future service requirements), in
such installments or otherwise, as the Committee may
determine at the date of grant or thereafter. Except to
the extent restricted under the terms of the Plan and any
Award agreement relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of
the rights of a shareholder, including the right to vote
the Restricted Stock and the right to receive dividends
thereon (subject to any mandatory reinvestment or other
requirement imposed by the Committee). During the
restricted period applicable to the Restricted Stock,
subject to Section 10(b) below, the Restricted Stock may
not be sold, transferred, pledged, hypothecated, margined
or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment or service
during the applicable restriction period, Restricted
Stock that is at that time subject to restrictions shall
be forfeited and reacquired by the Corporation; provided
that the Committee may provide, by rule or regulation or
in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture
conditions relating to Restricted Stock shall be waived
in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of
Restricted Stock.
(iii) Certificates for Stock. Restricted Stock
granted under the Plan may be evidenced in such manner as
the Committee shall determine. If certificates
representing Restricted Stock are registered in the name
of the Participant, the Committee may require that such
certificates bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such
Restricted Stock, that the Corporation retain physical
possession of the certificates, and that the Participant
deliver a stock power to the Corporation, endorsed in
blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the
grant of an Award of Restricted Stock, the Committee may
require that any cash dividends paid on a share of
Restricted Stock be automatically reinvested in
additional shares of Restricted Stock or applied to the
purchase of additional Awards under the Plan. Unless
otherwise determined by the Committee, Stock distributed
in connection with a Stock split or Stock dividend, and
other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which
such Stock or other property has been distributed.
(e) Deferred Stock. The Committee is authorized to grant
Deferred Stock to Participants, which are rights to receive
Stock, cash, or a combination thereof at the end of a
specified deferral period, subject to the following terms and
conditions:
(i) Award and Restrictions. Satisfaction of an
Award of Deferred Stock shall occur upon expiration of
the deferral period specified for such Deferred Stock
by the Committee (or, if permitted by the Committee, as
elected by the Participant). In
8
<PAGE> 12
addition, Deferred Stock shall be subject to such
restrictions (which may include a risk of forfeiture) as
the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at
earlier specified times (including based on achievement
of performance goals and/or future service requirements),
separately or in combination, in installments or
otherwise, as the Committee may determine. Deferred Stock
may be satisfied by delivery of Stock, cash equal to the
Fair Market Value of the specified number of shares of
Stock covered by the Deferred Stock, or a combination
thereof, as determined by the Committee at the date of
grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by
the Committee, upon termination of employment or service
during the applicable deferral period or portion thereof
to which forfeiture conditions apply (as provided in the
Award agreement evidencing the Deferred Stock), all
Deferred Stock that is at that time subject to deferral
(other than a deferral at the election of the
Participant) shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any
Award agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to
Deferred Stock shall be waived in whole or in part in the
event of terminations resulting from specified causes,
and the Committee may in other cases waive in whole or in
part the forfeiture of Deferred Stock.
(iii) Dividend Equivalents. Unless otherwise
determined by the Committee at date of grant, Dividend
Equivalents on the specified number of shares of Stock
covered by an Award of Deferred Stock shall be either (A)
paid with respect to such Deferred Stock at the dividend
payment date in cash or in shares of unrestricted Stock
having a Fair Market Value equal to the amount of such
dividends, or (B) deferred with respect to such Deferred
Stock and the amount or value thereof automatically
deemed reinvested in additional Deferred Stock, other
Awards or other investment vehicles, as the Committee
shall determine or permit the Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The
Committee is authorized to grant Stock as a bonus, or to
grant Stock or other Awards in lieu of obligations to pay
cash or deliver other property under the Plan or under other
plans or compensatory arrangements, provided that, in the
case of Participants subject to Section 16 of the Exchange
Act, the amount of such grants remains within the discretion
of the Committee to the extent necessary to ensure that
acquisitions of Stock or other Awards are exempt from
liability under Section 16(b) of the Exchange Act. Stock or
Awards granted hereunder shall be subject to such other terms
as shall be determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to
grant Dividend Equivalents to a Participant, entitling the
Participant to receive cash, Stock, other Awards, or other
property equal in value to dividends paid with respect to a
specified number of shares of Stock, or other periodic
payments. Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents shall be paid
or distributed when accrued or shall be deemed to
9
<PAGE> 13
have been reinvested in additional Stock, Awards, or other
investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may
specify.
(h) Other Stock-Based Awards. The Committee is
authorized, subject to limitations under applicable law, to
grant to Participants such other Awards that may be
denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock, as
deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or
exchangeable debt securities, other rights convertible or
exchangeable into Stock, purchase rights for Stock, Awards
with value and payment contingent upon performance of the
Corporation or any other factors designated by the Committee,
and Awards valued by reference to the book value of Stock or
the value of securities of or the performance of specified
Affiliates. The Committee shall determine the terms and
conditions of such Awards. Stock delivered pursuant to an
Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid
for at such times, by such methods, and in such forms,
including, without limitation, cash, Stock, other Awards, or
other property, as the Committee shall determine. Cash
awards, as an element of or supplement to any other Award
under the Plan, may also be granted pursuant to this Section
6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute
Awards. Awards granted under the Plan may, in the discretion
of the Committee, be granted either alone or in addition to,
in tandem with, or in substitution or exchange for, any other
Award or any award granted under another plan of the
Corporation, any Affiliate, or any business entity to be
acquired by the Corporation or an Affiliate, or any other
right of a Participant to receive payment from the
Corporation or any Affiliate. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If
an Award is granted in substitution or exchange for another
Award or award, the Committee shall require the surrender of
such other Award or award in consideration for the grant of
the new Award. In addition, Awards may be granted in lieu of
cash compensation, including in lieu of cash amounts payable
under other plans of the Corporation or any Affiliate, in
which the value of Stock subject to the Award is equivalent
in value to the cash compensation (for example, Deferred
Stock or Restricted Stock), or in which the exercise price,
grant price or purchase price of the Award in the nature of a
right that may be exercised is equal to the Fair Market Value
of the underlying Stock minus the value of the cash
compensation surrendered (for example, Options granted with
an exercise price "discounted" by the amount of the cash
compensation surrendered).
(b) Term of Awards. The term of each Award shall be for
such period as may be determined by the Committee; provided
that in no event shall the term of any Option or SAR exceed a
period of ten years (or such shorter term as may be required
in respect of an ISO under Code Section 422).
(c) Form and Timing of Payment under Awards; Deferrals.
Subject to the terms of
10
<PAGE> 14
the Plan and any applicable Award agreement, payments to be
made by the Corporation or an Affiliate upon the exercise of
an Option or other Award or settlement of an Award may be
made in such forms as the Committee shall determine,
including, without limitation, cash, Stock, other Awards or
other property, and may be made in a single payment or
transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in
lieu of Stock in connection with such settlement, in the
discretion of the Committee or upon occurrence of one or more
specified events (in addition to a Change in Control).
Installment or deferred payments may be required by the
Committee (subject to Section 10(e) of the Plan, including
the consent provisions thereof in the case of any deferral of
an outstanding Award not provided for in the original Award
agreement) or permitted at the election of the Participant on
terms and conditions established by the Committee. Payments
may include, without limitation, provisions for the payment
or crediting of reasonable interest on installment or
deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or
deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the
intent of the Corporation that the grant of any Awards to or
other transaction by a Participant who is subject to Section
16 of the Exchange Act shall be exempt under Rule 16b-3
(except for transactions acknowledged in writing to be
non-exempt by such Participant). Accordingly, if any
provision of this Plan or any Award agreement does not comply
with the requirements of Rule 16b-3 as then applicable to any
such transaction, such provision shall be construed or deemed
amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 so that such Participant shall
avoid liability under Section 16(b).
(e) Cancellation and Rescission of Awards. Unless the
Award agreement specifies otherwise, the Committee may cancel
any unexpired, unpaid, or deferred Awards at any time, and
the Corporation shall have the additional rights set forth in
Section 7(e)(iv) below, if the Participant is not in
compliance with all applicable provisions of the Award
agreement and the Plan including the following conditions:
(i) A Participant shall not render services for any
organization or engage directly or indirectly in any
business which, in the judgment of the Chief Executive
Officer of the Corporation or other senior officer
designated by the Committee, is or becomes competitive
with the Corporation. For Participants whose employment
or service has terminated, the judgment of the Chief
Executive Officer or other senior officer designated by
the Committee shall be based on the Participant's
position and responsibilities while employed by, or
rendering services to, the Corporation, the Participant's
post-employment or post-service responsibilities and
position with the other organization or business, the
extent of past, current and potential competition or
conflict between the Corporation and the other
organization or business, the effect on the Corporation's
shareholders and clients of the Participant assuming the
post-employment or post-service position and such other
considerations as are deemed relevant given the
applicable facts and circumstances.
(ii) A Participant shall not, without prior written
authorization from the
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<PAGE> 15
Corporation, disclose to anyone outside the Corporation,
or use in other than the Corporation's business, any
confidential information or material relating to the
business of the Corporation that is acquired by the
Participant either during or after employment or service
with the Corporation.
(iii) A Participant shall disclose promptly and
assign to the Corporation all right, title, and interest
in any invention or idea, patentable or not, made or
conceived by the Participant during employment or service
with the Corporation, relating in any manner to the
actual or anticipated business, research or development
work of the Corporation and shall do anything reasonably
necessary to enable the Corporation to secure a patent
where appropriate in the United States and in foreign
countries.
(iv) Upon exercise, settlement, payment or delivery
pursuant to an Award, the Participant shall certify on a
form acceptable to the Committee that he or she is in
compliance with the terms and conditions of the Plan.
Failure to comply with the provisions of this Section
7(e) prior to, or during the one-year period after, any
exercise, payment or delivery pursuant to an Award shall
cause such exercise, payment or delivery to be rescinded.
The Corporation shall notify the Participant in writing
of any such rescission within three years after such
exercise, payment or delivery. Within ten days after
receiving such a notice from the Corporation, the
Participant shall pay to the Corporation the amount of
any gain realized or payment received as a result of the
rescinded exercise, payment or delivery pursuant to an
Award. Such payment shall be made either in cash or by
returning to the Corporation the number of shares of
Stock that the Participant received in connection with
the rescinded exercise, payment or delivery.
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to
exercise or receive a grant or settlement of any Award, and
the timing thereof, may be subject to such performance
conditions as may be specified by the Committee. The
Committee may use such business criteria and other measures
of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to
reduce or increase the amounts payable under any Award
subject to performance conditions, except as limited under
Sections 8(b) and 8(c) hereof in the case of a Performance
Award or Annual Incentive Award intended to qualify under
Code Section 162(m).
(b) Performance Awards Granted to Designated Covered
Employees. If the Committee determines that a Performance
Award to be granted to an Eligible Person who is designated
by the Committee as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of
Code Section 162(m), the grant, exercise and/or settlement of
such Performance Award shall be contingent upon achievement
of preestablished performance goals and other terms set forth
in this Section 8(b).
(i) Performance Goals Generally. The performance goals
for such
12
<PAGE> 16
Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance
with respect to each of such criteria, as specified by
the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise
meet the requirements of Code Section 162(m) and
regulations thereunder (including Regulation 1.162-27 and
successor regulations thereto), including the requirement
that the level or levels of performance targeted by the
Committee result in the achievement of performance goals
being "substantially uncertain." The Committee may
determine that such Performance Awards shall be granted,
exercised and/or settled upon achievement of any one
performance goal or that two or more of the performance
goals must be achieved as a condition to grant, exercise
and/or settlement of such Performance Awards. Performance
goals may differ for Performance Awards granted to any
one Participant or to different Participants.
(ii) Business Criteria. One or more of the following
business criteria for the Corporation, on a consolidated
basis, and/or for specified Affiliates or business units
of the Corporation (except with respect to the total
shareholder return and earnings per share criteria),
shall be used by the Committee in establishing
performance goals for such Performance Awards: (1)
earnings per share; (2) increase in revenues; (3) cash
flow; (4) cash flow return on investment; (5) return on
net assets, return on assets, return on investment,
return on capital, return on equity; (6) economic value
added; (7) operating margin; (8) net income; net income
before taxes; operating profits; earnings before
interest, taxes and amortization; earnings before
interest, taxes, depreciation and amortization; (9) total
shareholder return; (10) ratio of staff cost to revenues
or gross margin; and (11) any of the above goals as
compared to the performance of a published or special
index deemed applicable by the Committee including, but
not limited to, the Standard & Poor's 500 Stock Index or
a group of comparator companies. One or more of the
foregoing business criteria shall also be exclusively
used in establishing performance goals for Annual
Incentive Awards granted to a Covered Employee under
Section 8(c) hereof.
(iii) Performance Period; Timing for Establishing
Performance Goals. Achievement of performance goals in
respect of such Performance Awards shall be measured over
a performance period of up to ten years, as specified by
the Committee. Not later than 90 days after the beginning
of any performance period applicable to such Performance
Awards, or at such other date as may be required or
permitted in the case of Awards intended to be
"performance-based compensation" under Code Section
162(m), the Committee shall determine the Eligible
Persons who will potentially receive Performance Awards,
and the amounts potentially payable thereunder, for that
performance period.
(iv) Performance Award Pool. The Committee may
establish a Performance Award pool, which shall be an
unfunded pool, for purposes of measuring performance of
the Corporation in connection with Performance Awards.
The amount of such Performance Award pool shall be based
upon the achievement of a performance goal or goals based
on one or more of the business criteria set forth in
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<PAGE> 17
Section 8(b)(ii) hereof during the given performance
period, as specified by the Committee in accordance with
Section 8(b)(iii) hereof. The Committee may specify the
amount of the Performance Award pool as a percentage of
any of such business criteria, a percentage thereof in
excess of a threshold amount, or as another amount which
need not bear a strictly mathematical relationship to
such business criteria.
(v) Settlement of Performance Awards; Other Terms.
After the end of each performance period, the Committee
shall determine the amount, if any, of (A) the
Performance Award pool, and the maximum amount of
potential Performance Award payable to each Participant
in the Performance Award pool, or (B) the amount of
potential Performance Award otherwise payable to each
Participant. Settlement of such Performance Awards shall
be in cash, Stock, other Awards or other property, in the
discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise
to be made in connection with such Performance Awards,
but may not exercise discretion to increase any such
amount payable to a Covered Employee in respect of a
Performance Award subject to this Section 8(b). The
Committee shall specify the circumstances in which such
Performance Awards shall be paid or forfeited in the
event of termination of employment or service by the
Participant prior to the end of a performance period or
settlement of Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered
Employees. If the Committee determines that an Annual
Incentive Award to be granted to an Eligible Person who is
designated by the Committee as likely to be a Covered
Employee should qualify as "performance-based compensation"
for purposes of Code Section 162(m), the grant, exercise
and/or settlement of such Annual Incentive Award shall be
contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may
establish an Annual Incentive Award pool, which shall be
an unfunded pool, for purposes of measuring performance
of the Corporation in connection with Annual Incentive
Awards. The amount of such Annual Incentive Award pool
shall be based upon the achievement of a performance goal
or goals based on one or more of the business criteria
set forth in Section 8(b)(ii) hereof during the given
performance period, as specified by the Committee in
accordance with Section 8(b)(iii) hereof. The Committee
may specify the amount of the Annual Incentive Award pool
as a percentage of any of such business criteria, a
percentage thereof in excess of a threshold amount, or as
another amount which need not bear a strictly
mathematical relationship to such business criteria.
(ii) Potential Annual Incentive Awards. Not later
than the end of the 90th day of each fiscal year, or at
such other date as may be required or permitted in the
case of Awards intended to be "performance-based
compensation" under Code Section 162(m), the Committee
shall determine the Eligible Persons who will potentially
receive Annual Incentive Awards, and the amounts
potentially payable thereunder,
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<PAGE> 18
for that fiscal year, either out of an Annual Incentive
Award pool established by such date under Section 8(c)(I)
hereof or as individual Annual Incentive Awards. In the
case of individual Annual Incentive Awards intended to
qualify under Code Section 162(m), the amount potentially
payable shall be based upon the achievement of a
performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof in
the given performance year, as specified by the
Committee; in other cases, such amount shall be based on
such criteria as shall be established by the Committee.
In all cases, the maximum Annual Incentive Award of any
Participant shall be subject to the limitation set forth
in Section 5 hereof.
(iii) Payout of Annual Incentive Awards. After the
end of each fiscal year, the Committee shall determine
the amount, if any, of (A) the Annual Incentive Award
pool, and the maximum amount of potential Annual
Incentive Award payable to each Participant in the Annual
Incentive Award pool, or (B) the amount of potential
Annual Incentive Award otherwise payable to each
Participant. Settlement of such Annual Incentive Awards
shall be in cash, Stock, other Awards or other property,
in the discretion of the Committee. The Committee may, in
its discretion, determine that the amount payable to any
Participant as a final Annual Incentive Award shall be
increased or reduced from the amount of his or her
potential Annual Incentive Award, including a
determination to make no final Award whatsoever, but may
not exercise discretion to increase any such amount in
the case of an Annual Incentive Award intended to qualify
under Code Section 162(m). The Committee shall specify
the circumstances in which an Annual Incentive Award
shall be paid or forfeited in the event of termination of
employment or service by the Participant prior to the end
of a fiscal year or settlement of such Annual Incentive
Award.
(d) Written Determinations. All determinations by the
Committee as to the establishment of performance goals, the
amount of any Performance Award pool or potential individual
Performance Awards and as to the achievement of performance
goals relating to Performance Awards under Section 8(b), and
the amount of any Annual Incentive Award pool or potential
individual Annual Incentive Awards and the amount of final
Annual Incentive Awards under Section 8(c), shall be made in
writing in the case of any Award intended to qualify under
Code Section 162(m). The Committee may not delegate any
responsibility relating to such Performance Awards or Annual
Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under
Code Section 162(m). It is the intent of the Corporation that
Performance Awards and Annual Incentive Awards under Sections
8(b) and 8(c) hereof granted to persons who are designated by
the Committee as likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder
(including Regulation 1.162-27 and successor regulations
thereto) shall, if so designated by the Committee, constitute
"performance-based compensation" within the meaning of Code
Section 162(m) and regulations thereunder. Accordingly, the
terms of Sections 8(b), (c), (d) and (e), including the
definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section
162(m) and regulations thereunder. The foregoing
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<PAGE> 19
notwithstanding, because the Committee cannot determine with
certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been
completed, the term Covered Employee as used herein shall
mean only a person designated by the Committee, at the time
of grant of Performance Awards or an Annual Incentive Award,
as likely to be a Covered Employee with respect to that
fiscal year. If any provision of the Plan as in effect on the
date of adoption or any agreements relating to Performance
Awards or Annual Incentive Awards that are designated as
intended to comply with Code Section 162(m) does not comply
or is inconsistent with the requirements of Code Section
162(m) or regulations thereunder, such provision shall be
construed or deemed amended to the extent necessary to
conform to such requirements.
9. Change in Control.
(a) Effect of "Change in Control." In the event of a
"Change in Control," the following provisions shall apply
unless otherwise provided in the Award agreement:
(i) Any Award carrying a right to exercise that was
not previously exercisable and vested shall become fully
exercisable and vested as of the time of the Change in
Control;
(ii) The restrictions, deferral of settlement, and
forfeiture conditions applicable to any other Award
granted under the Plan shall lapse and such Awards shall
be deemed fully vested as of the time of the Change in
Control, except to the extent of any waiver by the
Participant and subject to applicable restrictions set
forth in Section 10(a) hereof; and
(iii) With respect to any outstanding Award subject
to achievement of performance goals and conditions under
the Plan, such performance goals and other conditions
will be deemed to be met if and to the extent so provided
by the Committee in the Award agreement relating to such
Award.
(b) Definition of "Change in Control." A "Change in
Control" shall be deemed to have occurred if:
(i) any Person (other than the Corporation, any
trustee or other fiduciary holding securities under any
employee benefit plan of the Corporation, or any company
owned, directly or indirectly, by the stockholders of the
Corporation immediately prior to the occurrence with
respect to which the evaluation is being made in
substantially the same proportions as their ownership of
the common stock of the Corporation immediately prior to
the occurrence with respect to which the evaluation is
being made) becomes the Beneficial Owner (except that a
Person shall be deemed to be the Beneficial Owner of all
shares that any such Person has the right to acquire
pursuant to any agreement or arrangement or upon exercise
of conversion rights, warrants or options or otherwise,
without regard to the sixty day period referred to in
Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation (A)
representing 40% or more of the combined voting
16
<PAGE> 20
power of the Corporation's then outstanding securities
and (B) for so long as the Management Voting Trust is
extant, representing a greater percentage of the combined
voting power of the Corporation's then outstanding
securities than is represented by the securities of the
Corporation then held by the Management Voting Trust;
provided, that for purposes of this Section 9(b)(i), all
shares of Stock subject to Options granted pursuant to
the Plan and stock options granted pursuant to the Young
& Rubicam Holdings Inc. Management Stock Option Plan that
are then fully vested and immediately exercisable (not
including any shares of Stock subject to Options which
would become fully vested and immediately exercisable as
a result of the Change in Control having occurred) shall
be treated as outstanding securities of the Corporation;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board, and any new director (other than a
director designated by a person who has entered into an
agreement with the Corporation to effect a transaction
described in clause (i), (iii), or (iv) of this
paragraph) whose election by the Board or nomination for
election by the Corporation's stockholders was approved
by a vote of at least two-thirds of the directors then
still in office who either were directors at the
beginning of the two-year period or whose election or
nomination for election was previously so approved but
excluding for this purpose any such new director whose
initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an
individual, corporation, partnership, group, associate or
other entity or Person other than the Board (the
"Continuing Directors"), cease for any reason to
constitute at least a majority of the Board;
(iii) the consummation of a merger or consolidation
of the Corporation with any other entity, which merger or
consolidation would result in either (A) the voting
securities of the Corporation outstanding immediately
prior to such merger or consolidation failing to
represent (either by remaining outstanding or by 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) (x)
the voting securities of the Corporation outstanding
immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding
or by being converted into voting securities of the
surviving or resulting entity) 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 (y) as a result of the
occurrence 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 Corporation approve a
plan or agreement for the
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<PAGE> 21
sale or disposition of all or substantially all of the
consolidated assets of the Corporation (other than such a
sale or disposition immediately after which such assets
will be owned directly or indirectly by the stockholders
of the Corporation in substantially the same proportions
as their ownership of the common stock of the Corporation
immediately prior to such sale or disposition) in which
case the Board shall determine the effective date of the
Change in Control resulting therefrom; or
(v) any other event occurs which the Board
determines, in its discretion, would materially alter the
structure of the Corporation or its ownership.
(c) Tender Offer. For purposes of Section 9(a) hereof, a
Change in Control shall be deemed to have occurred
immediately prior to the consummation of (A) a tender offer
for securities of the Corporation representing more than 50%
of the combined voting power of the Corporation's then
outstanding securities in which the Schedule 14D-1 filed with
the Securities and Exchange Commission with respect to such
tender offer does not
disclose any intention to follow the consummation of the
tender offer with a merger, reorganization, consolidation,
share exchange or similar transaction or (B) a tender offer
for securities of the Corporation representing any percentage
of the combined voting power of the Corporation's then
outstanding securities in which the Schedule 14D-1 filed with
the Securities and Exchange Commission with respect to such
tender offer discloses 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). The Corporation
intends by this Section 9(c) to protect Participants from
being disadvantaged by being unable to participate in a
tender offer with respect to shares of Stock subject to
Options and will take reasonably appropriate steps to help
Participants avoid being so disadvantaged by establishing
procedures to allow Participants to exercise Options the
exercisability of which is accelerated pursuant to this
Section 9(c) and tender the resulting shares of Stock in the
tender offer, including, to the extent feasible in compliance
with applicable law, by permitting Participants to exercise
Options provisionally upon the consummation of the tender
offer and by permitting Participants to pay the exercise
price of Options by means of a recourse note to the
Corporation with such terms and conditions as the Board may
require, including a pledge of the related shares.
10. General Provisions.
(a) Compliance with Legal and Other Requirements. The
Corporation may, to the extent deemed necessary or advisable
by the Committee, postpone the issuance or delivery of Stock
or payment of other benefits under any Award until completion
of such registration or qualification of such Stock or other
required action under any federal or state law, rule or
regulation, listing or other required action with respect to
any stock exchange or automated quotation system upon which
the Stock or other securities of the Corporation are listed
or quoted, or compliance with any other obligation of the
Corporation, as the Committee may consider appropriate, and
may require any Participant
18
<PAGE> 22
to make such representations, furnish such information and
comply with or be subject to such other conditions as it may
consider appropriate in connection with the issuance or
delivery of Stock or payment of other benefits in compliance
with applicable laws, rules, and regulations, listing
requirements, or other obligations. The Corporation shall not
be required to issue or deliver any certificates evidencing
shares of Stock in connection with an Award (i) unless and
until the Committee has determined, with advice of counsel,
that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of
governmental authorities and, if applicable, the requirements
of any exchange on which the shares of Stock are listed or
traded, and (ii) if the effect of such issuance or delivery
would be to require the Corporation to register any class of
any securities of the Corporation under the Exchange Act. The
Corporation shall in no event be obligated to register such
shares of Stock or to take any other action in order to
comply with any such law, regulation or requirement with
respect to the issuance and delivery of such certificates.
The foregoing notwithstanding, in connection with a Change in
Control, the Corporation shall take or cause to be taken no
action, and shall undertake or permit to arise no legal or
contractual obligation, that results or would result in any
postponement of the issuance or delivery of Stock or payment
of benefits under any Award or the imposition of any other
conditions on such issuance, delivery or payment, to the
extent that such postponement or other condition would
represent a greater burden on a Participant than existed on
the 90th day preceding the Change in Control.
(b) Limits on Transferability; Beneficiaries. No Award or
other right or interest of a Participant under the Plan shall
be pledged, hypothecated or otherwise encumbered or subject
to any lien, obligation or liability of such Participant to
any party (other than the Corporation or an Affiliate), or
assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution or to a
Beneficiary upon the death of a Participant, and such Awards
or rights that may be exercisable shall be exercised during
the lifetime of the Participant only by the Participant or
his or her guardian or legal representative, except that
Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more Beneficiaries or
other transferees during the lifetime of the Participant, and
may be exercised by such transferees in accordance with the
terms of such Award, but only if and to the extent such
transfers are permitted by the Committee pursuant to the
express terms of an Award agreement (subject to any terms and
conditions which the Committee may impose thereon). A
Beneficiary, transferee, or other person claiming any rights
under the Plan from or through any Participant shall be
subject to all terms and conditions of the Plan and any Award
agreement applicable to such Participant, except as otherwise
determined by the Committee, and to any additional terms and
conditions deemed necessary or appropriate by the Committee.
(c) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other
property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such
that an adjustment is determined by the Committee to be
appropriate under the Plan, then the Committee shall, in such
manner as it may deem equitable, adjust any or all of (i) the
number and kind of shares of Stock which may be delivered in
connection with
19
<PAGE> 23
Awards granted thereafter, (ii) the number and kind of shares
of Stock by which annual per-person Award limitations are
measured under Section 5 hereof, (iii) the number and kind of
shares of Stock subject to or deliverable in respect of
outstanding Awards and (iv) the exercise price, grant price
or purchase price relating to any Award and/or make provision
for payment of cash or other property in respect of any
outstanding Award. In addition, the Committee is authorized
to make adjustments in the terms and conditions of, and the
criteria included in, Awards (including Performance Awards
and performance goals, and Annual Incentive Awards and any
Annual Incentive Award pool or performance goals relating
thereto) in recognition of unusual or nonrecurring events
(including, without limitation, events described in the
preceding sentence, as well as acquisitions and dispositions
of businesses and assets) affecting the Corporation, any
Affiliate or any business unit, or the financial statements
of the Corporation or any Affiliate, or in response to
changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions
or in view of the Committee's assessment of the business
strategy of the Corporation, any Affiliate or business unit
thereof, performance of comparable organizations, economic
and business conditions, personal performance of a
Participant, and any other circumstances deemed relevant;
provided that no such adjustment shall be authorized or made
if and to the extent that such authority or the making of
such adjustment would cause Options, SARs, Performance Awards
granted under Section 8(b) hereof or Annual Incentive Awards
granted under Section 8(c) hereof to Participants designated
by the Committee as Covered Employees and intended to qualify
as "performance-based compensation" under Code Section 162(m)
and regulations thereunder to otherwise fail to qualify as
"performance-based compensation" under Code Section 162(m)
and regulations thereunder.
(d) Taxes. The Corporation and any Affiliate is
authorized to withhold from any Award granted, any payment
relating to an Award under the Plan, including from a
distribution of Stock, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction
involving an Award, and to take such other action as the
Committee may deem advisable to enable the Corporation and
Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or
receive Stock or other property and to make cash payments in
respect thereof in satisfaction of a Participant's tax
obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(e) Changes to the Plan and Awards. The Board may amend,
alter, suspend, discontinue or terminate the Plan or the
Committee's authority to grant Awards under the Plan without
the consent of shareholders or Participants, except that any
amendment or alteration to the Plan shall be subject to the
approval of the Corporation's shareholders not later than the
annual meeting next following such Board action if such
shareholder approval is required by any federal or state law
or regulation or the rules of any stock exchange or automated
quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion,
determine to submit other such changes to the Plan to
shareholders for approval; provided that, without the consent
of an affected Participant, no such Board action may
materially and adversely affect the rights
20
<PAGE> 24
of such Participant under any previously granted and
outstanding Award. The Committee may waive any conditions or
rights under, or amend, alter, suspend, discontinue or
terminate any Award theretofore granted and any Award
agreement relating thereto, except as otherwise provided in
the Plan; provided that, without the consent of an affected
Participant, no such Committee action may materially and
adversely affect the rights of such Participant under such
Award. Notwithstanding the foregoing, the Committee may
terminate any Award theretofore granted and any Award
agreement relating thereto in whole or in part provided that
upon any such termination the Corporation in full
consideration of the termination of (i) any Option
outstanding under the Plan (whether or not exercisable) or
portion thereof pays to such Participant an amount in cash
for each share of 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 Stock received pursuant to the
exercise of such Option would have been valued by the
Corporation at that time for purposes of determining
applicable withholding taxes or other similar charges, over
(b) the sum of (I) the exercise price per share of such
Option and (II) applicable withholding taxes and other
similar charges, or, if the Committee permits and the
Participant elects, accelerates the exercisability of such
Participant's Option or portion thereof (if necessary) and
allows such Participant 30 days to exercise such Option or
portion thereof before the termination of such Option or
portion thereof, or (ii) any Award other than an Option
outstanding under the Plan or portion thereof pays to such
Participant an amount in Stock or cash (as determined by the
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 Committee in its sole
discretion. Notwithstanding anything in the Plan to the
contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be
eligible for such accounting treatment, the Committee may
modify or adjust the right so that pooling of interest
accounting shall be available, including the substitution of
Stock having a Fair Market Value equal to the cash otherwise
payable hereunder for the right which caused the transaction
to be ineligible for pooling of interest accounting.
(f) Limitation on Rights Conferred under Plan. Neither
the Plan nor any action taken hereunder shall be construed as
(i) giving any Eligible Person or Participant the
right to continue as an Eligible Person or Participant or in
the employ or service of the Corporation or an Affiliate,
(ii) interfering in any way with the right of the Corporation
or an Affiliate to terminate any Eligible Person's or
Participant's employment or service at any time, (iii) giving
an Eligible Person or Participant any claim to be granted any
Award under the Plan or to be treated uniformly with other
Participants and employees, or (iv) conferring on a
Participant any of the rights of a shareholder of the
Corporation unless and until the Participant is duly issued
or transferred shares of Stock in accordance with the terms
of an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The
Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to
21
<PAGE> 25
any payments not yet made to a Participant or obligation to
deliver Stock pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Participant any rights
that are greater than those of a general creditor of the
Corporation; provided that the Committee may authorize the
creation of trusts and deposit therein cash, Stock, other
Awards or other property, or make other arrangements to meet
the Corporation's obligations under the Plan. Such trusts or
other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines
with the consent of each affected Participant. The trustee of
such trusts may be authorized to dispose of trust assets and
reinvest the proceeds in alternative investments, subject to
such terms and conditions as the Committee may specify and in
accordance with applicable law.
(h) Nonexclusivity of the Plan. Neither the adoption of
the Plan by the Board nor its submission to the shareholders
of the Corporation for approval shall be construed as
creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements
as it may deem desirable including incentive arrangements and
awards which do not qualify under Code Section 162(m).
(i) Payments in the Event of Forfeitures; Fractional
Shares. Unless otherwise determined by the Committee, in the
event of a forfeiture of an Award with respect to which a
Participant paid cash or other consideration, the Participant
shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee
shall determine whether cash, other Awards or other property
shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect
of the Plan, any rules and regulations under the Plan, and
any Award agreement shall be determined in accordance with
the Delaware General Corporation Law, without giving effect
to principles of conflicts of laws, and applicable federal
law.
(k) Awards under Preexisting Plans. Upon approval of the
Plan by shareholders of the Corporation as required under
Section 10(l) hereof, no further awards shall be granted
under the Preexisting Plans. Notwithstanding the foregoing,
on or prior to March 31, 1998, restricted stock awards may be
granted under the Young & Rubicam Holdings Inc. Restricted
Stock Plan, and any such outstanding or future restricted
stock awards granted on or prior to March 31, 1998, shall be
governed by the terms and provisions of the Young & Rubicam
Holdings Inc. Restricted Stock Plan as in effect prior to
December 16, 1997.
(l) Plan Effective Date and Shareholder Approval. The
Plan has been adopted by the Board effective December 16,
1997, subject to approval by the shareholders of the
Corporation.
22
<PAGE> 1
Exhibit 10.24
Young & Rubicam Inc. M E M O R A N D U M
DATE: May 30, 1997
SUBJECT: 1997 Bonus Plan
FROM: Peter Georgescu
TO: \Name\
COPY: \Name\
The Compensation Committee of the Board of Directors of Young &
Rubicam Inc. has reviewed and approved the Corporation's overall 1997
bonus plan. As part of this plan we have again established a Key
Corporation Managers Bonus Plan for the people who we expect to have
the greatest impact on the performance of our company as a whole. This
relatively small, important group includes you.
Our 1997 budget, which we have committed to achieve, calls for an
Operating Profit of $200 million and a minimum EBITA (Earnings Before
Interest, Taxes and Amortization) of $157.5 million. At this level of
operating performance, along with strong non-operating and tax expense
management, we will fully fund the Key Corporation Managers Bonus pool
in which you will participate. We will also have separately funded
bonus plans for each Line of Business to reward people not included in
the Key Corporation Managers Bonus Plan.
For your information, the most significant manageable difference
between Operating Profit and EBITA is the total bonus expense for the
Corporation as a whole. As we focus on delivering our 3 year financial
plan, which calls for committed improvements in EBITA, it is necessary
that shortfalls to our 1997 Operating Profit Commitment of $200
million will have a significant negative impact on funds available for
the 1997 Key Corporation Managers Bonus Pool.
For 1997, the Key Corporation Managers pool will again be divided into
"bonus shares", which at budgeted levels of Operating Profit,
non-operating expense, and income taxes, are expected to be worth $100
each. In 1997, we are making an initial award of "bonus shares" to
each participant in the Plan, which, if we deliver the budgeted level
of operating profit, non-operating expense and income taxes, would
represent approximately 40% of each participant's "target" bonus for
the year if all personal objectives are met. We will issue additional
"bonus shares" in February 1998, based upon each participant's actual
performance against his or her specific personal objectives.
<PAGE> 2
Your target bonus for 1997 is \Amount\, and you are being awarded
\Number\ "bonus shares" in the Plan at this time. Your performance in
1997 against your specific performance objectives (attached) will
determine the number of additional "bonus shares" you will be awarded
next February. All "bonus shares" will vest as of March 1, 1998 and
will be paid out on or about March 15, 1998.
Please acknowledge receipt of this letter and your personal objectives
by signing this letter and the attached personal objectives list and
returning a copy to me as soon as possible in the enclosed envelope.
1997 may well turn out to be a pivotal year in our Company's history.
We need happy and satisfied clients and very strong financial
performance for us, as a Company.
Thank you for your effort. This will really matter.
Good luck to you and to all of us.
Best personal regards,
--------------------------------------------------
\Name\ Date
P.S. In addition to your participation in the Key Corporation Managers
Bonus Plan, you will also participate in the Management Committee Two
Year Incremental Equity Incentive Plan, details of which will be
distributed separately.
The amounts received by the named executive officers under the Key
Corporation Managers Bonus Plan are as follows: Mr. Georgescu -
$598,500; Mr. Vick - $272,250; Mr. McGarry - $297,000; Mr. Bell -
$168,750; and Mr. Dolan - $198,000.
<PAGE> 1
Exhibit 10.25
AMENDMENT NO. 1 TO THE
YOUNG & RUBICAM RESTRICTED STOCK TRUST AGREEMENT
WHEREAS, Young & Rubicam Inc., a corporation organized under the
laws of the State of Delaware, (hereinafter referred to as the "Company"), as
successor to Young & Rubicam Holdings Inc., and The Bank of New York, a bank
organized under the laws of the State of New York (hereinafter referred to as
the "Trustee"), made and entered into the Young & Rubicam Restricted Stock Trust
Agreement as of December 12, 1996 (the "Trust Agreement");
WHEREAS, Section 11.1 of the Trust Agreement provides for amendment
of the Trust Agreement by the Compensation Committee of the Company with the
written consent of the HFCP Investors and the Management Voting Trust (as each
such term is defined in the Trust Agreement);
WHEREAS, Section 11.2 of the Trust Agreement provides that the
Company and the Trustee shall execute such amendments of the Trust Agreement as
shall be necessary to give effect to any amendment made pursuant to Section 11.1
of the Trust Agreement;
NOW, THEREFORE, the Trust Agreement is hereby amended, effective as
of the date set forth below, as follows:
1. A new whereas clause is added as the second whereas clause of the
recitals to read in its entirety as follows:
WHEREAS, the Company and its affiliates maintain bonus programs for
the benefit of certain employees of the Company and its affiliates
(the "Bonus Programs") which provide for annual cash bonuses (each,
an "Annual Bonus") to such employees and the Company and its
affiliates pay salaries to employees of the Company and its
affiliates ("Salaries");
2. The third and fourth whereas clauses of the recitals (as
renumbered by the addition of a new second whereas clause) are amended and
restated in their entirety as follows:
WHEREAS, the Plan contemplates that the employees and independent
contractors covered by the Plan will receive shares of Common Stock
upon the occurrence of certain events, the Bonus Programs
contemplate that the employees covered by the Bonus Programs will
receive Annual Bonuses and the Company contemplates that employees
of it and its affiliates will receive Salaries (the employees and
independent contractors covered by
<PAGE> 2
the Plan or the Bonus Programs or eligible to receive Salaries,
collectively, the "Participants");
WHEREAS, the Company has established a trust (the "Young & Rubicam
Restricted Stock Trust" or "Trust") which it proposes to use to aid
it in meeting its obligations pursuant to Awards granted under the
Plan and agreements with Participants evidencing such Awards (the
"Restricted Stock Agreements"), its obligations pursuant to Annual
Bonuses awarded under the Bonus Programs and its obligations to pay
Salaries to Participants;
3. Section 1.2 is amended by the insertion of the words "and the
Bonus Programs and with respect to their Salaries" after the word "Plan" in the
third line thereof.
4. Section 3.1 is amended by the insertion of the words "Except for
a sale of such shares to the Company pursuant to Section 5.1(b) hereof," at the
beginning of the first sentence thereof and by the insertion of the words
"(including, but not limited to, sales of shares of Common Stock or related
Voting Trust Certificates pursuant to Section 5.1(b))" after the words "except
for those transactions specifically contemplated herein" in the second sentence
thereof.
5. Section 4.2 is amended by the insertion of the words "in the
Plan" after the word "Participant" in the second line thereof.
6. Section 4.3 is amended by the insertion of the words "or sale to
the Company pursuant to Section 5.1(b) hereof" at the end of the fifth sentence
thereof.
7. The second and third sentences of Section 5.1(a) are amended and
restated in their entirety as follows:
Notwithstanding the foregoing provisions of this Section 5.1(a) but
subject to Section 5.2 hereof, the Trustee shall make payments to a
Participant in the Plan, in the absence of the instructions of the
Committee, after having given 15 days' prior written notice to the
HFCP Investors and the Management Voting Trust, (i) if such
Participant claims such amounts are due and if a reputable service
provider (which has expertise in employee benefit matters and which
the Committee has appointed to determine claims for benefits by
Participants under the Plan, having given written notice of such
appointment to the Trustee) instructs in writing the Trustee to make
such payments or distributions to such Participant or (ii) upon
receipt of a final nonappealable order of a court of competent
jurisdiction determining that the Company is obligated to make such
payments or distributions to a Participant under the Plan. Except
for any distribution pursuant to Section 5.2(b) hereof or
2
<PAGE> 3
Section 12.1 of the Plan, in no event shall any distribution be made
to any Participant under the Plan in excess of the amount in the
Participant's Accounts.
8. A new Section 5.1(b) is added to read in its entirety as follows,
and current Sections 5.1(b), (c) and (d) shall be redesignated as Sections
5.1(c), (d) and (e), respectively:
Subject to Section 5.2 and Section 14 hereof, the Committee shall
instruct in writing the Trustee to distribute amounts held in cash
in the Unallocated Account to the Company (in order for the Company
either to pay its own employees participating in the Bonus Programs
or entitled to Salaries or to contribute amounts to its affiliate to
pay such affiliate's employees participating in the Bonus Program or
entitled to Salaries) at such time and in such amounts as are
certified to the Trustee by the Committee, unless the Committee
directs the Trustee in writing that such Annual Bonuses or Salaries
be paid directly to such Participants by the Trustee and specifies
to the Trustee in such written direction the amount and timing of
payment to each such Participant, as well as all other information
necessary for the Trustee to effect payment to such Participants.
Notwithstanding any other provision of the Trust Agreement or the
Plan to the contrary, but subject to Section 5.2 and Section 14
hereof, in the event that the Trustee is directed to distribute cash
to the Company on behalf of Participants under the Bonus Programs or
entitled to Salaries or to such Participants directly, the Trustee
shall, as directed in writing by the Committee, offer to sell to the
Company, and the Company hereby agrees to purchase, the necessary
number of shares of Common Stock (or related Voting Trust
Certificates) held in the Unallocated Account at fair market value
as determined by the Committee or the provisions of this Section
5.1(b) (the Trustee being able to rely conclusively on such
determination of fair market value) such that proceeds from the sale
are (or, if such sale occurs prior to an Initial Public Offering (as
defined in the Plan), the first installment payment is) sufficient
to pay such Annual Bonuses or Salaries. Prior to an Initial Public
Offering, the Company shall purchase shares of Common Stock (or
related Voting Trust Certificates) pursuant to the foregoing
sentence in two installment payments; provided that such sale shall
be deemed to occur only upon receipt by the Trustee of the second
installment payment (or, if the amount of the second installment
payment is zero, at the time such second installment payment is due)
and the Trustee shall not release any such shares of Common Stock
(or related Voting Trust Certificates) prior thereto; provided,
however, that if on or prior to the date the second installment
payment is due the Company (i)
3
<PAGE> 4
fails to pay the second installment payment or (ii) fails to provide
the Trustee with evidence reasonably satisfactory to the Trustee
that execution of Amendment No. 1 to the Trust Agreement and any
related amendments to the Stockholders' Agreement were duly
ratified, the first installment payment shall be treated solely as
an additional contribution to the Trust Fund by the Company and
under no circumstances shall the Trust be required to repay the
first installment payment to the Company. With respect to any sale
occurring as a result of a written direction to distribute cash
received by the Trustee within the first six months of calendar year
1998, the per share value for the first installment payment shall be
$185 and with respect to any sale occurring after such period, the
per share value for the first installment payment shall be equal to
the Public Market Value (as defined in the Stockholders' Agreement)
less 15% determined as of the last Regular Valuation Date preceding
the date of the first installment payment. The second installment
payment shall be paid upon the consummation of an Initial Public
Offering or, if no Initial Public Offering has occurred within four
months after the date of the first installment payment, on the date
four months after the date of the first installment payment and the
per share value for the second installment payment shall be equal to
the excess (if any) of (i) the price at which a share of Common
Stock is offered to the public in an Initial Public Offering, if an
Initial Public Offering occurs within such four month period, or, if
an Initial Public Offering does not occur within such four month
period, the Public Market Value per share (as defined in the
Stockholders' Agreement) less 15% determined as of the last Regular
Valuation Date preceding the date of the second installment payment
over (ii) the per share value for the first installment payment. The
purchase of shares of Common Stock (or related Voting Trust
Certificates) by the Company from the Trustee shall constitute a
deemed representation by the Company to the Trustee that at the time
of the purchase, such purchase does not violate any applicable
federal or state securities law. The Trustee shall have no duty to
make any distribution of cash from the Unallocated Account, or sale
of shares of Common Stock (or related Voting Trust Certificates)
held in the Unallocated Account, in the absence of written
directions from the Committee, and the Trustee shall have no duty to
solicit such directions from the Committee. The Trustee can rely
conclusively upon the written directions of the Committee with
respect to the Unallocated Account. The Trustee shall have no duty
to compel the Company to purchase shares of Common Stock (or related
Voting Trust Certificates) held in the Unallocated Account or to
compel the Company to make any installment
4
<PAGE> 5
payments as specified herein, and the Trustee shall have no duty to
ensure that amounts distributed by the Trustee to the Company for
the payment of Annual Bonuses or Salaries are used by the Company
for such purpose. In no event shall the Trustee be obligated to make
any distribution with respect to Annual Bonuses or Salaries in
excess of cash held in the Unallocated Account after the receipt of
any sale proceeds or installment payments due on or before that
date.
9. Newly designated Section 5.1(d) is amended by the insertion of
the words "or as shown on the records of the Company" after the word
"Participant" in the third line thereof.
10. Section 5.3 is amended by the insertion of the words "the Bonus
Programs, Salaries," after the word "Plan" in the fourth line thereof.
11. Section 13.3 is amended by the insertion of the words "or as
shown on the records of the Company" after the word "Participant" in the third
line thereof.
12. Section 17 is amended by the insertion of the words "(other than
any act or omission under Section 5.1(b) hereof, including, but not limited to,
any act or omission taken or not taken pursuant to the terms of Section 5.1(b)
hereof as set forth in any amendment to this Trust Agreement that is executed by
the Company on an unauthorized or otherwise ultra vires basis)" after the word
"omission" in the sixth line thereof.
This Amendment No. 1 to the Trust Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to constitute one and the same
agreement.
5
<PAGE> 6
IN WITNESS WHEREOF, this Amendment No. 1 to the Trust Agreement has
been duly executed by the parties hereto as of March 13, 1998.
Young & Rubicam Inc.
By /s/ Stephanie W. Abramson
Attest -------------------------------
/s/ Mark T. McEnroe
- -------------------------------
The Bank of New York, as Trustee
By /s/ Richard Vollmer
Attest -------------------------------
/s/ Edward Cassidy
- -------------------------------
Consented to:
The HFCP Investors
By: H&F Investors III, Inc., a California corporation, as managing general
partner of Hellman & Friedman Associates III, L.P., a California limited
partnership, as managing general partner of H&F Investors III, a California
general partnership, as general partner of each of the HFCP Investors which is a
partnership
/s/ Phillip Hammarskjold
- ----------------------------------
Name: Phillip Hammarskjold
Title: Attorney-in-Fact
6
<PAGE> 7
Consented to:
The Management Voting Trust
By: The Voting Trustee Representative
/s/ Stephanie W. Abramson
- ----------------------------------
Name: Stephanie W. Abramson, Esq.
Title: Voting Trustee
7
<PAGE> 8
STATE OF )
:ss.:
COUNTY OF )
On the ____ day of __________, nineteen hundred and ninety eight,
before me personally came ____________________, to me known, who being by me
duly sworn, did depose and say that s/he resides at _________________________
and is the __________________ of ______________________, one of the entities
described in this instrument and had the rights to execute and did execute the
instrument on behalf of such entity.
Notary Public
STATE OF )
:ss.:
COUNTY OF )
On the ____ day of __________, nineteen hundred and ninety eight,
before me personally came ____________________, to me known, who being by me
duly sworn, did depose and say that s/he resides at _________________________
and is the __________________ of ______________________, one of the entities
described in this instrument and had the rights to execute and did execute the
instrument on behalf of such entity.
Notary Public
<PAGE> 9
STATE OF )
:ss.:
COUNTY OF )
On the ____ day of __________, nineteen hundred and ninety eight,
before me personally came ____________________, to me known, who being by me
duly sworn, did depose and say that s/he resides at _________________________
and is the __________________ of ______________________, one of the entities
described in this instrument and had the rights to execute and did execute the
instrument on behalf of such entity.
Notary Public
STATE OF )
:ss.:
COUNTY OF )
On the ____ day of __________, nineteen hundred and ninety eight,
before me personally came ____________________, to me known, who being by me
duly sworn, did depose and say that s/he resides at _________________________
and is the __________________ of ______________________, one of the entities
described in this instrument and had the rights to execute and did execute the
instrument on behalf of such entity.
Notary Public
<PAGE> 1
Exhibit 10.26
YOUNG & RUBICAM INC.
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Deferred Compensation Plan
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<PAGE> 2
YOUNG & RUBICAM INC.
Deferred Compensation Plan
Page
----
1. Purposes.......................................................... 1
2. Definitions....................................................... 1
3. Administration.................................................... 2
4. Participation..................................................... 3
5. Deferrals......................................................... 3
6. Deferral Accounts................................................. 4
7. Settlement of Deferral Accounts................................... 6
8. Provisions Relating to Section 162(m) of the Code................. 6
9. Statements........................................................ 7
10. Sources of Stock: Limitation on Amount of
Stock-Denominated Deferrals....................................... 7
11. Amendment/Termination............................................. 7
12. General Provisions................................................ 7
13. Effective Date.................................................... 9
<PAGE> 3
YOUNG & RUBICAM INC.
Deferred Compensation Plan
1. Purposes. The purpose of this Deferred Compensation Plan (the "Plan")
is to provide certain members of a select group of management or highly
compensated employees of Young & Rubicam Inc. (the "Company") and its Affiliates
a means to defer receipt of specified portions of compensation and to have such
deferred amounts treated as if invested in specified investment vehicles in
order to enhance the competitiveness of the Company's executive compensation
program and, therefore, its ability to attract and retain qualified key
personnel necessary for the continued success and progress of the Company.
2. Definitions. In addition to the terms defined in Section 1 above, the
following terms used in the Plan shall have the meanings set forth below:
(a) "Administrator" shall mean the person or persons to whom the
Committee has delegated the authority to take action under the Plan, except as
may be otherwise required under Section 8.
(b) Affiliate shall mean any entity (whether or not incorporated)
which, by reason of its relationship with the Company, is required to be
aggregated with the Company under Section 414(b), 414(c), 414(m) or 414(o) of
the Code, and any joint venture or partnership 10% or more of the profits or
capital interest of which is owned by the Company or an Affiliate.
(c) "Beneficiary" shall mean any person (which may include trusts
and is not limited to one person) who has been designated by the Participant in
his or her most recent written beneficiary designation filed with the Company to
receive the benefits specified under the Plan in the event of the Participant's
death. If no Beneficiary has been designated who survives the Participant's
death, then Beneficiary means any person(s) entitled by will or, in the absence
thereof, the laws of descent and distribution to receive such benefits.
(d) "Change in Control" shall have the meaning given to such term in
the Young & Rubicam Inc. 1997 Incentive Compensation Plan.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a proposed
regulation) thereunder shall include any successor provisions or regulations.
(f) "Committee" shall mean the Compensation Committee of the Board
of Directors of the Company or any other directors of the Company designated as
the Committee by the Board of Directors of the Company. Except as may be
otherwise required under Section 8 or by applicable law, any function of the
Committee may be delegated to the Administrator.
(g) "Deferral Account" shall mean the account or subaccount
established and maintained by the Company for specified deferrals by a
Participant, as described in
<PAGE> 4
Section 6. A Deferral Account will be maintained solely as a bookkeeping entry
by the Company to evidence unfunded obligations of the Company.
(h) "Deferred Stock" shall mean a right to receive Stock at the end
of a specified deferral period.
(i) "Disability" shall mean a physical or mental impairment of
sufficient severity such that a Participant is both eligible for and in receipt
of benefits under the long-term disability provisions of the benefit plans of
the Company or its Affiliates, as applicable.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended. References to any provision of the Exchange Act or rule thereunder
shall include any successor provisions or rules.
(k) "Participant" shall mean any employee of the Company or any
Affiliate who is designated by the Committee as eligible to participate in the
Plan and who makes an election to participate in the Plan.
(l) "Retirement" shall mean a Participant's voluntary termination of
employment (i) at or after attaining age 65 or (ii) at or after attaining age
55, but prior to attaining age 65, only if such termination is approved in
advance by the Committee.
(m) "Stock" shall mean Young & Rubicam Inc. Common Stock, or any
other equity securities of the Company designated by the Committee, including
Voting Trust Certificates as defined in the Management Voting Trust Agreement,
among the Company, the Young & Rubicam Restricted Stock Trust and the voting
trustees named therein, dated as of December 12, 1996 as it may be amended from
time to time.
(n) "Trust" shall mean any trust or trusts established or designated
by the Company to hold Stock or other assets in connection with the Plan;
provided, however, that the assets of such trusts shall remain subject to the
claims of the general creditors of the Company in the event of an insolvency of
the Company. The Company shall be considered insolvent for purposes of this Plan
and any Trust if (i) the Company is unable to pay its debts as they become due,
or (ii) the Company is subject to a pending proceeding as a debtor under the
United States Bankruptcy Code.
(o) "Trustee" shall mean the trustee of a Trust.
(p) "Trust Agreement" shall mean the agreement entered into between
the Company and the Trustee to carry out the purposes of the Plan, as amended or
restated from time to time.
3. Administration.
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<PAGE> 5
(a) Authority. Both the Committee and the Administrator (subject to
the ability of the Committee to restrict the Administrator) shall administer the
Plan in accordance with its terms, and shall have all powers necessary to
accomplish such purpose, including the power and authority to construe and
interpret the Plan, to define the terms used herein, to prescribe, amend and
rescind rules and regulations, agreements, forms, and notices relating to the
administration of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. Any actions of the Committee or
the Administrator with respect to the Plan shall be conclusive and binding upon
all persons interested in the Plan, except that any action of the Administrator
will not be binding on the Committee. The Committee and Administrator may each
appoint agents and delegate thereto powers and duties under the Plan, except as
otherwise limited by the Plan.
(b) Administrator. The Administrator shall be appointed by, shall
remain in office at the will of, and may be removed, with or without cause, by
the Committee. The Administrator may resign at any time. The Administrator shall
not be entitled to act on or decide any matter relating solely to himself or
herself or any of his or her rights or benefits under the Plan. The
Administrator shall not receive any special compensation for serving in his or
her capacity as Administrator but shall be reimbursed for any reasonable
expenses incurred in connection therewith. No bond or other security need be
required of the Administrator in any jurisdiction.
(c) Limitation of Liability. Each member of the Committee and the
Administrator shall be entitled to, in good faith, rely or act upon any report
or other information furnished to him or her by any officer or other employee of
the Company or any Affiliate, the Company's independent certified public
accountants, or any executive compensation consultant, legal counsel, or other
professional retained by the Company to assist in the administration of the
Plan. To the maximum extent permitted by law, no member of the Committee or the
Administrator, nor any person to whom ministerial duties have been delegated,
shall be liable to any person for any action taken or omitted in good faith in
connection with the interpretation and administration of the Plan.
(d) Indemnification. To the maximum extent permitted by law, members
of the Committee and the Administrator shall be fully indemnified and protected
by the Company with respect to any action taken or omitted in good faith in
connection with the interpretation or administration of the Plan.
4. Participation. The Administrator will use his or her best efforts to
notify each person of his or her eligibility to participate in the Plan not
later than 15 days (or such lesser period as may be practicable in the
circumstances) prior to any deadline for filing an election form.
5. Deferrals. To the extent authorized by the Committee, a Participant may
elect to defer compensation or awards which may be in the form of cash, Stock,
Stock-denominated awards or other property to be received from the Company or an
Affiliate, including salary, annual bonus awards, long-term awards, shares
issuable on stock option exercise and compensation payable under other plans and
programs, employment agreements or other arrangements, or otherwise, as may be
provided under the terms of such plans, programs and arrangements or as
designated by the Administrator. In addition to such limitation, and any terms
and conditions of deferral set forth under plans, programs or arrangements from
which receipt of the Stock-denominated award or other compensation is deferred,
the Committee
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<PAGE> 6
may impose limitations on the amounts permitted to be deferred and other terms
and conditions of deferrals under the Plan, including minimum and/or maximum
periods of deferral. Any such limitations, and other terms and conditions of
deferral, shall be set forth in the rules relating to the Plan or election
forms, other forms, or instructions published by the Committee and/or the
Administrator.
(a) Elections. Once an election form, properly completed, is
received by the Company, the elections of the Participant shall be irrevocable;
provided, however, that the Committee and/or the Administrator may, in its
discretion, permit a Participant to elect a further deferral of amounts credited
to a Deferral Account by filing a later election form; provided, further, that
any election to further defer amounts credited to a Deferral Account must be
made at least one (1) year prior to the date such amounts would otherwise be
payable.
(b) Date of Election. An election to defer must be received by the
Administrator prior to the deadline specified by the Administrator.
6. Deferral Accounts.
(a) Establishment; Crediting of Amounts Deferred. One or more
Deferral Accounts will be established for each Participant, as determined by the
Administrator. The amount of compensation or awards deferred with respect to
each Deferral Account will be credited to such Account as of the date on which
such amounts would have been paid to the Participant but for the Participant's
election to defer receipt hereunder, unless otherwise determined by the
Administrator. Stock-denominated awards deferred with respect to each Deferral
Account will be credited to the Participant's Deferral Account as units of
Deferred Stock, with one share of Stock equal to one unit of Deferred Stock as
opposed to cash amounts valued by reference to the market price of Stock. With
respect to any fractional shares of Stock or Stock-denominated awards, the
Administrator, in his or her sole discretion, shall pay such fractional shares
to the Participant in cash, credit the Deferral Account with cash in lieu of
depositing fractional shares into the Deferral Account, or credit the Deferral
Account with a fraction of a share calculated to at least three decimal places.
The amounts of hypothetical income and appreciation and depreciation in value of
such Account will be credited and debited to, or otherwise reflected in, such
Account from time to time. Unless otherwise determined by the Administrator,
amounts credited to a Deferral Account shall be deemed invested in a
hypothetical investment as of the date of deferral.
(b) Hypothetical Investments. Subject to the provisions of Sections
6(c) and 8, amounts credited to a Deferral Account shall be deemed to be
invested, at the Participant's direction, in one or more investment vehicles as
may be specified from time to time by the Administrator. The Administrator may
change or discontinue any hypothetical investment vehicle available under the
Plan in his or her discretion; provided, however, that each affected Participant
shall be given the opportunity, without limiting or otherwise impairing any
other right of such Participant regarding changes in investment directions, to
redirect the allocation of his or her Deferral Account deemed invested in the
discontinued investment vehicle among the other hypothetical investment
vehicles, including any replacement vehicle.
(c) Allocation and Reallocation of Hypothetical Investments. A
Participant may allocate amounts credited to his or her Deferral Account to one
or more of the hypothetical investment vehicles authorized under the Plan.
Subject to the rules established by the Administrator, if more than one
hypothetical investment vehicle is provided, a
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<PAGE> 7
Participant may reallocate amounts credited to his or her Deferral Account as of
the first day of the calendar month next following the filing of Participant's
election to one or more of such hypothetical investment vehicles, by filing with
the Administrator a notice, in such form as may be specified by the
Administrator, not later than the 15th of the preceding month. The Administrator
may, in its discretion, restrict allocation into or reallocation by specified
Participants into or out of specified investment vehicles or specify minimum or
maximum amounts that may be allocated or reallocated by Participants.
(d) Trusts. The Administrator may, in its discretion, establish one
or more Trusts (including sub-accounts under such Trust(s)), and deposit therein
amounts of cash, Stock, or other property not exceeding the amount of the
Company's obligations with respect to a Participant's Deferral Account
established under this Section 6. In such case, the amounts of hypothetical
income and appreciation and depreciation in value of such Deferral Account shall
be equal to the actual income on, and appreciation and depreciation of, the
assets in such Trust(s). Other provisions of this Section 6 notwithstanding, the
timing of allocations and reallocations of assets in such a Deferral Account,
and the investment vehicles available with respect to such Deferral Account, may
be varied to reflect the timing of actual investments of the assets of such
Trust(s) and the actual investments available to such Trust(s).
(e) Restrictions on Participant Direction. The provisions of Section
6(b), 6(c), and 7(c) notwithstanding, the Administrator may restrict or prohibit
reallocations of amounts deemed invested in specified investment vehicles, and
subject such amounts to a risk of forfeiture and other restrictions, in order to
conform to restrictions applicable to Stock, a Stock-denominated award, or any
other award or amount deferred under the Plan and resulting in such deemed
investment, to comply with any applicable law or regulation, or for such other
purpose as the Administrator may determine is not inconsistent with the Plan.
Notwithstanding any other provision of the Plan to the contrary, amounts
credited as Deferred Stock to a Participant's Deferral Account may not be
reallocated or deemed reinvested in any other investment vehicle, but shall
remain as Deferred Stock until such time as the Deferral Account is settled in
accordance with Section 7.
(f) Dividend Equivalents. Except as provided in Section 6(d),
dividend equivalents will be credited on Deferred Stock credited to a
Participant's Deferral Account as follows:
(i) Cash and Non-Stock Dividends. If the Company declares and pays a
dividend on Stock in the form of cash or property other than shares of
Stock, then a number of additional shares of Deferred Stock shall be
credited to a Participant's Deferral Account as of the payment date for
such dividend equal to (A) the number of shares of Deferred Stock credited
to the Deferral Account as of the record date for such dividend,
multiplied by (B) the amount of cash plus the fair market value of any
property other than shares actually paid as a dividend on each share at
such payment date, divided by (C) the fair market value of a share of
Stock at such payment date.
(ii) Stock Dividends and Splits. If the Company declares and pays a
dividend on Stock in the form of additional shares of Stock, or there
occurs a forward split of Stock, then a number of additional shares of
Deferred Stock shall be credited to the Participant's Deferral Account as
of the payment date for such dividend or forward Stock split equal to (A)
the number of shares of Deferred Stock credited to the Deferral
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<PAGE> 8
Account as of the record date for such dividend or split, multiplied by
(B) the number of additional shares actually paid as a dividend or issued
in such split in respect of each share of Stock.
7. Settlement of Deferral Accounts.
(a) Form of Payment. The Company shall settle a Participant's
Deferral Account, and discharge all of its obligations to pay deferred
compensation under the Plan with respect to such Deferral Account, by payment of
cash or, in the discretion of the Administrator, by delivery of other assets
(including Stock) having a fair market value equal to the amount credited to the
Deferral Account. Notwithstanding any other provision of the Plan to the
contrary, amounts credited as Deferred Stock to a Participant's Deferral Account
shall be settled by delivery of shares of Stock.
(b) Forfeitures Under Other Plans and Arrangements. To the extent
that Stock or any other award or amount (i) is deposited in a Trust pursuant to
Section 6 in connection with a deferral of Stock, a Stock-denominated award, or
any other award or amount under another plan, program, employment agreement or
other arrangement and (ii) is forfeited pursuant to the terms of such plan,
program, agreement or arrangement, the Participant shall not be entitled to the
value of such Stock and other property related thereto (including without
limitation, dividends and distributions thereon) or other award or amount, or
proceeds thereof. Any Stock or Stock-denominated awards, other property or other
award or amount (and proceeds thereof) forfeited shall be returned to the
Company.
(c) Timing of Payments. Payments in settlement of a Deferral Account
shall be made 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
directed by the Participant in his or her election relating to such Deferral
Account. Irrespective of any elections made by a Participant, the Administrator
may provide that amounts credited to a Participants Deferral Account may be paid
out in a single lump sum in the event of a Change in Control, the Participants
termination of employment from the Company or an Affiliate (but ignoring
transfers of employment between or among the Company or any of its Affiliates),
or a termination of the Plan affecting the Participant. Amounts credited to a
Participants Deferral Account relating to restricted stock awards under the
Young & Rubicam Holdings Inc. Restricted Stock Plan may be paid no later than
January, 2002, unless otherwise determined by the Committee.
(d) Financial Emergency and Other Payments. Other provisions of the
Plan (except Section 8) notwithstanding, if, upon the written application of a
Participant, the Committee determines that the Participant has a financial
emergency of such a substantial nature and beyond the individual's control that
payment of amounts previously deferred under the Plan is warranted, the
Committee may direct the payment to the Participant of all or a portion of the
balance of a Deferral Account and the time and manner of such payment.
8. Provisions Relating to Section 162(m) of the Code. It is the intent of
the Company that any compensation (including any award) deferred under the Plan
by a person who is, with respect to the year of payout, deemed by the Committee
to be a "covered employee" within the meaning of Code Section 162(m) and
regulations thereunder, which compensation constitutes "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder or otherwise qualifies for an exemption from Code Section
162(m), shall not, as a result of deferral hereunder, become compensation with
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<PAGE> 9
respect to which the Company in fact would not be entitled to a tax deduction
under Code Section 162(m). Accordingly, unless otherwise determined by the
Committee, if any compensation would become so disqualified under Code Section
162(m) as a result of deferral hereunder, the Committee may modify the terms of
such deferral (including by means of accelerated or deferred payouts) in order
to ensure that the compensation would not, at the time of payout, be so
disqualified. Similarly, the Committee may modify the terms of any deferral
(including by means of accelerated or deferred payouts) relating to compensation
that does not constitute "qualified performance-based compensation" within the
meaning of Code Section 162(m) or otherwise does not qualify for an exemption
from Code Section 162(m) in order to permit the deductibility of such
compensation under Code Section 162(m).
9. Statements. The Administrator will furnish statements to each
Participant reflecting the amount credited to a Participant's Deferral Accounts
and transactions therein not less frequently than once each calendar year.
10. Sources of Stock: Limitation on Amount of Stock-Denominated Deferrals.
If shares of Stock are deposited under the Plan in a Trust pursuant to Section 6
in connection with a deferral of a Stock-denominated award under another plan,
program, employment agreement or other arrangement that provides for the
issuance of shares, the shares so deposited shall be deemed to have originated,
and shall be counted against the number of shares reserved, under such other
plan, program or arrangement. Shares of Stock actually delivered in settlement
of Deferral Accounts shall be originally issued shares or treasury shares, in
the discretion of the Committee.
11. Amendment/Termination. The Committee may, with prospective or
retroactive effect, amend, alter, suspend, discontinue, or terminate the Plan at
any time without the consent of Participants, stockholders, or any other person;
provided, however, that, without the consent of a Participant, no such action
shall materially and adversely affect the rights of such Participant with
respect to any rights to payment of amounts credited to such Participant's
Deferral Account. Notwithstanding the foregoing, the Committee may, in its sole
discretion, terminate the Plan (in whole or in part) with respect to one or more
Participants and distribute to such affected Participants the amounts credited
to their Deferral Accounts in a lump sum as soon as reasonably practicable
following such termination.
12. General Provisions.
(a) Limits on Transfer of Awards. Other than by will or the laws of
descent and distribution, no right, title or interest of any kind in the Plan
shall be transferable or assignable by a Participant or his or her Beneficiary
or be subject to alienation, anticipation, encumbrance, garnishment, attachment,
levy, execution or other legal or equitable process, nor subject to the debts,
contracts, liabilities or engagements, or torts of any Participant or his or her
Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge, garnish,
attach or take any other action subject to legal or equitable process or
encumber or dispose of any interest in the Plan shall be void.
(b) Receipt and Release. Payments (in any form) to any Participant
or Beneficiary in accordance with the provisions of the Plan shall, to the
extent thereof, be in full satisfaction of all claims for the awards or other
compensation deferred and relating to the Deferral Account to which the payments
relate against the Company or any Affiliate, the Committee, or the
Administrator, and the Administrator may require such Participant or
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<PAGE> 10
Beneficiary, as a condition to such payments, to execute a receipt and release
to such effect. In the case of any payment under the Plan of less than all
amounts then credited to an account in the form of Stock, the amounts paid shall
be deemed to relate to the Stock credited to the account at the earliest time.
(c) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for deferred compensation and
Participants shall rely solely on the unsecured promise of the Company for
payment hereunder. With respect to any payment not yet made to a Participant
under the Plan, nothing contained in the Plan shall give a Participant any
rights that are greater than those of a general unsecured creditor of the
Company; provided, however, that the Committee may authorize the creation of
Trusts, including but not limited to the Trusts referred to in Section 6 hereof,
or make other arrangements to meet the Company's obligations under the Plan,
which Trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(d) Compliance. A Participant in the Plan shall have no right to
receive payment (in any form) with respect to his or her Deferral Account until
legal and contractual obligations of the Company relating to establishment of
the Plan and the making of such payments shall have been complied with in full.
In addition, the Company shall impose such restrictions on Stock delivered to a
Participant hereunder and any other interest constituting a security as it may
deem advisable in order to comply with the Securities Act of 1933, as amended,
the requirements of any stock exchange or automated quotation system upon which
the Stock is then listed or quoted, any applicable state securities laws, any
provision of the Company's Certificate of Incorporation or Bylaws, or any other
law, regulation, or binding contract to which the Company is a party.
(e) Other Participant Rights. No Participant shall have any of the
rights or privileges of a stockholder of the Company under the Plan, including
as a result of the crediting of Stock-denominated units or other amounts to a
Deferral Account, or the creation of any Trust and deposit of such Stock
therein, except at such time as Stock may be actually delivered in settlement of
a Deferral Account. No provision of the Plan or transaction hereunder shall
confer upon any Participant any right to be employed by the Company or an
Affiliate, or to interfere in any way with the right of the Company or an
Affiliate to increase or decrease the amount of any compensation payable to such
Participant. Subject to the limitations set forth in Section 12(a) hereof, the
Plan shall inure to the benefit of, and be binding upon, the parties hereto and
their successors and assigns.
(f) Tax Withholding. The Company and any Affiliate shall have the
right to deduct from amounts otherwise payable in settlement of a Deferral
Account any sums that federal, state, local or foreign tax law requires to be
withheld with respect to such payment. Shares may be withheld to satisfy such
obligations in any case where taxation would be imposed upon the delivery of
shares, except that shares issued or delivered under any plan, program,
employment agreement or other arrangement may be withheld only in accordance
with the terms of such plan, program, employment agreement or other arrangement
and any applicable rules, regulations, or resolutions thereunder.
(g) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws, and applicable
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<PAGE> 11
provisions of federal law.
(h) Limitation. A Participant and his or her Beneficiary shall
assume all risk in connection with any decrease in value of the Deferral Account
and neither the Company, the Committee nor the Administrator shall be liable or
responsible therefor.
(i) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or any other event or
condition occurs that affects the Stock such that an adjustment is determined by
the Administrator or the Committee to be appropriate in order to prevent
dilution or enlargement of a Participant's rights under the Plan, then the
Administrator or the Committee may, in such manner as it may deem equitable,
adjust any or all of the number and kind of shares of Stock to be issued upon
settlement of Deferred Stock then credited to a Deferral Account under the Plan.
(j) Construction. The captions and numbers preceding the sections of
the Plan are included solely as a matter of convenience of reference and are not
to be taken as limiting or extending the meaning of any of the terms and
provisions of the Plan. Whenever appropriate, words used in the singular shall
include the plural or the plural may be read as the singular.
(k) Severability. In the event that any provision of the Plan shall
be declared illegal or invalid for any reason, said illegality or invalidity
shall not affect the remaining provisions of the Plan but shall be fully
severable, and the Plan shall be construed and enforced as if said illegal or
invalid provision had never been inserted herein.
(l) Status. The establishment and maintenance of, or allocations and
credits to, the Deferral Account of any Participant shall not vest in any
Participant any right, title or interest in and to any Plan or Company assets or
benefits except at the time or times and upon the terms and conditions and to
the extent expressly set forth in the Plan and in accordance with the terms of
the Trust.
(m) Anti-Hedging Certification. Prior to any distributions of Stock
to a Participant, the Committee may require such Participant to certify in a
form acceptable to the Committee that at no time after the date on which a
Stock-denominated award relating to such Stock was made to the Participant has
the Participant, directly or indirectly, held any equity or derivative security
position with respect to Stock, such as a short sale, a long put option or a
short call option, that increases in value as the value of Stock decreases. If
the Participant does not make such certification or makes a false certification,
the Participant shall forfeit the right to payment of any Stock-denominated
award deferred pursuant to the Plan.
13. Effective Date. The Plan shall be effective as of November 19, 1997.
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<PAGE> 1
Exhibit 21.1
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LISTING OF YOUNG & RUBICAM SUBSIDIARIES
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ARGENTINA
Y&R Inversiones Publicitarias SA
Burson-Marsteller S.A.
AUSTRALIA
Y&R Australia Pty Ltd
Wunderman Cato Johnson Pty Ltd.
Y&R Sydney Pty Ltd.
Burson-Marsteller Pty Ltd.
Mattingly & Partners Holdings Pty Ltd
Gasworks Pty Ltd
Mattingly & Partners Advertising Pty Ltd
Mattingly & Partners Advertising (NSW) Pty Ltd
Creative Marketing Consultants Pty Ltd
Monahan Dayman Adams (Gold Coast) Pty Ltd
Corpedge Pty Ltd
Adswan Pty Ltd
AUSTRIA
Y&R Vienna Werbegesellschaft m.b.H.
BELGIUM
Burson-Marsteller S.A.
Robinson-Linton Associates S.A.
Young & Rubicam Belgium S.A.
Wunderman Cato Johnson Belgium S.A.
BRAZIL
Young & Rubicam do Brasil S/C Ltda
Young & Rubicam Comunicacoes Ltda
ADD Communicacoes Ltda.
Wunderman do Brasil Ltda.
Wunderman MPA
Energia/Y&R
Burson-Marsteller S/C Ltda
CANADA
Young & Rubicam Group of Companies Ltd
Sudler & Hennessey/Gall, Inc.
<PAGE> 2
SUBSIDIARY LISTING
______________________________________________________________________________
CHILE
Young & Rubicam Inc. y Compania Limitada
COLOMBIA
Young & Rubicam S.A.
ADD S.A.
THE CZECH REPUBLIC
Young & Rubicam Praha, A.S.
WCJ Praha
DENMARK
Young & Rubicam Denmark Group A/S
DOMINICAN REPUBLIC
Investigaciones Merdadeo C Por A
Y&R Damaris C por A
FINLAND
Young & Rubicam Finland Oy
FRANCE
Young & Rubicam France S.A.
Creep Sarl
Landor Associates S.A.
Wunderman Cato Johnson France S.A.
Burson-Marsteller Eurocorporate S.A.
GERMANY
Burson-Marsteller GmbH
Young & Rubicam GmbH
Mediapolis Horizons Media GmbH
Sudler & Hennessey GmbH
Wunderman Cato Johnson GmbH
<PAGE> 3
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SUBSIDIARY LISTING
- -------------------------------------------------------------------------------
FutureCom GmbH
GREECE
Geo/Young & Rubicam S.A.
HONG KONG
Burson-Marsteller Asia Ltd.
Burson-Marsteller Hong Kong Ltd.
Landor Associates Designers & Consultants Ltd.
HUNGARY
Young & Rubicam Hungary Advertising
WCJ Budapest
Mac-Mester
INDONESIA
B-M Indonesia
ITALY
Young & Rubicam Italia S.p.A.
G&R Publicita-Sudler & Hennessey S.r.I.
Creative Healthcare Advertising S.r.I.
Intramed Communications S.r.I.
Impact Italia S.r.I.
Burson-Marsteller Italia S.r.I.
Mediapolis/M&CS Italia S.r.I.
Wunderman Cato Johnson Italia S.r.I.
Young & Rubicam Roma S.r.I.
Cohn & Wolfe Italia
JAPAN
Kabushiki Kaisha Burson-Marsteller
MALAYSIA
Burson-Marsteller (Malaysia) Sdn Bhd
<PAGE> 4
SUBSIDIARY LISTING
______________________________________________________________________________
MEXICO
Burson-Marsteller Mexico S.A. de C.V.
Wunderman Cato Johnson Mexico S.A. de C.V.
Walter Landor Y Asociados S.A. de C.V.
Young & Rubicam S.A. de C.V.
Empressas Del Sur S.A. de C.V.
THE NETHERLANDS
Young & Rubicam International Group B.V.
Young & Rubicam Group Netherlands BV
Burson-Marsteller B.V.
Bercum, Boender, Cardozo & Werkendam
Consult Communication Strategies
Media Exposure
Production Control B.V.
PMSvW/Y&R Reclameburo bv
Wunderman Cato Johnson v.o.f.
Verhoeff & Partners v.o.f.
NEW ZEALAND
Young & Rubicam New Zealand (Holdings) Ltd.
Young & Rubicam (NZ) Limited
Sudler & Hennessey Ltd.
NORWAY
Burson-Marsteller A/S
POLAND
Young & Rubicam Poland
Burson-Marsteller Poland Sp. z.o.o.
PORTUGAL
Young & Rubicam (Portugal) SGdPS S.A.
Wunderman Cato Johnson Portugal
Young & Rubicam (Portugal) Publicide Lda.
<PAGE> 5
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SUBSIDIARY LISTING
- -------------------------------------------------------------------------------
ROMANIA
Y&R MediaPro
SINGAPORE
Burson-Marsteller (Sea) Pte Ltd
SOUTH AFRICA
Young & Rubicam Holdings S.A. Pty Ltd
Young & Rubicam South Africa Pty Ltd
Wunderman Cato Johnson (Pty) Ltd
SPAIN
Young & Rubicam SA
Vinizius/Young & Rubicam S.A.
Wunderman Cato Johnson S.A.
Burson-Marsteller S.A.
SWEDEN
Young & Rubicam Sweden AB
Hall & Cederquist/Young & Rubicam AB
Nordstrom & Ohman AB
Wunderman Cato Johnson AB
Burson-Marsteller AB
SWITZERLAND
CMG AG
Sudler & Hennessey AG Zurich
Wunderman Cato Johnson AG
Y&R Business Communications S.A.
Advico/Young & Rubicam AG
FutureCom Interactive Media
Jaeggi Burson Marsteller Bern AG
Jaeggi Burson Marsteller Zurich AG
RBK Holding AG
THAILAND
Burson-Marsteller Thailand Ltd.
<PAGE> 6
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SUBSIDIARY LISTING
- ----------------------------------------------------------------------------
TURKEY
Young & Rubicam Reklamevi Rekiamcilik As.
UNITED KINGDOM
Young & Rubicam Holdings U.K. Ltd.
Phoenix Travel (Mornington) Ltd.
Young & Rubicam Europe Ltd.
Young & Rubicam Group Ltd.
Allan Burrows Ltd.
UNITED STATES OF AMERICA
Young & Rubicam Inc. (Delaware)
Burson-Marsteller (Puerto Rico) Inc. (Delaware)
Cygnet Holdings Company Inc. (Delaware)
Burson-Marsteller/NIS, Inc. (Delaware)
Summit Insurance Company (Vermont)
Black, Kelly, Scruggs & Healey Inc. (Delaware)
Mead Point Group, Inc. (Delaware)
Landor Associates Inc. (California)
Landor Associates International Inc. (California)
Y&R/B-M Puerto Rico, Inc. (Delaware)
Y&R Far East Holdings, Inc. (Delaware)
Young & Rubicam Limited Partnership (Delaware)
Young & Rubicam Puerto Rico, Inc. (New York)
ZAMBIA
Young & Rubicam Zambia Ltd.
<PAGE> 1
Exhibit 23.1
[LETTERHEAD OF PRICE WATERHOUSE LLP]
Price Waterhouse [LOGO]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 19, 1998
relating to the financial statements of Young & Rubicam Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedules for the three years ended December 31, 1997
listed under item 16(b) of this Registration Statement when such schedules are
read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included these schedules. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
April 20, 1998
