AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1999
REGISTRATION NO. 333-77235
================================================================================
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>
<CAPTION>
<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>
STEPHEN H. SHALEN, ESQ. MARK C. SMITH, ESQ.
CHRISTOPHER J. WALTON, ESQ. ALLISON R. SCHNEIROV, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
ONE LIBERTY PLAZA 919 THIRD AVENUE
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10022
(212) 225-2000 (212) 735-3000
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
----------------
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>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus; one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering outside the United States and Canada (the "International Prospectus").
The U.S. Prospectus and the International Prospectus will be identical in all
respects except for the front cover pages and the back cover pages. The form of
the U.S. Prospectus is included herein; the forms of the front and back cover
pages of the International Prospectus follow the back cover page of the U.S.
Prospectus.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 24, 1999
PROSPECTUS
15,000,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
-------------------
This is an offering of 15,000,000 shares of common stock of Young &
Rubicam Inc. This prospectus relates to an offering of 12,000,000 shares in the
United States and Canada. In addition, 3,000,000 shares are being offered in a
concurrent international offering outside the United States and Canada.
All of the 15,000,000 shares of common stock offered by this prospectus
are being sold by the selling stockholders named in this prospectus. Young &
Rubicam will not receive any of the proceeds from the sale of shares of common
stock by the selling stockholders.
The last reported sale price of the common stock, which is listed on the
New York Stock Exchange under the symbol "YNR", on May 21, 1999, was $40.62 per
share.
INVESTING IN COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7 TO READ ABOUT RISKS THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE
COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
Per
Share Total
----------- ----------
<S> <C> <C>
Public offering price ........................ $ $
Underwriting discount ........................ $ $
Proceeds to the selling stockholders ......... $ $
</TABLE>
-------------------
The U.S. underwriters may purchase up to an additional 2,250,000 shares
from selling stockholders to cover over-allotments. Young & Rubicam Inc. has
agreed to pay expenses incurred by the selling stockholders in connection with
the offerings, other than the underwriting discount.
The underwriters expect to deliver the shares in New York, New York on
, 1999.
-------------------
Joint Global Coordinators and Joint Book-Running Managers
BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE
-------------------
GOLDMAN, SACHS & CO.
ING BARING FURMAN SELZ LLC
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
The date of this prospectus is , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS BE ACCEPTED PRIOR TO THE TIME THIS
PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary does not contain all of the information that you
should consider before investing in the common stock. You should read the
entire prospectus carefully, especially the risks of investing in the common
stock discussed under "Risk Factors."
YOUNG & RUBICAM INC.
Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world based on 1998 revenues. Since our
founding 75 years ago, we have evolved from a single New York-based advertising
agency to a diversified global marketing and communications company operating
in 121 cities in 76 countries worldwide as of December 31, 1998. We operate
through recognized market leaders including:
o Young & Rubicam Advertising, full-service advertising;
o The Bravo Group and Kang & Lee, multi-cultural marketing and
communications;
o Wunderman Cato Johnson, direct marketing and sales promotion;
o Brand Dialogue, digital interactive branding and digital commerce;
o The Media Edge, media planning, buying and placement services;
o Burson-Marsteller, perception management and public relations;
o Cohn & Wolfe, full-service public relations;
o Landor Associates, branding consultation and design services; and
o Sudler & Hennessey, healthcare communications.
Our revenues in 1998 totaled $1.5 billion, representing a compound
annual growth rate of 12.2% from 1994 to 1998.
We are a single agency network, allowing us to centrally manage and
utilize our resources. Through multi-disciplinary, client-focused teams, we
provide clients with global access to fully integrated marketing and
communications solutions. Among our approximately 5,500 client accounts are a
number of large multinational organizations, including AT&T, Citibank,
Colgate-Palmolive, Ford and Philip Morris. We have maintained long-standing
relationships with many of our clients. The average length of relationship with
our top 20 clients exceeds 20 years.
Our mission is to be our clients' most valued business partner in
building, leveraging, protecting and managing their brands for both short-term
results and long-term growth. Consistent with our mission, we have developed an
organizational and management structure designed to meet the diverse needs of
our large global clients as well as the more specialized needs of our other
clients. Our strategy combines this organizational and management structure
with the pursuit of new business opportunities and continued investment in our
business, personnel and superior consumer knowledge. As part of our strategy,
we seek to provide clients with superior creative services and extensive
research capabilities, including access to Y&R's proprietary research tool,
BrandAsset Valuator.
In late 1992, we created the Key Corporate Account, or KCA, program to
enhance the coordination of services sought by clients from both a global
coverage as well as an integrated solutions perspective. KCAs are large global
client accounts that, as a group, contribute the greatest share of our revenues
and profits, and are served on a multinational basis by two or more of our
businesses. Revenues from the 41 client accounts designated as KCAs accounted
for 48.6% of our consolidated revenues in 1998. In order to further strengthen
client relationships and reward us for meeting or
1
<PAGE>
exceeding performance targets, we are working with KCAs to adopt incentive
compensation arrangements that align our compensation with our performance and
our clients' business performance.
As part of our client focus, members of our senior management, including
Peter A. Georgescu, our Chairman and Chief Executive Officer, Edward H. Vick,
our Chief Operating Officer, and Thomas D. Bell, Jr., an Executive Vice
President of Y&R and the Chairman and Chief Executive Officer of Young &
Rubicam Advertising, retain ongoing responsibilities for individual KCAs in
addition to their managerial roles.
INDUSTRY TRENDS
The marketing and communications industry encompasses a wide range of
services used to develop and deliver messages to both broad and targeted
audiences through multiple communications channels. Several significant trends
are changing the dynamics of the marketing and communications industry,
including the following:
o GROWTH IN UNITED STATES MARKETING AND COMMUNICATIONS MARKETS.
Advertising expenditures in the United States have continued to grow,
increasing from approximately $140 billion in 1993 to approximately
$200 billion in 1998.
o GROWTH IN INTERNATIONAL MARKETING AND COMMUNICATIONS MARKETS. Since
1986, non-U.S. advertising expenditures have grown more rapidly than
U.S. expenditures and, according to industry sources, have increased
from approximately 44% of worldwide expenditures in 1986 to
approximately 52% in 1998.
o INVESTMENT IN BRAND DEVELOPMENT. Over the last several years,
advertisers have focused on the image or brand identity of their
organizations, products and services in an effort to differentiate
themselves from competitors and increase brand loyalty.
o DEMAND FOR INTEGRATED SERVICE OFFERINGS. Demand has increased for
globally integrated marketing and communications solutions as
companies seek consistent and effective delivery of their messages
through multiple communications channels and across a variety of
geographic markets.
o INCREASED EMPHASIS ON TARGETED MARKETING. The desire of companies to
reach their target audiences and quantify the effectiveness of their
communications has resulted in greater demand for customized direct
marketing methods, such as database marketing, infomercials, in-store
promotions and interactive programs.
STRATEGY
Our strategy consists of the following key components:
o INCREASE PENETRATION OF KEY CORPORATE ACCOUNTS. We believe that there
are significant opportunities to increase our share of the marketing
and communications expenditures of our KCAs by leveraging our global
network to provide integrated services. In recent years, we have
successfully increased our share of the marketing and communications
expenditures of some KCAs. KCAs also have increased their use of
multiple services offered by us over the same period. During 1998,
our 20 largest KCAs used the capabilities of an average of five of
our marketing and communications services.
o DEVELOP NEW CLIENT RELATIONSHIPS. We believe that there are
significant opportunities for future revenue and profit growth by
providing services to new clients in targeted industry sectors and to
those clients seeking to build and maintain global, regional and
local brands. We have successfully used our integrated and global
approach as an effective tool in winning new business.
2
<PAGE>
o LEVERAGE EXISTING GLOBAL NETWORK. With a worldwide presence in 76
countries, we believe that we are well positioned to continue to
benefit from the trend toward the globalization of client marketing
and communications needs and the consolidation of those needs with a
single global network.
o CAPITALIZE ON EXISTING CAPABILITIES. We intend to continue the
development of our existing capabilities into more visible and
accessible client services. For example, we created our Brand
Dialogue unit in 1997 by combining the existing interactive
capabilities of Young & Rubicam Advertising and Wunderman Cato
Johnson in the United States, Latin America, Europe and the
Asia/Pacific region.
o UTILIZE SUPERIOR CONSUMER KNOWLEDGE AND BRAND INSIGHTS. To assist our
clients in building, leveraging, protecting and managing their
brands, we have developed and are maintaining extensive knowledge of
consumer brand perceptions. For example, we have developed BrandAsset
Valuator, a proprietary database that reflects the perceptions of
over 95,000 consumers in 32 countries on five continents. We believe
that BrandAsset Valuator is the first global consumer study that
provides an empirically derived model for how brands gain and lose
their strength over time.
o CULTIVATE CREATIVE EXCELLENCE. We intend to continue emphasizing the
importance of creative marketing and communications. We have created
numerous memorable marketing and communications programs for clients,
including "The Softer Side of Sears," "Everybody Needs a Little KFC,"
"It's All Within Your Reach" for AT&T, "The Document Company" for
Xerox and "Be All That You Can Be" for the United States Army. We
have also performed identity and design assignments, including the
creation of corporate identities, for Lucent Technologies, Netscape
and the 2002 Salt Lake City Olympics.
o IMPROVE OPERATING EFFICIENCIES. We believe that opportunities exist
to improve operating efficiencies in order to expand margins and
increase future profitability. For example, we have implemented
initiatives which have both improved productivity and reduced
compensation expense as a percentage of consolidated revenues.
o EXPAND CAPABILITIES THROUGH ACQUISITIONS AND INVESTMENTS. In order to
add new capabilities, enhance our existing capabilities and expand
the geographic scope of our operations, we regularly evaluate and
intend to pursue appropriate acquisition and investment
opportunities.
RECENT DEVELOPMENTS
On May 21, 1999, we completed our acquisition of KnowledgeBase
Marketing, Inc. for consideration consisting of Y&R common stock and cash
valued at approximately $175 million. KnowledgeBase Marketing, headquartered in
Chapel Hill, North Carolina, is a leading customer relationship marketing
service that specializes in gathering and analyzing marketing data.
Our principal executive office is located at 285 Madison Avenue, New
York, New York 10017, and our telephone number is (212) 210-3000.
3
<PAGE>
THE OFFERINGS
Common stock offered:
U.S. offering........... 12,000,000 shares
International offering.. 3,000,000 shares
-----------------
Total.................. 15,000,000 shares
Common stock to be
outstanding after the common
stock offerings ........ 69,754,728 shares
This number excludes:
o 23,854,152 shares of common stock reserved for
issuance upon the exercise of outstanding
employee options at a weighted average exercise
price of $9.11 per share;
o 2,598,105 shares of common stock reserved for
issuance upon the exercise of outstanding options
issued to investors in Y&R at a weighted average
exercise price of $7.67 per share;
o 3,075,000 shares of common stock reserved for
issuance upon the exercise of options to be
granted to employees of Y&R on the date of this
prospectus at an exercise price per share equal
to the public offering price set forth on the
cover page of this prospectus; and
o 275,000 shares of common stock reserved for
issuance upon the exercise of options to be
granted to employees of KnowledgeBase Marketing
in connection with the acquisition of
KnowledgeBase Marketing at an exercise price per
share equal to the fair market value of the
common stock on the date of grant.
All information in this prospectus assumes that the
U.S. underwriters' over-allotment option is not
exercised.
Dividend Policy......... On April 29, 1999, we announced that our board of
directors declared a cash dividend of $0.025 per
share of common stock, payable on June 15, 1999 to
all stockholders of record as of June 1, 1999. See
"Price Range of Common Stock and Dividend Policy"
for further information on our dividend policy.
Use of Proceeds........ We will not receive any of the proceeds from the
sale of common stock offered by this prospectus.
New York Stock Exchange
Symbol.................. YNR
RISK FACTORS
For a discussion of risks that you should consider before buying shares of
the common stock, see "Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------------------- -------------------------------------------
1999 1998 1998 1997 1996
-------------- -------------- -------------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................. $ 383,873 $ 348,173 $ 1,522,464 $ 1,382,740 $1,222,139
Compensation expense, including
employee benefits ....................... 235,018 213,598 903,948 836,150 730,261
General and administrative expenses 114,297 109,242 455,578 463,936 391,617
Other operating charges (1) .............. -- -- 234,449 11,925 17,166
Recapitalization-related charges (1) ..... -- -- -- -- 315,397
----------- ----------- ----------- ----------- ----------
Operating expenses ...................... 349,315 322,840 1,593,975 1,312,011 1,454,441
----------- ----------- ----------- ----------- ----------
Income (loss) from operations ............ 34,558 25,333 (71,511) 70,729 (232,302)
Extraordinary charge for early
retirement of debt (net of tax
benefit of $2,834)....................... -- -- (4,433) -- --
Net income (loss) ........................ $ 19,701 $ 12,190 $ (86,068) $ (23,938) $ (238,311)
EARNINGS (LOSS) PER SHARE (2):
Basic:
Income (loss) before extraordinary
charge ................................ $ 0.30 $ 0.24 $ (1.34) $ (0.51)
Extraordinary charge .................... -- -- (0.08) --
----------- ----------- ----------- -----------
Net income (loss) ....................... $ 0.30 $ 0.24 $ (1.42) $ (0.51)
=========== =========== =========== ===========
Diluted:
Income (loss) before extraordinary
charge ................................ $ 0.24 $ 0.19 $ (1.34) $ (0.51)
Extraordinary charge .................... -- -- (0.08) --
----------- ----------- ----------- -----------
Net income (loss) ....................... $ 0.24 $ 0.19 $ (1.42) $ (0.51)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
USED TO COMPUTE:
Basic .................................... 66,324,420 50,762,144 60,673,994 46,949,355
Diluted .................................. 81,892,192 64,453,134 60,673,994 46,949,355
OTHER OPERATING DATA:
EBITDA (1)(3) ............................ $ 50,327 $ 39,513 $ 223,548 $ 139,375 $ 147,221
Net cash (used in) provided by
operating activities .................... (124,470) (122,176) 195,615 224,511 178,064
Net cash used in investing activities .... 25,047 8,580 99,683 67,142 76,094
Net cash provided by (used in)
financing activities .................... 90,444 22,692 (136,242) (98,667) (12,614)
Capital expenditures ..................... 14,788 7,889 76,378 51,899 51,792
International revenues as a % of total
revenues ................................ 45.7% 47.0% 49.1% 52.2% 53.3%
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
1999
----------------
<S> <C>
BALANCE SHEET DATA:
Total assets (4) ................... $1,622,625
Total debt (5) ..................... 204,871
Total stockholders' equity ......... 86,351
</TABLE>
(footnotes on following page)
5
<PAGE>
- -----------
(1) For a discussion of other operating charges and recapitalization-related
charges for the years ended December 31, 1998, 1997 and 1996, see notes 4,
6 and 9 to the consolidated financial statements included in this
prospectus.
(2) At March 31, 1999, Y&R had outstanding options to purchase 29,455,047
shares of common stock with a weighted average exercise price of $8.55
that could potentially dilute basic earnings per share in the future. For
a discussion of options outstanding, see note 3 to the unaudited interim
consolidated financial statements and note 18 to the consolidated
financial statements included in this prospectus.
Earnings per share for 1996 cannot be computed because Y&R's capital
structure prior to its recapitalization in December 1996 consisted of both
common shares and limited partnership units in predecessor entities. For a
discussion of the recapitalization, see note 6 to the consolidated financial
statements included in this prospectus.
(3) 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 Y&R's credit facilities; however, EBITDA may not be
comparable to other registrants' calculation of EBITDA or similarly titled
items. You should not consider EBITDA 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. EBITDA for 1998 is before $234,449 of non-cash
compensation charges related to the vesting of restricted stock taken at
the time of our initial public offering. EBITDA for 1997 and 1996 is
before $11,925 and $11,096, respectively, of non-cash charges primarily
related to impairment write-downs which are included in other operating
charges. For a discussion of other operating charges and
recapitalization-related charges for the years ended December 31, 1998,
1997 and 1996, see notes 4, 6 and 9 to the consolidated financial
statements included in this prospectus.
(4) Total assets as of March 31, 1999 include net deferred tax assets of
$197,062 consisting primarily of federal, state and foreign net operating
loss carryforwards.
(5) Total debt includes current and non-current loans and installment notes,
which are discussed in notes 14 and 15 to the consolidated financial
statements included in this prospectus.
6
<PAGE>
RISK FACTORS
An investment in the common stock involves a number of risks. You should
consider carefully the following information about these risks, together with
the other information contained in this prospectus, before buying shares of
common stock.
WE HAVE RECENTLY INCURRED SUBSTANTIAL NET LOSSES.
We reported net losses of $86.1 million for 1998 and $23.9 million for
1997. The net loss in 1998 includes a non-cash pre-tax compensation charge of
$234.4 million recorded in connection with the vesting of restricted stock upon
completion of our initial public offering, or IPO, in May 1998 and a $7.3
million pre-tax charge for unamortized deferred financing costs related to a
credit facility that we replaced in connection with the IPO.
WE MAY HAVE DIFFICULTY COMPETING IN THE HIGHLY COMPETITIVE MARKETING AND
COMMUNICATIONS INDUSTRY.
The marketing and communications industry is highly competitive, and we
expect it to remain so. Our principal competitors are large multinational
marketing and communications companies, as well as numerous smaller agencies
that operate in one or more countries or local markets. We must compete with
these other companies and agencies to maintain existing client relationships
and to obtain new clients and assignments. Some clients, such as U.S.
governmental agencies, require agencies to compete for business at mandatory
periodic intervals. We compete principally on the basis of the following
factors:
o creative reputation;
o knowledge of media;
o geographical coverage and diversity;
o relationships with clients;
o quality and breadth of services; and
o financial controls.
Recently, traditional advertising agencies also have been competing with
major consulting firms, which have developed practices in marketing and
communications. New competitors also include smaller companies such as systems
integrators, database marketing and modeling companies and telemarketers, which
offer technological solutions to marketing and communications issues faced by
clients.
When we represent a client, we do not necessarily handle all advertising
or public relations for that client. In addition, the ability of agencies
within marketing and communications organizations to acquire new clients or
additional assignments from existing clients may be limited by the conflicts
policy followed by many clients. This conflicts policy typically prohibits
agencies from performing similar services for competing products or companies.
Our principal international competitors are holding companies for more than one
global advertising agency network. As a result, in some situations separate
agency networks within these holding companies may be able to perform services
for competing products or for products of competing companies. We have one
global advertising agency network. Accordingly, our ability to compete for new
advertising assignments and, to a lesser extent, other marketing and
communications assignments, may be limited by these conflicts policies.
Industry practices in other areas of the marketing and communications business
reflect similar concerns with respect to client relationships. See
"Business--Competition" for a further discussion of the competition we face.
WE MAY BE ADVERSELY AFFECTED BY A DOWNTURN IN THE MARKETING AND COMMUNICATIONS
INDUSTRY, WHICH IS CYCLICAL.
The marketing and communications industry is cyclical and as a result it
is subject to downturns in general economic conditions and changes in client
business and marketing budgets. Our prospects, business, financial condition
and results of operations may be materially adversely affected by a downturn in
general economic conditions in one or more markets or changes in client
business and marketing budgets.
7
<PAGE>
WE MAY LOSE CLIENTS DUE TO CONSOLIDATION OF ACCOUNTS WITH OTHER GLOBAL
MARKETING AND COMMUNICATIONS AGENCIES.
We believe that large multinational companies will seek to consolidate
their accounts with one organization that can fulfill their marketing and
communications needs worldwide. We may not continue to benefit from this trend
towards consolidation of global accounts. In addition, this trend towards
consolidation of global accounts requires companies seeking to compete
effectively in the international marketing and communications industry to make
significant investments. These investments include additional offices and
personnel around the world and new and improved technology for linking these
offices and people. We are required to make significant capital expenditures
for maintenance, expansion and upgrades of the computer networks that link our
international network of employees and offices. To the extent that our
competitors may have broader geographic scope or greater financial resources to
invest in additional offices, personnel or technology, they may be better able
than we are to take advantage of an opportunity for the consolidation of a
global account. In those circumstances, our business and results of operations
could suffer.
WE ARE DEPENDENT UPON, AND RECEIVE A SIGNIFICANT PERCENTAGE OF OUR REVENUES
FROM, A LIMITED NUMBER OF LARGE CLIENTS.
A significant reduction in the marketing and communications spending by,
or the loss of one or more of, our largest clients could weaken our financial
condition and cause our business and results of operations to suffer. A
relatively small number of clients contribute a significant percentage of our
consolidated revenues. In 1998, our KCAs contributed 48.6% of consolidated
revenues, and our largest client account, Ford Motor Company, contributed 10.5%
of consolidated revenues. Our dependence on revenues from these client accounts
may increase in the future as we pursue our strategy of increasing penetration
of existing large clients. In addition, clients' conflicts policies typically
prohibit us from performing similar services for competing products or
companies.
These major clients, and our other clients, may not continue to use our
services to the same extent, or at all, in the future. Most of our agreements
with U.S.-based clients are cancelable on 90 days' notice, and our agreements
with non-U.S. clients typically are cancelable on 90 to 180 days' notice. In
addition, clients generally are able to reduce marketing and communications
spending or cancel projects at any time for any reason.
WE MAY LOSE SOME OF OUR EXISTING CLIENTS AND MAY NOT BE ABLE TO ATTRACT NEW
CLIENTS FOR OUR MARKETING AND COMMUNICATIONS SERVICES.
The loss of one or more of our largest clients could weaken our
financial condition and cause our business and results of operations to suffer.
Our success, like the success of other marketing and communications
organizations, depends on our continuing ability to attract and retain clients.
We have approximately 5,500 client accounts worldwide. Although historically we
have maintained long-term relationships with many of our largest clients,
clients may move their advertising and other communications assignments from
agency to agency, or may divide their assignments among two or more agencies,
with relative ease. In addition, in order to maintain and increase revenues, we
must obtain new assignments in areas of our business that are project-based,
such as the perception management and public relations business, and the
branding consultation and design business. As is typical in the marketing and
communications industry, we have lost or resigned client accounts and
assignments, including Blockbuster Video, International Home Foods and Molson,
for a variety of reasons, including conflicts with newly acquired clients. We
may not be successful in replacing clients or revenues when a client
significantly reduces the amount of work given to Y&R.
STRENGTHENING OF THE U.S. DOLLAR AGAINST OTHER MAJOR CURRENCIES COULD
MATERIALLY ADVERSELY AFFECT US.
Our financial statements are denominated in U.S. dollars. In 1998,
operations outside the United States represented 49.1% of our revenues.
Currency fluctuations may give rise to translation gains or losses when
financial statements of foreign operating units are translated into U.S.
dollars. Significant strengthening of the U.S. dollar against other major
foreign currencies could harm our results
8
<PAGE>
of operations and weaken our financial position. With limited exceptions, we do
not actively hedge our foreign currency exposure. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Market Risk
Management--
Foreign Exchange Rate Risk" for a further discussion of our exposure to
currency fluctuations.
THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE DUE TO THE LARGE NUMBER OF
SHARES ELIGIBLE FOR FUTURE SALE.
Following the common stock offerings, we will have 69,754,728 shares of
common stock outstanding. Of these, 50,418,036 shares will be freely
transferable by persons other than "affiliates" of Y&R without restriction or
further registration under the Securities Act. The remaining 19,336,692
outstanding shares of common stock will be "restricted securities" within the
meaning of Rule 144 under the Securities Act.
Following the common stock offerings and subject to the 120-day lock-up
agreements described in this prospectus, Hellman & Friedman Capital Partners
III, L.P., H&F Orchard Partners III, L.P. and H&F International Partners III,
L.P., whom we refer to as the H&F investors, and two other investors
unaffiliated with Y&R will have demand and piggyback registration rights with
respect to an aggregate of 8,178,069 shares of common stock. In addition,
subject to these lock-up agreements those shares will be eligible for sale in
the public market without registration under the Securities Act, subject to
compliance with the resale volume limitations and other restrictions of
Rule 144 under the Securities Act.
Following the common stock offerings, an aggregate of 29,454,575 shares
of common stock and shares subject to vested options held by current or former
employees of Y&R, whom we refer to as management investors, and by stockholders
who received shares of Y&R common stock in the KnowledgeBase Marketing
acquisition, will be eligible for sale in the public market without registration
under the Securities Act, subject, in some instances, to compliance with the
resale and volume limitations and other restrictions of Rule 144 under the
Securities Act. Of this number, 28,141,753 shares and shares subject to vested
options will be subject to the 120-day lock-up agreements described in this
prospectus or held in a deferral trust and not transferable prior to the
expiration of this 120-day period.
Future sales of common stock, or the perception that future sales could
occur, could adversely affect prevailing market prices for the common stock.
See "Shares Eligible for Future Sale" and "Underwriting" for a discussion of
future sales of common stock that could occur.
WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDERS, INCLUDING MANAGEMENT
STOCKHOLDERS, WHOSE INTERESTS MAY DIFFER FROM THOSE OF OTHER STOCKHOLDERS.
A substantial percentage of our common stock is owned by management
investors and by the H&F investors, as described more fully in "Management."
All common stock held at any time by management investors is required to be
deposited in a voting trust, which we refer to as the management voting trust,
that is controlled by six members of Y&R's senior management, in their
capacities as voting trustees. Following the common stock offerings, this trust
will hold voting power over 35.2% of the outstanding shares of common stock,
assuming the exercise of all currently vested options held by the management
investors. As a result, this voting trust will continue to be able to exercise
substantial control over any matters requiring the vote of stockholders,
including the election of directors, which could delay or prevent a change in
control of Y&R. Furthermore, the vote of Peter A. Georgescu, or any other
person duly elected chief executive officer of Y&R with the prior approval of
the voting trust, will bind the voting trust unless he or his successor is
outvoted by the five other voting trustees. As a result of the foregoing,
Peter A. Georgescu or his successor will be able to exercise a significant
degree of control over business decisions affecting Y&R. This voting trust will
terminate no later than May 15, 2000. In the event that, following the
termination of the voting trust, Y&R management continues to own collectively a
significant percentage of the outstanding shares of common stock, management
acting together will be able to exercise a significant degree of control over
business decisions affecting Y&R.
9
<PAGE>
Following the common stock offerings, the H&F investors will
beneficially own an aggregate of 11.0% of the outstanding shares of common
stock, assuming the exercise of all currently vested options that they hold. As
a result of their stock ownership, the H&F investors will continue to be able
to influence matters requiring the vote of stockholders, including the election
of directors. In addition, pursuant to a stockholders' agreement entered into
in connection with our IPO, the H&F investors have the right to nominate and
have elected two members of Y&R's board of directors for so long as they
continue to hold, in the aggregate, at least 10% of the outstanding shares, and
one member of the board of directors 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 of directors and exercise a controlling influence over
the business and affairs of Y&R. In addition, the management voting trust and
the H&F investors could, acting together, delay or prevent a change in control
of us. See "--Our organizational documents, the provisions of Delaware law and
our stockholder rights plan may delay, deter or prevent a change in control of
us." and "Description of Capital Stock--The Stockholders' Agreement" for a
further discussion of events that may prevent a change in control of us.
OUR COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY
MARKETING AND COMMUNICATIONS PERSONNEL.
Our ability to maintain our competitive position depends on retaining
the services of our senior management. The loss of the services of key members
of senior management could harm our business and results of operations. In
addition, our success has been, and is expected to continue to be, highly
dependent upon the skills of our creative, research, media and account
personnel and practice group specialists, and their relationships with our
clients. Employees generally are not subject to employment contracts and are,
therefore, typically able to move within the industry with relative ease.
Although the agreement establishing the management voting trust and other stock
option and restricted stock agreements contain non-competition and
non-solicitation covenants, these covenants may not be effective in helping us
retain qualified personnel. We may be adversely affected by the failure to
retain qualified personnel.
If we were unable to continue to attract and retain additional key
personnel, or if we were unable to retain and motivate our existing key
personnel, our prospects, business, financial condition and results of
operations would be materially adversely affected.
WE ARE EXPOSED TO VARIOUS RISKS FROM OPERATING A MULTINATIONAL BUSINESS.
If we were unable to remain in compliance with local laws in developing
countries in which we conduct business, our prospects, business and results of
operations could be harmed, and our financial condition could be weakened. We
conduct business in various developing countries in Asia, Latin America,
Eastern Europe and Africa, where the systems and bodies of commercial law and
trade practices are evolving. Commercial laws in many of these countries are
often vague, arbitrary, contradictory, inconsistently administered and
retroactively applied. Under these circumstances, it is difficult for us to
determine with certainty at all times the exact requirements of these local
laws. In addition, the global nature of our operations poses various challenges
to our management and our financial, accounting and other systems which, if not
satisfactorily met, also could harm our prospects, business and results of
operations and weaken our financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations" for a further discussion of the risks we are exposed to from
operating a multinational business.
WE MAY NOT BE SUCCESSFUL IN IDENTIFYING APPROPRIATE ACQUISITION CANDIDATES OR
INVESTMENT OPPORTUNITIES, COMPLETING ACQUISITIONS OR INVESTMENTS ON
SATISFACTORY TERMS OR INTEGRATING NEWLY ACQUIRED COMPANIES.
Our business strategy includes increasing our share of clients'
marketing expenditures by adding to or enhancing our existing marketing and
communications capabilities, and expanding our geographic reach. We intend to
implement this strategy in part by making acquisitions and
10
<PAGE>
investments. We may not be successful in identifying appropriate acquisition
candidates or investment opportunities or consummating acquisitions or
investments on terms satisfactory to us. In addition, we may not be successful
in integrating any newly acquired companies into our existing global network.
We may use common stock, which could result in dilution to purchasers of common
stock, incur indebtedness, which may be long-term, expend cash or use any
combination of common stock, indebtedness and cash for all or part of the
consideration to be paid in future acquisitions. While we regularly evaluate
potential acquisition opportunities, we have no present commitments, agreements
or understandings with respect to any material acquisition.
WE ARE EXPOSED TO POTENTIAL LIABILITIES, INCLUDING LIABILITIES ARISING FROM
ALLEGATIONS THAT OUR CLIENTS' ADVERTISING CLAIMS ARE FALSE OR MISLEADING OR
OUR CLIENTS' PRODUCTS ARE DEFECTIVE.
From time to time, we may be, or may be joined as, a defendant in
litigation brought against our clients by third parties, including our clients'
competitors, governmental or regulatory bodies or consumers. These litigations
could include claims alleging that:
o advertising claims made with respect to our clients' products or
services are false, deceptive or misleading;
o our clients' products are defective or injurious; or
o marketing and communications materials created for our clients
infringe on the proprietary rights of third parties.
If, in those circumstances, we are not insured under the terms of our
insurance policies or are not indemnified under the terms of our agreements
with clients or this indemnification is unavailable for these claims, then the
damages, costs, expenses or attorneys' fees arising from any of these claims
could have an adverse effect on our prospects, business, results of operations
and financial condition. In addition, our contracts with clients generally
require us to indemnify clients for claims brought by competitors or others
claiming that advertisements or other communications infringe on intellectual
property rights. Although we maintain an insurance program, including insurance
for advertising agency liability, this insurance may not be available, or if
available may not be sufficient to cover any claim, if a significant adverse
claim is made.
OUR COMPUTER SYSTEMS, AND THOSE OF THIRD PARTIES ON WHOM WE RELY, MAY NOT
ACHIEVE YEAR 2000 READINESS.
We are working to resolve the potential impact of the year 2000 on the
ability of our computer systems to accurately process information with dates
later than December 31, 1999, or to process date-sensitive information
accurately after the turn of the century, which we refer to as the "Year 2000"
issue. We have modified or replaced the majority of all affected systems and
are in the process of testing these systems to fully validate their readiness
for compliance with the Year 2000 issue. We are also dependent in part on
third-party computer systems and applications, particularly with respect to
critical tasks such as accounting, billing and buying, planning and paying for
media, as well as on our own computer systems. We have performed tests of major
systems in this category and have received assurances as to their readiness for
compliance with the Year 2000 issue. However, we continue to monitor the
adequacy of the processes and progress of other less critical vendors of
systems and applications that may be affected by the Year 2000 issue and to
seek assurances from these vendors that their systems are Year 2000 compliant.
While we believe our process is designed to be successful, because of
the complexity of the Year 2000 issue and the interdependence of organizations
using computer systems, we may not satisfactorily complete our Year 2000
program in a timely fashion. In addition, third parties with whom we interact
and on whom we rely may not satisfactorily complete their own Year 2000
programs in a timely fashion. Our failure to satisfactorily address the Year
2000 issue could harm our business and results of operations and weaken our
financial condition.
We do not expect the costs of our Year 2000 project to be material, and
we have funded all identified remedial projects in connection with our program.
However, we may experience cost overruns and delays as we replace or modify
systems, which could harm our business and results of operations and weaken our
financial condition.
11
<PAGE>
We have not yet determined the extent of contingency planning that may
be required. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Compliance" for a further discussion of
our exposure to the Year 2000 issue.
THE MARKET PRICE OF THE COMMON STOCK WILL FLUCTUATE, AND COULD FLUCTUATE
SIGNIFICANTLY.
The market price of the common stock will fluctuate, and could fluctuate
significantly, in response to various factors and events, including the
following:
o the liquidity of the market for the common stock;
o differences between Y&R's actual financial or operating results and
those expected by investors and analysts;
o changes in analysts' recommendations or projections;
o changes in marketing and communications budgets of clients;
o new statutes or regulations or changes in interpretations of existing
statutes and regulations affecting our business;
o changes in general economic or market conditions; and
o broad market fluctuations.
OUR ORGANIZATIONAL DOCUMENTS, PROVISIONS OF DELAWARE LAW AND OUR STOCKHOLDER
RIGHTS PLAN MAY DELAY, DETER OR PREVENT A CHANGE IN CONTROL OF US.
Various provisions of organizational documents, and of the law of
Delaware, where we are incorporated, may delay, deter or prevent a change in
control of Y&R not approved by our board of directors. These provisions
include:
o a classified board of directors;
o a requirement that no action required or permitted to be taken at any
annual or special meeting of stockholders may be taken without a
meeting;
o a requirement that special meetings of stockholders be called only by
the chairman of the board of directors or the board of directors;
o advance notice requirements for stockholder proposals and nominations;
o limitations on the ability of stockholders to amend, alter or repeal
provisions of our organizational documents;
o authorization for the board of directors to issue without stockholder
approval preferred stock with terms as the board of directors may
determine; and
o authorization for the board of directors to consider the interests of
clients and other customers, creditors, employees and other
constituencies of Y&R and its subsidiaries and the effect upon
communities in which Y&R and its subsidiaries do business, in
evaluating proposed corporate transactions.
Section 203 of the Delaware general corporation law imposes restrictions
on mergers and other business combinations between Y&R and any holder of 15% or
more of the common stock. These restrictions do not apply to the H&F investors
and their permitted transferees, who have been exempted from these restrictions
by the board of directors.
In addition, we have adopted a stockholder rights plan under which each
holder of common stock also receives rights. Under the stockholder rights plan,
if any person acquires beneficial ownership of 15% or more of the outstanding
shares of common stock (with exceptions, including the management voting
trust), that person will become an "acquiring person". As a result, holders of
rights other than the acquiring person and some other transferees and related
persons will be entitled to purchase shares of common stock at one-half their
market price. In general, the H&F investors and their permitted transferees
will not become an acquiring person unless they acquire beneficial ownership of
additional shares of common stock under circumstances described in the
stockholder rights plan. While the stockholder rights plan is designed to
protect stockholders in the event of an unsolicited offer and other takeover
tactics which, in the opinion of the board of directors, could impair Y&R's
ability to represent stockholder interests, the provisions of the stockholder
rights plan may render an unsolicited takeover of Y&R more difficult or less
likely to occur or might prevent such a takeover. See "Description of Capital
Stock--Rights Plan" for a description of the rights plan.
12
<PAGE>
These provisions of our organizational documents, Delaware law and the
stockholder rights plan, together with the control of 35.2% of the outstanding
shares of common stock by the management voting trust upon completion of the
common stock offerings (assuming the exercise of all currently vested options
held by management investors) could discourage potential acquisition proposals
and could delay, deter or prevent a change in control of Y&R, although a
majority of Y&R's stockholders might consider these acquisition proposals, if
made, to be desirable. These provisions also could make it more difficult for
third parties to remove and replace the members of the board of directors.
Moreover, these provisions could diminish the opportunities for a stockholder
to participate in tender offers, including tender offers at prices above the
then-current market price of the common stock, and may also inhibit increases
in the market price of the common stock that could result from takeover
attempts or speculation. In addition, some options issued to our employees
contain change in control provisions that could have the effect of delaying,
deterring or preventing a change in control of us. See "Management--Executive
Compensation--1997 ICP--Acceleration of Vesting" and "Description of Capital
Stock--Anti-Takeover Effects of Provisions of the Certificate of Incorporation,
the By-Laws, the Rights Plan and Delaware Law" for a further discussion of how
our organizational documents and provisions of Delaware law, our stockholder
rights plan and some of the options that we have granted to our employees may
delay, deter or prevent a change in control of us.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM RESULTS ANTICIPATED IN
FORWARD-LOOKING STATEMENTS WE MAKE.
Some of the statements in this prospectus are forward-looking
statements. These forward-looking statements include statements in the
"Business--Industry Overview," "--Industry Trends" and "--Strategy" sections of
this prospectus relating to trends in the advertising and marketing and
communications industries, including anticipated advertising expenditures, and
the growth thereof, in the world's advertising markets. These forward-looking
statements also include statements relating to Y&R's performance in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" sections of this prospectus. In addition, we may
make forward-looking statements in future filings with the Securities and
Exchange Commission, and in written material, press releases and oral
statements issued by or on behalf of us. Forward-looking statements include
statements regarding the intent, belief or current expectations of Y&R or its
officers. Forward-looking statements include statements preceded by, followed
by or that include forward-looking terminology such as "may," "will," "should,"
"believes," "expects," "anticipates," "estimates," "continues" or similar
expressions.
It is important to note that our actual results could differ materially
from those anticipated in these forward-looking statements depending on various
important factors. These important factors include the following:
o revenues received from clients, including under incentive compensation
arrangements entered into by us with clients;
o gains or losses of clients and client business and projects, as well as
changes in the marketing and communications budgets of clients;
o the overall level of economic activity in the principal markets in
which we conduct business and other trends affecting our financial
condition or results of operations;
o the impact of competition in the marketing and communications industry;
o our liquidity and financing plans; and
o risks associated with our efforts to comply with Year 2000
requirements.
All forward-looking statements in this prospectus are based on
information available to us on the date hereof. We do not undertake to update
any forward-looking statements that may be made by or on behalf of us, in this
prospectus or otherwise. In addition, the matters set forth above in this "Risk
Factors" section constitute cautionary statements identifying important factors
with respect to these forward-looking statements, including risks and
uncertainties that could cause actual results to differ materially from those
included in these forward-looking statements.
13
<PAGE>
RECENT DEVELOPMENTS
On May 21, 1999, we acquired KnowledgeBase Marketing, Inc. for
consideration consisting of Y&R common stock and cash valued at approximately
$175 million. KnowledgeBase Marketing is a leading customer relationship
marketing service that specializes in gathering and analyzing marketing data.
KnowledgeBase Marketing creates information marketing solutions for companies
engaged in consumer and business-to-business direct marketing by creating a
consolidated database and then designing, implementing and evaluating database
marketing programs. KnowledgeBase Marketing is headquartered in Chapel Hill,
North Carolina and has eight offices in North America.
In connection with the acquisition, the stockholders of KnowledgeBase
Marketing received a combination of Y&R common stock and cash. We issued an
aggregate of 2,100,980 shares of Y&R common stock and agreed to grant options to
purchase an aggregate of up to 275,000 additional shares of Y&R common stock to
stockholders of KnowledgeBase Marketing. We granted registration rights to the
stockholders of KnowledgeBase Marketing pursuant to which they have the right to
participate in the common stock offerings. Stockholders of KnowledgeBase
Marketing have elected to sell an aggregate of 641,472 shares in the common
stock offerings.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of common
stock by the selling stockholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The common stock has been listed on the New York Stock Exchange under
the symbol "YNR" since May 12, 1998. The following table sets forth the low and
high sales prices of the common stock for the fiscal quarters indicated as
reported on the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
LOW HIGH
--------- ----------
<S> <C> <C>
1998
Second Quarter (beginning May 12, 1998) ......... $261/2 $331/16
Third Quarter ................................... $283/8 $ 357/8
Fourth Quarter .................................. $193/4 $ 335/8
1999
First Quarter ................................... $311/4 $435/16
Second Quarter (through May 21, 1999) ........... $387/8 $ 443/8
</TABLE>
------------------------
On May 21, 1999, the closing price of the common stock as reported on
the New York Stock Exchange was $40.62. As of May 21, 1999, there were
approximately 1,135 holders of record of shares of common stock.
On April 29, 1999, we announced that our board of directors declared a
cash dividend of $0.025 per share of common stock, payable on June 15, 1999 to
all stockholders of record as of June 1, 1999. The decision whether to apply
legally available funds to the payment of additional dividends on the common
stock in the future will be made at the discretion of the board of directors
and will depend upon, among other factors, our results of operations, financial
condition, capital requirements and contractual restrictions under our credit
facility. Our credit facility contains financial and operating restrictions and
covenant requirements and permits the payment of cash dividends except in the
event of a continuing default under the credit agreement.
14
<PAGE>
CAPITALIZATION
The following table sets forth Y&R's consolidated cash and cash
equivalents, current portion of installment notes and loans payable and
capitalization as of March 31, 1999. Common stock issued and outstanding as of
March 31, 1999 excludes 29,455,047 shares of common stock issuable upon
exercise of options outstanding at a weighted average exercise price of $8.55
at March 31, 1999. Of the shares of common stock offered by this prospectus,
1,996,486 shares will be issued upon the exercise of options with a weighted
average exercise price of $2.87.
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------
UNAUDITED
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents .................................................... $ 63,209
==========
Current portion of installment notes and loans payable ....................... $ 53,133
==========
Long-term debt:
Installment notes payable ................................................... $ 400
Loans payable ............................................................... 151,338
----------
Total long-term debt ........................................................ 151,738
----------
Stockholders' equity:
Money market preferred stock--cumulative variable dividend; liquidating
value of $115.00 per share; one-tenth of one vote per share; 50,000 shares
authorized; 87 shares issued and outstanding .............................. --
Cumulative participating junior preferred stock--minimum $1.00 dividend;
liquidating value of $1.00 per share; 100 votes per share; 2,500,000 shares
authorized; no shares issued and outstanding .............................. --
Common stock, $.01 par value per share; 250,000,000 shares authorized;
65,886,003 shares issued and outstanding (excluding 4,322,392 shares in
treasury) ................................................................. 702
Capital surplus ............................................................. 926,840
Accumulated deficit ......................................................... (738,592)
Cumulative translation adjustment ........................................... (18,024)
Pension liability adjustment ................................................ (1,738)
Common stock in treasury, at cost ........................................... (82,837)
----------
Total stockholders' equity ................................................ 86,351
----------
Total capitalization ...................................................... $ 238,089
==========
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data and
consolidated balance sheet data as of and for the years 1994 through 1998 have
been derived from Y&R's audited annual consolidated financial statements,
including the consolidated balance sheets at December 31, 1998 and 1997 and the
related consolidated statements of operations and of cash flows for the three
years ended December 31, 1998 and the notes thereto included in this
prospectus.
Data for the three months ended March 31, 1999 and 1998 have been derived
from Y&R's unaudited interim consolidated financial statements, including the
consolidated balance sheet at March 31, 1999 and the related consolidated
statements of operations and of cash flows for the three months ended March 31,
1999 and 1998 and the notes thereto included in this prospectus.
The selected consolidated financial data set forth below should be read
in conjunction with the consolidated financial statements included in this
prospectus and the information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ...................................... $ 383,873 $ 348,173
Compensation expense, including employee
benefits ..................................... 235,018 213,598
General and administrative expenses ........... 114,297 109,242
Other operating charges (1) ................... -- --
Recapitalization-related charges (1) .......... -- --
------------ ------------
Operating expenses ........................... 349,315 322,840
------------ ------------
Income (loss) from operations ................. 34,558 25,333
Interest income ............................... 2,087 2,630
Interest expense .............................. (3,733) (8,205)
Other income .................................. -- 827
------------ ------------
Income (loss) before income taxes ............. 32,912 20,585
Income tax provision (benefit) ................ 13,494 8,852
------------ ------------
19,418 11,733
Equity in net (loss) income of unconsolidated
companies .................................... (16) 115
Minority interest in net loss (income) of
consolidated subsidiaries .................... 299 342
------------ ------------
Income (loss) before extraordinary charge ..... 19,701 12,190
Extraordinary charge for early retirement of
debt (net of tax benefit of $2,834)........... -- --
------------ ------------
Net income (loss) ............................. $ 19,701 $ 12,190
============ ============
EARNINGS (LOSS) PER SHARE (2):
Basic:
Income (loss) before extraordinary charge..... $ 0.30 $ 0.24
Extraordinary charge ......................... -- --
------------ ------------
Net income (loss) ............................ $ 0.30 $ 0.24
============ ============
Diluted:
Income (loss) before extraordinary charge..... $ 0.24 $ 0.19
Extraordinary charge ......................... -- --
------------ ------------
Net income (loss) ............................ $ 0.24 $ 0.19
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING USED TO
COMPUTE:
Basic ......................................... 66,324,420 50,762,144
Diluted ....................................... 81,892,192 64,453,134
OTHER OPERATING DATA:
EBITDA (1)(3) ................................. $ 50,327 $ 39,513
Net cash (used in) provided by operating
activities ................................... (124,470) (122,176)
Net cash used in investing activities ......... 25,047 8,580
Net cash provided by (used in) financing
activities ................................... 90,444 22,692
Capital expenditures .......................... 14,788 7,889
International revenues as a % of total
revenues ..................................... 45.7 % 47.0 %
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- ------------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ...................................... $1,522,464 $1,382,740 $1,222,139 $1,085,494 $ 959,275
Compensation expense, including employee
benefits ..................................... 903,948 836,150 730,261 672,026 594,322
General and administrative expenses ........... 455,578 463,936 391,617 356,523 323,087
Other operating charges (1) ................... 234,449 11,925 17,166 31,465 4,507
Recapitalization-related charges (1) .......... -- -- 315,397 -- --
---------- ---------- ---------- ---------- ---------
Operating expenses ........................... 1,593,975 1,312,011 1,454,441 1,060,014 921,916
---------- ---------- ---------- ---------- ---------
Income (loss) from operations ................. (71,511) 70,729 (232,302) 25,480 37,359
Interest income ............................... 8,315 8,454 10,269 9,866 12,100
Interest expense .............................. (26,001) (42,879) (28,584) (27,441) (23,027)
Other income .................................. 2,200 -- -- -- --
---------- ---------- ---------- ---------- ---------
Income (loss) before income taxes ............. (86,997) 36,304 (250,617) 7,905 26,432
Income tax provision (benefit) ................ (2,644) 58,290 (20,611) 9,130 12,998
---------- ---------- ---------- ---------- ---------
(84,353) (21,986) (230,006) (1,225) 13,434
Equity in net (loss) income of unconsolidated
companies .................................... 4,707 342 (9,837) 5,197 4,740
Minority interest in net loss (income) of
consolidated subsidiaries .................... (1,989) (2,294) 1,532 (3,152) (2,742)
---------- ---------- ---------- ---------- ---------
Income (loss) before extraordinary charge ..... (81,635) (23,938) (238,311) 820 15,432
Extraordinary charge for early retirement of
debt (net of tax benefit of $2,834)........... (4,433) -- -- -- --
---------- ---------- ---------- ---------- ---------
Net income (loss) ............................. $ (86,068) $ (23,938) $ (238,311) $ 820 $ 15,432
========== ========== ========== ========== =========
EARNINGS (LOSS) PER SHARE (2):
Basic:
Income (loss) before extraordinary charge..... $ (1.34) $ (0.51)
Extraordinary charge ......................... (0.08) --
---------- ----------
Net income (loss) ............................ $ (1.42) $ (0.51)
========== ==========
Diluted:
Income (loss) before extraordinary charge..... $ (1.34) $ (0.51)
Extraordinary charge ......................... (0.08) --
---------- ----------
Net income (loss) ............................ $ (1.42) $ (0.51)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING USED TO
COMPUTE:
Basic ......................................... 60,673,994 46,949,355
Diluted ....................................... 60,673,994 46,949,355
OTHER OPERATING DATA:
EBITDA (1)(3) ................................. $ 223,548 $ 139,375 $ 147,221 $ 72,972 $ 77,662
Net cash (used in) provided by operating
activities ................................... 195,615 224,511 178,064 79,809 43,314
Net cash used in investing activities ......... 99,683 67,142 76,094 45,821 49,941
Net cash provided by (used in) financing
activities ................................... (136,242) (98,667) (12,614) (50,025) (30,705)
Capital expenditures .......................... 76,378 51,899 51,792 42,096 33,196
International revenues as a % of total
revenues ..................................... 49.1 % 52.2 % 53.3% 54.7% 53.6%
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------
1999
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital (deficit) (4) ............. $ (116,662)
Total assets (5) .......................... 1,622,625
Total debt (6) ............................ 204,871
Mandatorily redeemable equity securities
(7) ...................................... --
Total stockholders equity (deficit) ....... 86,351
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) (4) ............. $ (216,888) $ (106,169) $ (196,509) $ 27,827 $ 72,651
Total assets (5) .......................... 1,635,255 1,537,807 1,598,812 1,226,581 1,118,846
Total debt (6) ............................ 63,959 351,051 267,238 230,831 256,032
Mandatorily redeemable equity securities
(7) ...................................... -- 508,471 363,264 -- --
Total stockholders equity (deficit) ....... 114,969 (661,714) (480,033) (55,485) 69,982
</TABLE>
- ----------
(1) For a discussion of other operating charges and recapitalization-related
charges for the years ended December 31, 1998, 1997 and 1996, see notes 4,
6 and 9 to the consolidated financial statements included in this
prospectus.
(2) At March 31, 1999, Y&R had outstanding options to purchase 29,455,047
shares of common stock with a weighted average exercise price of $8.55
that could potentially dilute basic earnings per share in the future. For
a discussion of options outstanding, see note 3 to the unaudited interim
consolidated financial statements and note 18 to the consolidated
financial statements included in this prospectus.
Earnings per share for 1996 and 1995 cannot be computed because Y&R's
capital structure prior to its recapitalization in 1996 consisted of both
common shares and limited partnership units in predecessor entities. For a
discussion of the recapitalization, see note 6 to the consolidated financial
statements included in this prospectus.
(3) 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 Y&R's credit facilities; however, EBITDA may not be
comparable to other registrants' calculation of EBITDA or similarly titled
items. You should not consider EBITDA to be 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. EBITDA for 1998 is before $234,449 of non-cash
compensation charges related to the vesting of restricted stock taken at
the time of our initial public offering in May 1998. EBITDA for 1997 and
1996 is before $11,925 and $11,096, respectively, of non-cash charges
primarily related to impairment write-downs which are included in other
operating charges. For a discussion of other operating charges and
recapitalization-related charges for the years ended December 31, 1998,
1997 and 1996, see notes 4, 6 and 9 to the consolidated financial
statements included in this prospectus.
(4) Working capital balances are significantly impacted by the seasonal media
spending patterns of advertisers, including the timing of payments made to
media and other suppliers on behalf of clients as well as the timing of
cash collection from clients to fund each expenditure.
(5) Total assets as of March 31, 1999 include net deferred tax assets of
$197,062 consisting primarily of federal, state and foreign net operating
loss carryforwards.
(6) Total debt includes current and non-current loans and installment notes,
which are discussed in notes 14 and 15 to the consolidated financial
statements included in this prospectus.
(7) From the date of completion of the recapitalization of Y&R in 1996 and
through the date of completion of the IPO, all outstanding shares of
common stock, exclusive of shares of common stock held in a restricted
stock trust under our restricted stock plan, were redeemable, subject to
restrictions, at the option of the stockholder. Accordingly, all of these
shares of common stock were recorded at their redemption values and
classified as mandatorily redeemable equity securities at December 31,
1997 and 1996. For a discussion of the mandatorily redeemable equity
securities, see note 17 to the consolidated financial statements included
in this prospectus.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the
consolidated financial statements.
OVERVIEW
Young & Rubicam Inc. is the fifth largest consolidated marketing and
communications organization in the world based on 1998 revenues.
Our revenues in 1998 totaled $1.5 billion, representing a compound
annual growth rate of 12.2% from 1994 to 1998.
Our revenues consist principally of commissions and fees received by us
from our clients. Commissions are derived using a 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 mark-up. We recognize commission revenue
primarily when media placements appear on television, on radio or in print, and
when labor and production costs are billed. We recognize fee revenue when
services are rendered.
We have also implemented incentive compensation arrangements with
several of our clients that we believe further strengthen our client
relationships and reward us for superior performance. These incentive
arrangements create a range of compensation that could result in either higher
or lower revenues and operating margins than a more traditional commission or
fee arrangement. Incentive levels are determined with reference to agreed upon
operating, performance and other benchmarks, with respect to both clients'
businesses as well as our performance. Although incentive arrangements have not
materially impacted our revenues, we believe that additional clients may
request that we institute incentive compensation arrangements in the future.
Our revenues are diversified across geographic regions, various sectors
of the economy and among many clients. In the first three months of 1999, we
derived 54.3% of our revenues from our U.S. operations, with 35.1% coming from
our European operations and the remainder divided among our operations in Latin
America, Australia/New Zealand, Asia, Canada and Africa. In 1998, we derived
50.9% of our revenues from our U.S. operations, with 35.0% coming from our
European operations. For the three months ended March 31, 1999 and the years
1998, 1997 and 1996, our revenue from any one country other than the United
States did not exceed 10% of our consolidated revenues. The United Kingdom,
Germany, Brazil, France, Australia, the Netherlands, Italy, Canada and
Switzerland represent the largest sources of our revenues by country, other
than the United States. For information on our worldwide operations, see note
12 to the consolidated financial statements included in this prospectus.
We represent clients in various industries, including automotive,
consumer packaged goods, financial services, food and beverage, government
services and telecommunications. Our revenues are diversified across our
approximately 5,500 client accounts. Our largest client account, Ford Motor
Company, accounted for 10.5% of our consolidated revenues in 1998. In addition,
our KCAs accounted for 48.6% of our revenues in 1998.
We have two principal categories of operating expenses: compensation
expense and general and administrative expenses. Our largest expense is
compensation, which includes the salaries, bonuses and benefits of all of our
employees, as well as fees paid to freelance contractors. General and
administrative expenses principally consist of facilities' costs, depreciation,
amortization, new business costs, travel expenses and professional fees.
From the time of our founding until 1996, we were wholly owned by our
employees. As further described in note 6 to the consolidated financial
statements included in this prospectus, in December 1996, we consummated a
recapitalization, which resulted in the recording of a pre-tax charge of
$315.4 million in 1996. In connection with the recapitalization, we allocated
shares of restricted stock to employees, the vesting of which was subject to
conditions. On May 15, 1998, we completed our IPO of an aggregate of 19,090,000
shares of common stock, of which 6,912,730 shares were sold by Y&R and
12,177,270 shares were sold by selling stockholders. We used the net
18
<PAGE>
proceeds to Y&R, which aggregated $158.6 million, together with $155 million of
borrowings under a new credit facility, to repay all of the outstanding
borrowings under our prior credit facilities.
The completion of the IPO gave rise to non-recurring, non-cash, pre-tax
compensation charges of $234.4 million, or $169.8 million net of the related
tax benefit, from the vesting of an aggregate of 9,231,105 shares of restricted
stock allocated to employees as of the date of completion of the IPO. These
charges have been reflected as "other operating charges" in our consolidated
statements of operations for 1998.
Unless otherwise stated, all references to "Young & Rubicam", "Y&R",
"we", "our" and "us" refer to Young & Rubicam Inc., its predecessors and its
consolidated subsidiaries, including Young & Rubicam L.P.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items derived
from our consolidated statements of operations and the percentages of revenue
represented by these items. Totals may not add due to rounding.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
% OF % OF
1999 REVENUES 1998 REVENUES
------------ ---------- ------------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues .................................................. $ 383.9 100.0% $ 348.2 100.0%
Compensation expense, including employee benefits ......... 235.0 61.2% 213.6 61.3%
General and administrative expenses ....................... 114.3 29.8% 109.2 31.4%
-------- ----- -------- -----
Income from operations .................................... 34.6 9.0% 25.3 7.3%
Net income ................................................ $ 19.7 5.1% $ 12.2 3.5%
======== ===== ======== =====
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
Revenues for the first quarter of 1999 increased by $35.7 million, or
10.3%, to $383.9 million compared to the first quarter of 1998. The increase
was primarily due to net new business, including business from new clients and
higher revenue from existing clients, that we generated from clients including
Ford and AT&T. United States revenues increased by 13.1% to $208.6 million for
the first quarter of 1999 compared to the first quarter of 1998. International
revenues increased by 7.1% to $175.3 million, primarily due to strong
performance in Europe, which was partially offset by declines in Latin America
and the Asia/Pacific region and the impact of the overall strengthening of the
U.S. dollar against foreign currencies. Organic worldwide revenue growth,
excluding the effect of acquisitions and foreign currency fluctuations, was
also 10.3%, with the impact of the strengthening of the U.S. dollar against
foreign currencies offset by revenues from acquisitions. Excluding the effect
of foreign currency fluctuations and acquisitions, international revenues
increased 7.8% for the first quarter of 1999 compared to the first quarter of
1998.
Compensation expense increased by $21.4 million to $235.0 million for
the first quarter of 1999 compared to the first quarter of 1998. This increase
in compensation expense was primarily due to salary increases and additional
staffing to support new business growth. Compensation expense in the first
quarter of 1999 decreased as a percentage of revenues to 61.2% from 61.3% in
the first quarter of 1998.
General and administrative expenses increased by $5.1 million to $114.3
million for the first quarter of 1999 compared to the first quarter of 1998.
This increase was primarily due to additional operating expenses to support new
business growth, offset in part by the impact of cost containment measures
implemented by management. General and administrative expenses in the first
quarter of 1999 decreased as a percentage of revenues to 29.8% from 31.4% in
the first quarter of 1998.
Income from operations increased by $9.3 million, or 36.8%, to $34.6
million for the first quarter of 1999 compared to the first quarter of
19
<PAGE>
1998. This increase was primarily due to net new business gains in 1999 and
improved operating margins.
Net interest expense decreased by $3.9 million to $1.6 million for the
first quarter of 1999 compared to the first quarter of 1998. The decline was
due to lower average borrowing levels and lower average borrowing rates during
the first quarter of 1999 compared to the first quarter of 1998.
We recognized income tax expense of $13.5 million for the first quarter
of 1999 compared to $8.9 million for the first quarter of 1998. The effective
tax rate for the first quarter of 1999 was 41.0%, as compared to 43.0% in the
first quarter of 1998. The decrease in the effective tax rate was due to a
decrease in foreign income taxed at rates greater than the U.S. statutory rate
and lower taxes on U.S. income.
Net income for the first quarter of 1999 was $19.7 million compared to
net income of $12.2 million for 1998. This increase was primarily the result of
revenue growth, improved operating margins, lower net borrowing costs and a
reduced effective tax rate.
The following table sets forth, for the years indicated, items derived
from our consolidated statements of operations and the percentages of revenue
represented by these items. Totals may not add due to rounding.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
% OF % OF % OF
1998 REVENUES 1997 REVENUES 1996 REVENUES
------------- ------------ ------------- ------------ ------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ 1,522.5 100.0% $ 1,382.7 100.0% $ 1,222.1 100.0%
Compensation expense, including
employee benefits ......................... 903.9 59.4% 836.2 60.5% 730.3 59.8%
General and administrative expense ......... 455.6 29.9% 463.9 33.6% 391.6 32.0%
--------- ----- --------- ----- --------- -----
Income before non-recurring
charges (1) ............................... 162.9 10.7% 82.7 6.0% 100.3 8.2%
Other operating charges .................... 234.4 15.4% 11.9 0.9% 17.2 1.4%
Recapitalization-related charges ........... -- 0.0% -- 0.0% 315.4 25.8%
--------- ----- --------- ----- --------- -----
(Loss) income from operations .............. ( 71.5) ( 4.7%) 70.7 5.1% ( 232.3) (19.0%)
Net loss ................................... $ (86.1) ( 5.7%) $ (23.9) ( 1.7%) $ (238.3) (19.5%)
========= ===== ========= ===== ========= =====
</TABLE>
- ----------------------
(1) We believe that income before non-recurring charges is an appropriate
measure for evaluating our operating performance; however, it should be
considered in addition to, not as a substitute for, operating income, net
income and other measures of financial performance reported in accordance
with generally accepted accounting principles.
----------------------------
1998 COMPARED TO 1997
Revenues for 1998 increased by $139.8 million, or 10.1%, to $1,522.5
million compared to 1997. This increase was primarily due to net new business,
including business from new clients and higher revenue from existing clients,
that we generated from clients such as Citibank and Ford. United States
revenues increased by 17.3% to $775.7 million for 1998 compared to 1997.
International revenues increased by 3.5% to $746.8 million for 1998 compared to
1997, primarily due to strong performance in Europe, which was partially offset
by declines in Latin America and the impact of the overall strengthening of the
U.S. dollar against foreign currencies. Organic revenue growth, excluding
acquisitions and foreign currency fluctuations, was 12.2%. Excluding the effect
of foreign currency fluctuations, international revenues increased by 7.9%
compared to 1997.
Compensation expense increased by $67.7 million to $903.9 million for
1998 compared to 1997. The growth in compensation expense is primarily
attributable to additional staffing to support business growth and to salary
increases. Compensation expense in 1997 also included a $12.3 million charge
primarily for deferred compensation awards granted to senior
20
<PAGE>
executives. Excluding the effect of the 1997 deferred compensation awards,
compensation expense in 1998 decreased as a percentage of revenues to 59.4%
from 59.6% in 1997.
General and administrative expenses decreased by $8.3 million to $455.6
million for 1998 compared to 1997. This decrease was primarily due to a $25.5
million write-off in 1997 of accounts receivable, costs billable to clients and
other capitalized costs with respect to the operations of Burson-Marsteller in
Europe and Asia, which was partially offset in 1998 by additional operating
expenses to support business growth. Excluding the effect of the
Burson-Marsteller write-off, general and administrative expenses in 1998
decreased as a percentage of revenues to 29.9% from 31.7% in 1997.
Income before non-recurring charges increased by $80.2 million, or
97.0%, to $162.9 million for 1998 compared to 1997. This increase was primarily
due to net new business gains in 1998, improved operating margins, and the
Burson-Marsteller write-off and deferred compensation charge in 1997.
Effective upon the completion of the IPO, we recognized other operating
charges of $234.4 million. These other operating charges consisted of
non-recurring, non-cash compensation charges resulting from the vesting of
shares of restricted stock allocated to employees. In 1997, we recognized $11.9
million of other operating charges for non-cash asset impairment write-downs
principally related to operations in the United States, Africa, Latin America
and Europe.
As a result of the $234.4 million in other operating charges associated
with the IPO, we reported a loss from operations of $71.5 million for 1998.
Excluding the other operating charges described above for both 1998 and 1997,
and the Burson-Marsteller write-off and deferred compensation charge in 1997,
income from operations in 1998 increased by $42.4 million, or 35.2%, compared
to 1997.
Net interest expense decreased by $16.7 million to $17.7 million for
1998 compared to 1997. The decline was due to lower average borrowing levels
and lower average borrowing rates during 1998 compared to 1997.
We recognized an income tax benefit of $2.6 million for 1998 compared to
income tax expense of $58.3 million for 1997. Included in 1998 is an income tax
benefit of $64.6 million attributable to the other operating charges of $234.4
million described above, which reflects the anticipated federal, state and
foreign tax effect of the other operating charges after consideration of
valuation allowance amounts for non-U.S. deductions. The effective income tax
rate was a benefit of 3.0% for 1998. Excluding the benefit derived from the
other operating charges, the effective tax rate was 42% for 1998, a decrease
from the 160.6% effective tax rate for 1997. The effective tax rate for 1997
includes the effect of incremental foreign taxes arising from losses outside
the United States which provided little or no tax benefit.
Equity in net income of unconsolidated companies was $4.7 million in
1998 compared to $0.3 million in 1997, reflecting improved worldwide operating
results by advertising agency affiliates.
Minority interest in net income of consolidated subsidiaries was $2.0
million in 1998 compared to $2.3 million in 1997, primarily due to lower
earnings from a Latin American operation.
We incurred an extraordinary charge of $4.4 million in 1998, which is
net of a tax benefit of $2.8 million, due to the write-off of unamortized
deferred financing costs related to a credit facility which was replaced in May
1998 in connection with the IPO.
Net loss for 1998 was $86.1 million compared to a net loss of $23.9
million for 1997. Excluding the after-tax effect of the other operating charges
associated with the IPO and the extraordinary charge in 1998, and the other
operating charges, the Burson-Marsteller write-off and the deferred
compensation charge in 1997, net income increased by $86.3 million in 1998
compared to 1997. This increase was primarily the result of revenue growth,
improved operating margins, lower net borrowing costs and a reduced effective
tax rate.
1997 COMPARED TO 1996
Revenues for 1997 increased by $160.6 million, or 13.1%, to $1,382.7
million compared to 1996. This increase was primarily due to net new business,
including business from new
21
<PAGE>
clients and higher revenues from existing clients, generated from clients such
as Campbell's Soup, Citibank, Merck and United Airlines. United States revenues
increased by 15.8% to $661.3 million for 1997 compared to 1996. International
revenues for 1997 increased by 10.8% to $721.4 million for 1997 compared to
1996. Organic revenue growth was 13.6%. An additional 3.0% of the revenue
increase was due to the acquisition of majority interests in investments
previously accounted for under the equity method. These increases were
partially offset by a 3.5% decline related to a strengthening (on average) of
the U.S. dollar against foreign currencies.
Compensation expense increased by $105.9 million to $836.2 million for
1997 compared to 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. Excluding
the effect of the 1997 deferred compensation charges, compensation expense in
1997 decreased as a percentage of revenues to 59.6% from 59.8% in 1996.
General and administrative expenses increased by $72.3 million to $463.9
million for 1997 compared to 1996. This increase included a $25.5 million
write-off in 1997 of accounts receivable, costs billable to clients and other
capitalized costs 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 some clients and
necessitated the creation of additional reserves against accounts receivable
and costs billable to clients. The write-offs in Asia were attributable to our
evaluation of Burson-Marsteller's recent operating performance in Asia and the
determination that Burson-Marsteller was unlikely to collect various accounts
receivable and costs billable to clients. As a result of its analysis of the
circumstances which led to these write-offs, we 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. Excluding the effect of the 1997 Burson-Marsteller write-off,
general and administrative expenses in 1997 decreased as a percentage of
revenues to 31.7% from 32.0% in 1996.
Income before non-recurring charges decreased by $17.6 million, or
17.5%, to $82.7 million for 1997 compared to 1996. This decrease was primarily
due to the inclusion of the deferred compensation charge and Burson-Marsteller
write-off in 1997, offset in part by net new business gains.
In 1997, we had income from operations of $70.7 million compared to a
loss from operations of $232.3 million in 1996, primarily due to charges of
$315.4 million related to our recapitalization in 1996. Income from operations
in 1997 included $11.9 million of other operating charges for asset impairment
write-downs principally related to operations in the United States, Africa,
Latin America and Europe.
Net interest expense increased by $16.1 million to $34.4 million for
1997 compared to 1996. The increase was primarily due to higher average
borrowing levels in 1997 as a result of the recapitalization.
We recognized income tax expense of $58.3 million for 1997 compared to
an income tax benefit of $20.6 million for 1996. The effective income tax rate
for 1997 was 160.6%. The primary difference between the U.S. statutory tax rate
and Y&R's effective tax rate in 1997 resulted from incremental foreign taxes
arising from losses outside the United States which provided little or no tax
benefit. The effective income tax rate for 1996 was a benefit of 8.2%. This
reflects the tax benefit from recapitalization-related charges partially offset
by foreign income taxed at rates greater than the U.S. statutory rate. See Note
11 to the consolidated financial statements.
Equity in 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 income of consolidated subsidiaries was $2.3
million in 1997 compared to minority interest in net loss of consolidated
subsidiaries of $1.5 million in
22
<PAGE>
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 for 1996, primarily as a result of charges recorded in connection with
the recapitalization in 1996.
LIQUIDITY AND CAPITAL RESOURCES
We generally finance our working capital, capital expenditures,
acquisitions and equity repurchases from cash generated from operations and
third-party borrowings. In addition, in May 1998, we completed our IPO of an
aggregate of 19,090,000 shares of common stock. Of the total number of shares,
6,912,730 shares were sold by Y&R and 12,177,270 shares were sold by selling
stockholders. Net proceeds to Y&R were $158.6 million, after deducting
underwriting discounts and commissions and expenses paid by Y&R in connection
with the IPO. We used the net proceeds from the IPO together with $155 million
of borrowings under a new $400 million credit facility to repay all of the
outstanding borrowings under our then-existing $700 million senior secured
credit facility.
MARCH 31, 1999
Cash and cash equivalents were $63.2 million and $122.1 million at March
31, 1999 and December 31, 1998. Cash used in operating activities in the first
quarter of 1999 was $124.5 million compared to $122.2 million in the first
quarter of 1998. Quarterly operating cash flows are significantly impacted by
the seasonal media spending patterns of advertisers, including the timing of
payments made to media and other suppliers on behalf of clients as well as the
timing of cash collections from clients to fund such expenditures. Our practice
is to bill and collect from our clients in sufficient time to pay the amounts
due the media.
Cash used in investing activities in the first quarter of 1999 was $25.0
million and included $14.8 million in capital expenditures and $10.2 million
for net acquisitions, investments and other investing activity. In the first
quarter of 1998, cash used in investing activities was $8.6 million,
principally consisting of $7.9 million in capital expenditures. The majority of
capital expenditures in the first quarter of 1999 were for information
technology-related purchases and leasehold improvements. These capital
expenditures are estimated to be approximately $65 million for the remainder of
1999. Acquisitions and investments in the first quarter of 1999 consisted
primarily of the purchase of a company located in the United States
specializing in grassroots issues management.
Cash provided by financing activities in the first quarter of 1999 was
$90.4 million and included net borrowings of $131.8 million. In the first
quarter of 1999, we repurchased 1.1 million shares of common stock on the open
market and in other transactions for an aggregate of $42.4 million. As of March
31, 1999, we had repurchased a total of 3.0 million shares under the existing
8.0 million share repurchase program. As of May 21, 1999, we had repurchased
approximately 0.4 million additional shares for an aggregate of $16.2 million
under the share repurchase program during the second quarter of 1999.
In the first quarter of 1998, cash provided by financing activities was
$22.7 million, reflecting borrowings under our short and long-term credit
facilities that existed at that time to fund our operations and capital
expenditures.
At March 31, 1999, we had approximately $151 million in outstanding
indebtedness under our $400 million credit facility. We expect to fund payments
of principal and interest under this credit facility with cash from operations.
We intend to increase our borrowing capacity by entering into an additional
$200 million credit facility during the second quarter of 1999. During the
first quarter of 1999, all interest rate protection agreements to which we were
party either matured or were retired. Accordingly, at March 31, 1999, we had no
such agreements outstanding.
At March 31, 1999, our net deferred tax assets were $197.1 million
consisting primarily of federal, state and foreign net operating loss
carryforwards and deferred tax assets resulting from prior period compensation
payments made in connection with our initial public offering of common stock in
1998 and our recapitalization in 1996.
Our $400 million credit facility contains financial and operating
restrictions and covenant requirements, and permits the payment of cash
23
<PAGE>
dividends except in the event of a continuing default under the credit
agreement. On April 29, 1999, we announced that our board of directors declared
a cash dividend of $0.025 per common share, payable on June 15, 1999 to all
stockholders of record as of June 1, 1999. Any determination to pay additional
dividends in the future will be at the discretion of our board of directors and
will depend upon, among other factors, our results of operations, financial
condition, capital requirements and contractual restrictions in our credit
facilities.
On May 21, 1999, we acquired KnowledgeBase Marketing, Inc., a leading
customer relationship marketing service that specializes in gathering and
analyzing marketing data, in a stock and cash transaction valued at
approximately $175 million. We issued an aggregate of 2,100,980 shares of
common stock and agreed to grant options to purchase an aggregate of up to
275,000 additional shares of common stock in connection with the transaction.
We may, from time to time, pursue acquisition opportunities that would
expand or enhance existing capabilities or the geographic scope of our
operations.
We believe that cash provided by operations and funds available under
our credit facilities will be sufficient to meet our anticipated cash
requirements as presently contemplated.
DECEMBER 31, 1998
Cash and cash equivalents were $122.1 million and $160.3 million at
December 31, 1998 and 1997, respectively. Cash provided by operations in 1998
was $195.6 million, reflecting strong operating performance and our continued
focus on cash management.
Cash used in investing activities in 1998 was $99.7 million and
consisted of $76.4 million in capital expenditures and $23.3 million for net
acquisitions and investments. The majority of capital expenditures were for
information technology-related purchases and leasehold improvements.
Acquisitions and investments consisted primarily of the purchase of a
multi-cultural advertising agency and related assets in the United States and
additional investment in partially owned international affiliates.
Cash used in financing activities in 1998 was $136.2 million. In 1998,
proceeds from our new credit facility and the IPO, along with cash generated by
operations, were used to repay our obligations under our prior credit
facilities.
During 1998, we announced that the board of directors had approved a
plan to repurchase an aggregate of up to 8.0 million shares of common stock
over the next two years. We may repurchase the shares from time to time in the
open market or in private transactions, possibly including transactions with
employees.
In 1997, cash provided by operations was $224.5 million, reflecting our
implementation of cash management improvements relating to the timing of
billings, accounts receivable collections and payments to media and other
suppliers.
In 1997, cash used in investing activities was $67.1 million and
consisted of $51.9 million in capital expenditures and $15.2 million for net
acquisitions and investments. The majority of capital expenditures were for
information technology-related purchases, while the remaining expenditures were
for leasehold improvements, furniture and equipment. Acquisitions and
investments consisted primarily of additional investments in partially owned
domestic and international affiliates.
In 1997, cash flows used in financing activities were $98.7 million. Net
proceeds from our prior credit facilities were more than offset by payments
incurred in connection with our recapitalization in 1996.
At December 31, 1998, we had $31.5 million in outstanding indebtedness
under our new credit facility. As of December 31, 1998, we had entered into
interest rate protection agreements with respect to our indebtedness under the
credit facility, which effectively changed our interest rate under the credit
facility to fixed rate borrowings.
MARKET RISK MANAGEMENT
At December 31, 1998 and 1997, the carrying value of our financial
instruments approximated fair value in all material respects.
INTEREST RATE RISK
We enter into interest rate protection agreements in order to reduce our
exposure to changes in interest rates on our variable rate
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long-term debt. At December 31, 1998 and 1997, we had entered into interest
rate protection agreements with respect to $31.5 million and $275 million of
our indebtedness, respectively.
FOREIGN EXCHANGE RATE RISK
Our consolidated financial statements are denominated in U.S. dollars.
In 1998, we derived 49.1% of our 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 our results of
operations. Most of our revenues are billed in the same currency as the costs
incurred to support the revenues, thereby reducing exposure to transaction
gains and losses. We typically do 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 our U.S. dollar-denominated profits.
However, we selectively hedge some positions where management believes it is
economically beneficial to do so, and base our foreign subsidiary
capitalization, debt and dividend policies on minimizing currency risk. We also
seek, through pricing and other means, to anticipate and avoid economic
currency losses.
We enter into forward foreign exchange contracts to hedge some of our
assets and liabilities that are recorded in a currency different from that in
which they settle. These contracts are generally entered into in order to hedge
intercompany transactions. Gains and losses on these contracts generally offset
losses and gains on the related 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. At December 31, 1998, we had contracts for
the sale of $19.4 million and the purchase of $6.1 million of foreign
currencies at fixed rates, compared to contracts for the sale of $18.5 million
and the purchase of $12.8 million of foreign currencies at December 31, 1997.
We believe that any losses resulting from market risk would not have a
material adverse impact on our consolidated financial position, results of
operations or cash flows.
INTERNATIONAL BUSINESS RISK
Economic prospects throughout Latin America may be adversely affected by
the devaluation of the Brazilian real which occurred in January 1999. In
addition, there was a significant economic downturn in the Asia/Pacific region
in 1998 which has continued into 1999. There can be no assurance as to when the
value of the Brazilian real or the conditions in the Asia/Pacific region will
improve. However, because we do not derive a significant amount of our revenues
from these regions, the above conditions are not expected to be material to our
consolidated financial position, results of operations or cash flows.
On January 1, 1999, 11 of the member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency, the euro. The transition period for the
introduction of the euro began on January 1, 1999. Beginning January 1, 2002,
the participating countries will issue new euro-denominated bills and coins for
use in cash transactions. No later than July 1, 2002, the participating
countries will withdraw all bills and coins denominated in the legacy
currencies, so that the legacy currencies no longer will be legal tender for
any transactions, making the conversion to the euro complete.
We are addressing the issues involved with the introduction of the euro,
including converting information technology systems, reassessing currency risk
and negotiating and amending agreements. Based on progress to date, we believe
that the use of the euro will not have a significant impact on the manner in
which we conduct our business. Accordingly, conversion to the euro is not
expected to have a material effect on our consolidated financial position,
results of operations or cash flows.
YEAR 2000 COMPLIANCE
We are working to resolve the potential impact of the year 2000 on the
ability of our computer systems to accurately process information with dates
later than December 31,
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1999, or to process date-sensitive information accurately after the turn of the
century, which we refer to as the "Year 2000" issue. We have modified or
replaced the majority of all affected systems and are in the process of testing
these systems to fully validate their readiness for compliance with the Year
2000 issue. We are also dependent in part on third-party computer systems and
applications, particularly with respect to critical tasks such as accounting,
billing and buying, planning and paying for media, as well as on our own
computer systems. We have performed tests of major systems in this category and
have received assurances as to their readiness for compliance with the Year
2000 issue. However, we continue to monitor the adequacy of the processes and
progress of other less critical vendors of systems and applications that may be
affected by the Year 2000 issue and to seek assurances from these vendors that
their systems are Year 2000 compliant.
While we believe our process is designed to be successful, because of
the complexity of the Year 2000 issue and the interdependence of organizations
using computer systems, it is possible that our efforts, or those of third
parties with whom we interact, will not be satisfactorily completed in a timely
fashion. Our failure to satisfactorily address the Year 2000 issue could have a
material adverse effect on our prospects, business, financial condition and
results of operations.
We do not expect the costs of our Year 2000 project to be material, and
we have funded all identified remedial projects in connection with our program.
However, we may experience cost overruns or delays as we replace or modify
systems, which could have a material adverse effect on our prospects, business,
financial condition and results of operations.
We are presently evaluating the extent of contingency planning that may
be required.
IMPACT OF RECENTLY ISSUED ACCOUNTING
STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 1999. We do not
anticipate that the adoption of this statement will have a significant effect
on our financial condition.
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BUSINESS
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.
Traditional advertising services include the following:
o the development and planning of marketing and branding campaigns;
o the creative design and production of advertisements;
o 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
o 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 $415
billion 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, database
marketing and online marketing. Sales promotion includes the planning, design
and implementation of merchandising and sales promotions as well as design and
implementation of targeted interactive campaigns.
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.
Information regarding worldwide advertising expenditures, historical
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, AdWeek,
McCann-Erickson Report, Med Ad News and Design Week.
INDUSTRY TRENDS
Several significant trends are changing the dynamics of the marketing
and communications industries, including the following:
o GROWTH IN UNITED STATES MARKETING AND COMMUNICATIONS MARKETS. According
to industry sources, advertising expenditures in the United States have
continued to grow, increasing from approximately $140 billion in 1993
to approximately $200 billion in 1998. 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
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resulted in significant additional marketing and communications
expenditures.
o GROWTH OF INTERNATIONAL MARKETING AND COMMUNICATIONS MARKETS. The
globalization of markets and the deregulation of several sectors of
international markets have led to growth in demand for marketing and
communications services by large corporate clients. An increasing
number of companies are expanding globally and, where they deem it
appropriate, are seeking consistent brand images and market positions
for their products throughout the world. At the same time, however,
companies continue to rely on their marketing and communications
advisors to tailor their regional and local marketing approach to the
demands, tastes and desires of the local marketplace. As international
markets have expanded, particularly the markets in the Asia/Pacific and
Latin American regions, non-U.S. advertising expenditures have grown
more rapidly than U.S. expenditures. According to industry sources,
non-U.S. advertising expenditures have increased from 44% of worldwide
expenditures in 1986 to 52% in 1998.
o 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 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.
o DEMAND FOR INTEGRATED SERVICE OFFERINGS. Increasingly, some clients are
turning to large marketing and communications organizations to provide
integrated services across multiple disciplines. These 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, that
strive to provide their clients with a full range of services in each
of the local markets in which their clients operate. In addition, a
substantial number of clients continue to require access to specialized
service providers. Y&R has over 20 years of experience in organizing
its companies to address this client need.
o INCREASED EMPHASIS ON TARGETED MARKETING. The desire of companies to
reach their target audiences and quantify the effectiveness of their
communications has resulted in greater demand for customized direct
marketing methods, such as database marketing, infomercials, in-store
promotions and interactive programs. These techniques enable companies
to quantify the success of their campaigns and monitor the return on
investment of their marketing expenditures through mechanisms such as
response rate tracking. The desire to create more targeted marketing
has been enhanced by the emergence of new media which permit more
interactive methods of customizing and delivering messages. In some
developing economies, the technology infrastructure is improving,
indicating increased potential for database marketing and
communications.
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STRATEGY
Our strategy consists of the following key components:
o INCREASE PENETRATION OF KEY CORPORATE ACCOUNTS. We believe that there
are significant opportunities to increase our share of KCA marketing
and communications expenditures by leveraging our global network to
provide integrated services to KCAs. We have successfully increased our
share of the marketing and communications expenditures of some KCAs
over the past few years. For example, we have significantly expanded
our relationship with Ford, winning new assignments in Brazil, Germany,
Canada and the United States for Young & Rubicam Advertising, Wunderman
Cato Johnson, Landor Associates and Brand Dialogue. KCAs also have
increased their use of multiple services offered by us over the same
period. During 1998, our 20 largest clients used an average of five of
our marketing and communications services.
We have implemented a team concept for several KCAs that utilize
advertising, direct marketing and other marketing and communications
services we offer. Each client team aligns Y&R employees from separate
disciplines within Y&R 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.
o DEVELOP NEW CLIENT RELATIONSHIPS. We believe that there are significant
opportunities for future revenue and profit growth by providing
services to new clients in targeted industry sectors and to those
clients seeking to build and maintain global, regional and local
brands. We have successfully used our integrated and global approach as
an effective tool in winning new business. Our win of the global
Citibank account in August 1997 exemplifies the success of this
strategy. We believe that the acquisition of this new business was due,
in part, to our ability to coordinate advertising and direct marketing
activities for Citibank around the world. We believe that Citibank
consolidated its advertising and direct marketing accounts with us in
order to establish a consistent brand identity around the world. In
addition to Citibank, in recent years we have won new business from
clients including Barilla Pasta, Campbell's Soup, Sony and United
Airlines, each of whom was designated as a KCA.
o LEVERAGE EXISTING GLOBAL NETWORK. With a worldwide presence in 76
countries (including 14 countries where we are represented by
non-equity affiliations with local partners), we believe that we are
well positioned to continue to benefit from the trend toward the
globalization of client marketing and communications needs and the
consolidation of those needs with a single international service
provider. For example, in May 1998, Groupe Danone consolidated the
global advertising for its Fresh Dairy Products division with Young &
Rubicam Advertising.
o CAPITALIZE ON EXISTING CAPABILITIES. We intend to continue the
development of our existing capabilities into more visible and
accessible client services. For example, in 1997, we launched our Brand
Dialogue unit to serve our clients in the areas of digital interactive
branding and digital commerce and in the development and implementation
of various interactive strategies, including website design, creation
and production. To create this integrated unit, we combined the
existing interactive capabilities of Young & Rubicam Advertising and
Wunderman Cato Johnson in the United States, Latin America, Europe and
the Asia/Pacific region. We believe that Brand Dialogue represents a
growth opportunity for us, and we intend to make significant
investments in new and emerging technologies to capitalize on this
opportunity.
In July 1997, we consolidated the United States media planning, buying
and placement capabilities of Young & Rubicam Advertising, Wunderman
Cato Johnson and The Media Edge, a media company we acquired in 1996,
under the name The Media Edge. With this
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consolidation, we created a major United States media agency, thereby
enhancing our ability to negotiate effectively and secure discounts for
media purchases on behalf of our clients. In September 1998, we
announced the global launch of The Media Edge brand worldwide. We
believe that The Media Edge will provide a variety of media
alternatives in various markets to existing and future clients. We plan
to continue to identify and leverage strengths and capabilities that
can provide further differentiation for us and that can evolve into
businesses that generate incremental revenues and profits.
o UTILIZE SUPERIOR CONSUMER KNOWLEDGE AND BRAND INSIGHTS. To assist our
clients in building, leveraging, protecting and managing their brands,
we have developed and are maintaining extensive knowledge of consumer
brand perceptions. In 1994, we launched BrandAsset Valuator, 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 BrandAsset Valuator project involved the gathering of information
on approximately 10,000 brands, including over 9,000 local and regional
brands and 550 global brands. BrandAsset Valuator provides an
understanding of how consumers evaluate brands, how brands evolve over
time and how brands are managed successfully. We believe that
BrandAsset Valuator, in which we have made significant investments over
the past five years, is the first global consumer study that provides
an empirically derived model for how brands gain and lose their
strength. We further believe that BrandAsset Valuator, 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 BrandAsset Valuator, have become a significant factor in
attracting new clients and winning new assignments from existing
clients. We plan to continue to invest in BrandAsset Valuator, and
believe that knowledge of consumers' changing perceptions of brands
will continue to provide us with a significant competitive advantage.
o CULTIVATE CREATIVE EXCELLENCE. We intend to continue emphasizing the
importance of creative marketing and communications. Our creative
leadership has been recognized over the years through the receipt of
various industry awards, including Cannes Lions and Clio Awards for
excellence in television and print advertising, EFFIES, which are
awards for effective advertising, and a number of other awards for
direct marketing and design services. We also have created numerous
memorable marketing and communications programs for clients, including
"The Softer Side of Sears," "Everybody Needs a Little KFC," "It's All
Within Your Reach" for AT&T, "The Document Company" for Xerox, and "Be
All That You Can Be" for the United States Army, as well as identity
and design assignments, including the creation of corporate identities,
for Lucent Technologies, Netscape and the 2002 Salt Lake City Olympics.
o IMPROVE OPERATING EFFICIENCIES. We believe that opportunities exist to
further improve operating efficiencies in order to expand margins and
increase future profitability. For example, we have implemented
initiatives which have both improved productivity and reduced
compensation expense as a percentage of consolidated revenues.
o EXPAND CAPABILITIES THROUGH ACQUISITIONS AND INVESTMENTS. In order to
add new capabilities, enhance our existing capabilities and expand the
geographic scope of our operations, we regularly evaluate and intend to
pursue appropriate acquisition and investment opportunities. We believe
that significant opportunities exist to expand our businesses.
Historically, in order to expand capabilities beyond traditional
advertising, we have acquired well-established leaders in other
marketing and communications
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disciplines. More recently, we have acquired smaller niche agencies or
companies to enhance existing capabilities or expand geographic
coverage.
OPERATIONS
The following section contains a brief description of our main service
offerings.
YOUNG & RUBICAM ADVERTISING. Young & Rubicam Advertising is one of the
world's leading full-service consumer advertising agencies, offering expertise
in creative development, consumer research and marketing, and media buying and
planning. In 1998, based on billings, industry sources ranked Young & Rubicam
Advertising as the fourth largest advertising agency based in the United
States.
Young & Rubicam Advertising provides services to KCAs such as AT&T,
Cadbury-Schweppes, Campbell's Soup, Citibank, Colgate-Palmolive, Ericsson,
Ford, Philip Morris, Sears, Sony and United Airlines. In June 1997, Young &
Rubicam Advertising extended its long-term relationship with the United States
Army, an account which is subject to a government-mandated review every five
years. Since 1998, Young & Rubicam Advertising has expanded its relationships
with AT&T, Campbell's Soup, Ford and Sony and won new business from clients
such as Barilla Pasta and Jim Beam.
Young & Rubicam Advertising has long been involved in various public
interest and public service efforts. Young & Rubicam Advertising handles public
service accounts for The National Urban League, The United Negro College Fund
and, through its work with the Ad Council, has launched a series of programs to
benefit children throughout the United States and, separately, to assist
battered women.
Young & Rubicam Advertising operates in 86 cities in 61 countries
worldwide, in the Americas, Europe and Africa. Young & Rubicam Advertising
services clients through the Dentsu, Young & Rubicam Partnerships across
Asia/Pacific.
DENTSU, YOUNG & RUBICAM PARTNERSHIPS. The Dentsu, Young & Rubicam
Partnerships, or 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. in 1991. DY&R is a series of local ventures in which Y&R typically
has a 50% interest, and is jointly managed and operated by Y&R and Dentsu. To
maximize local brand equity and minimize conflicts, DY&R operates under
different brand names and management in each of its three regions--Asia,
Australia/New Zealand and the United States. DY&R primarily services major
clients of Dentsu and Y&R in Asia, including Y&R's KCAs, but also has its own
local clients in each region. In Asia/Pacific, DY&R has recently won regional
business from Fuji and Citibank and has been awarded additional work from
Cadbury-Schweppes, Ericsson, Ford and Sony, in specific markets. DY&R operates
in 28 cities in 15 countries across Asia/Pacific and the United States, where
it operates as The Lord Group.
THE BRAVO GROUP AND KANG & LEE. The Bravo Group creates multi-cultural
marketing and communications programs targeted to the fast-growing U.S.
hispanic community. The Bravo Group's multi-disciplinary services include
advertising, promotion and event marketing, public relations, research and
direct marketing. The Bravo Group provides services for selected KCAs including
American Home Products-Whitehall, AT&T, Campbell's Soup, Clorox, Ford, Kraft,
Sony and the United States Postal Service. Y&R expanded its multi-cultural
marketing and communications capabilities in October 1998 with the acquisition
of Kang & Lee, an agency that creates Asian-language integrated marketing
programs that are designed to establish strong product positions in the
Asian-American consumer segments.
WUNDERMAN CATO JOHNSON. Wunderman Cato Johnson, or 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.
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Wunderman Cato Johnson 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.
Wunderman Cato Johnson provides services to KCAs such as AT&T, DuPont,
Ford, Sony, Taco Bell and the United States Postal Service. Recent new business
projects include the creation of a global promotion for Ericsson, and, together
with Young & Rubicam Advertising, the launches of the Sears Home Services
Division and the Navigator for Ford's Lincoln-Mercury division.
Wunderman Cato Johnson was created by the 1992 merger of Wunderman
Worldwide, a direct marketing company acquired by Y&R in 1973, and Cato Johnson
Associates, a sales promotion company acquired by Y&R in 1976. Headquartered in
New York, WCJ operates in 47 cities in 31 countries worldwide. WCJ also has
major database facilities in Europe and Latin America.
BRAND DIALOGUE. Brand Dialogue specializes in digital interactive
branding and digital commerce. Brand Dialogue's primary offerings consist of:
o web advertising, including the design, creation and production of
websites, banners, home pages and comprehensive interactive campaigns;
o digital commerce applications;
o the development of corporate intranets to improve communications and
productivity within and among a defined set of users; and
o interactive marketing consulting services.
Brand Dialogue has obtained new business from both existing KCAs and
other clients, as well as new clients. Brand Dialogue has recently won notable
and varied assignments from clients such as Andersen Consulting, AT&T,
Citibank, Ericsson, Ford, Pfizer, Philip Morris, Seven Up/Dr Pepper, Sony and
Xerox.
THE MEDIA EDGE. The Media Edge provides integrated media planning,
buying and placement services for both Young & Rubicam Advertising and
Wunderman Cato Johnson. In addition, The Media Edge provides planning and
buying of both traditional and direct response media. We believe 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 Wunderman Cato Johnson, as well as to smaller
independent advertising and communications agencies. We believe that these
capabilities will enable The Media Edge to take advantage of opportunities
presented by the trend of clients separating media responsibility assignments
from other advertising services. The Media Edge has recently won significant
new business, including a number of agency of record assignments (a preferred
media provider designation), media research and modeling assignments and
expanded its relationships with Campbell's Soup, Celebrex, Fort James Corp.,
Glaxo-Wellcome and Pella.
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
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to maintain a primarily geographic organizational model and to implement, where
feasible, elements of a client-focused practice structure. Burson-Marsteller's
functional and industry practice areas currently include corporate, healthcare,
marketing, advertising, media, public affairs, strategic consulting and
technology. Burson-Marsteller's resources include three kinds of specialists:
o industry specialists who are experienced in specific fields;
o practice specialists who are experienced in specific perception
management, public relations and public affairs disciplines; and
o creative and media specialists who are skilled in using a variety of
techniques and different technologies to deliver messages with impact.
Burson-Marsteller serves as counselor to a diverse body of clients
ranging from major corporations, business associations and professional
organizations to governmental bodies and non-profit institutions.
Burson-Marsteller has recently undertaken significant assignments for Ford,
Pfizer, Qualcomm, Sun Microsystems, Telefonica and Unilever. In addition,
Burson-Marsteller has expanded and strengthened relationships with existing
clients such as Andersen Consulting, Johnson & Johnson and Philip Morris.
Burson-Marsteller was founded in 1953 and was acquired by Y&R in 1979.
Burson-Marsteller is head-quartered in New York and operates in 49 cities in 33
countries around the world. The Burson-Marsteller network also includes:
o Black, Kelly, Scruggs & Healey Inc., a lobbying and public affairs firm
based in Washington D.C.;
o Marsteller Advertising, which specializes in corporate,
business-to-business and issues advertising campaigns, with offices in
New York, Chicago, Pittsburgh and London; and
o The Direct Impact Company, a grass roots issues management company,
located in Alexandria, Virginia, which Burson-Marsteller acquired in
March 1999.
COHN & WOLFE. Cohn & Wolfe is a full-service public relations firm that
provides creative, results-driven services to its clients. Cohn & Wolfe helps
its clients establish and communicate corporate and brand identity, launch new
products and expand sales. Areas of expertise include consumer marketing,
sports publicity and issues management, as well as healthcare, information
technology and business-to-business communications. Current clients include
Coca-Cola, Colgate-Palmolive, Deloitte Consulting, Eli Lilly, NEC, SmithKline
Beecham, Sony, the United States Army, the United States Postal Service and
Visa International.
Cohn & Wolfe was founded in 1970 and was acquired by Burson-Marsteller
in 1984. Cohn & Wolfe operates in 12 cities in 7 countries in North America,
Europe and Australia.
LANDOR ASSOCIATES. Landor Associates, or 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.
In recent years Landor has obtained the following new business
assignments:
o corporate identity assignments for Andersen Consulting, Delta Airlines,
Lucent Technologies and the 2002 Salt Lake City Olympics;
o brand identity assignments for Walt Disney;
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<PAGE>
o package design assignments for Frito-Lay; and
o branded environment assignments for Taco Bell, Pizza Hut and Shell.
In addition, Landor has expanded relationships with existing clients
including Coors Beer and 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 is one of the world's leading
healthcare communications firms, developing strategic promotional and
educational programs for a wide spectrum of healthcare brands. Sudler &
Hennessey creates advertising, direct marketing and sales promotion programs
for prescription drugs and over-the-counter medications. In addition, Sudler &
Hennessey 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 Sudler &
Hennessey 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.
Sudler & Hennessey'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 has experienced significant
growth in recent years, due both to a dramatic increase in direct-to-consumer
healthcare communications and numerous new product introductions. Sudler &
Hennessey has won new business, including product launch assignments from
Abbott Laboratories, Roche and Zeneca.
Sudler & Hennessey was founded in 1941 and was acquired by Y&R in 1973.
Sudler & Hennessey is headquartered in New York and operates in 15 cities in 10
countries in North America, Europe and Asia/Pacific.
COMPETITION
The marketing and communications industry is highly competitive, and we
expect it to remain so. Our principal competitors in the advertising, direct
marketing and perception management and public relations businesses are large
multinational marketing and communications companies, as well as numerous
smaller agencies that operate only in the United States or in one or more
countries or local markets. We must compete with these other companies and
agencies to maintain existing client relationships and to obtain new clients
and assignments. Some clients, such as U.S. governmental agencies, require
agencies to compete for business at mandatory periodic intervals. We compete
principally on the basis of the following factors:
o creative reputation;
o knowledge of media;
o quality and breadth of services;
o geographical coverage and diversity;
o relationships with clients; and
o financial controls.
Recently, traditional advertising agencies also have been competing with
major consulting firms that have developed practices in marketing and
communications. New competitors also include smaller companies such as systems
integrators, database marketing and modeling companies and telemarketers, which
offer technological solutions to marketing and communications issues faced by
clients. In addition, the trend toward consolidation of global accounts
requires companies seeking to compete effectively in the international
marketing and communications industry to make significant investments. These
investments include additional offices and personnel around the world and new
and improved technology for linking these offices and people.
United States clients typically may cancel contracts with agencies upon
90 days' notice, and non-U.S. clients typically also may cancel contracts with
agencies on 90 to 180 days' notice. However, we believe that clients may
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<PAGE>
find it increasingly difficult to terminate relationships with agencies that
represent their brands on a global basis because of the complexity of
coordinating creative, media and non-media services. In addition, clients
generally remain able to move from one agency to another with relative ease. As
is typical in the marketing and communications industry, we have lost or
resigned client accounts and assignments, including Blockbuster Video,
International Home Foods and Molson, for a variety of reasons, including
conflicts with newly acquired clients. Although typically we have replaced
these losses with new clients and assignments, we may not be successful in
replacing clients that may leave Y&R or in replacing revenues when a client
significantly reduces the amount of work given to Y&R. A significant reduction
in the marketing and communications spending by, or the loss of, one or more of
our largest clients, if not replaced by new client accounts or an increase in
business from existing clients, may cause our business and results of
operations to suffer and may weaken our financial condition.
When we represent a client, we do not necessarily handle all advertising
or public relations for that client. Many large multinational companies are
served by a number of agencies within the marketing and communications
industry. In many cases, clients' policies on conflicts of interest or desires
to be served by multiple agencies result in one or more global agency networks
representing a client only for a portion of its marketing and communications
needs or only in particular geographic areas. In addition, the ability of
agencies within marketing and communications organizations to acquire new
clients or additional assignments from existing clients may be limited by the
conflicts policy followed by many clients. This conflicts policy typically
prohibits agencies from performing similar services for competing products or
companies. Our principal international competitors are holding companies for
more than one global advertising agency network. As a result, in some
situations, separate agency networks within these holding companies may be able
to perform services for competing products or for products of competing
companies. We have one global advertising agency network. Accordingly, our
ability to compete for new advertising assignments and, to a lesser extent,
other marketing and communications assignments, may be limited by these
conflicts policies. 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,
which is charged with administering the Federal Trade Commission Act. The
Federal Trade Commission Act covers a wide range of practices involving false,
misleading and unfair advertising. In the event of violations of federal laws
and regulations, the Federal Trade Commission 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 Federal Trade Commission 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 of directors,
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 some industries
publish advertising guidelines for their members and, in addition, various
consumer groups have been and continue to be powerful advocates of increased
regulation of advertising.
Advertising is also subject to regulation in countries other than the
United States in which we and our affiliates do business. We have developed
internal review procedures to help ensure that our work product, as well as
that of our affiliates, is in compliance with standards of accuracy, fair
disclosure and ethical proprieties,
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<PAGE>
including those established by federal, state and local laws and regulations
and the pre-clearance procedures of the broadcast media.
In addition, as an international organization we are subject to the
Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act imposes civil
and criminal fines and penalties on companies and individuals that violate its
anti-bribery and other provisions.
EMPLOYEES
We have approximately 13,000 employees, including part-time employees,
worldwide. Our U.S. employees are not covered by collective bargaining
agreements. We believe that our relations with employees are good.
PRINCIPAL PROPERTIES
We own our headquarters office building at 285 Madison Avenue, New York,
New York. We lease other offices and space for our facilities in New York City
and elsewhere throughout the world. The following table sets forth information
relating to our principal properties:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION USE FOOTAGE EXPIRATION
- ----------------------------- ------------------------------------------ ------------ ------------
<S> <C> <C> <C>
285 Madison Avenue, Young & Rubicam Advertising, WCJ, Brand 370,000 N/A (owned)
New York, New York Dialogue and corporate headquarters
230 Park Avenue South, Burson-Marsteller, Bravo, Landor and WCJ 340,500 1/22/06
New York, New York
Gallus Park, Young & Rubicam Advertising, WCJ, 154,000 4/26/04
Frankfurt, Germany Burson-Marsteller, Cohn & Wolfe and
Sudler & Hennessey
825 Seventh Avenue The Media Edge 111,832 1/31/01
New York, New York
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
Greater London House, Young & Rubicam Advertising, WCJ and 80,000 5/31/13
London, U.K. Sudler & Hennessey
295 Madison Avenue Young & Rubicam Advertising 65,821 1/22/06
New York, New York
49-59 Avenue Andre Young & Rubicam Advertising and WCJ 65,000 3/30/08
Morizet, Paris, France
100 First Street, Young & Rubicam Advertising, WCJ, 65,000 4/30/03
San Francisco, California Burson-Marsteller and Bravo
One South Wacker Drive, Young & Rubicam Advertising, WCJ 63,000 11/30/99
Chicago, Illinois and Landor
1801 K Street N.W., Burson-Marsteller and Cohn & Wolfe 60,000 10/31/06
Washington, D.C.
7535 Irvine Center Drive Young & Rubicam Advertising and WCJ 53,794 12/14/09
Irvine, California
</TABLE>
Y&R's capital expenditures for 1999 include expenditures for leasehold
improvements of facilities. When completed, these improvements are expected to
result in a configuration of owned and leased facilities that we believe will
be adequate for our current and anticipated purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Young & Rubicam, Y&R, Young & Rubicam Advertising, Y&R Advertising,
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Wunderman Cato Johnson, WCJ, The Bravo Group, Burson-Marsteller, Marsteller
Advertising, Cohn & Wolfe, Landor Associates, Sudler & Hennessey, BrandAsset
Valuator, Brand Dialogue, Kang & Lee, The Media Edge and The Direct Impact
Company are trademarks of Young & Rubicam Inc. Other trademarks referenced in
this prospectus are trademarks of their respective legal owners.
LEGAL PROCEEDINGS
We are involved from time to time in various claims and legal actions
incident to our operations, both as plaintiff and defendant. In the opinion of
management, none of these existing claims is expected to have a material
adverse effect on Y&R.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Peter A. Georgescu ............... 60 Chief Executive Officer of Y&R and Chairman of the
Board of Directors
Edward H. Vick ................... 55 Chief Operating Officer of Y&R and Director
Thomas D. Bell, Jr. .............. 49 Executive Vice President of Y&R, Chairman and Chief
Executive Officer of Young & Rubicam Advertising
and Director
Stephanie W. Abramson ............ 54 Executive Vice President and General Counsel of
Y&R
Michael J. Dolan ................. 52 Vice Chairman and Chief Financial Officer of Y&R
and Director
F. Warren Hellman ................ 64 Director
Philip U. Hammarskjold ........... 34 Director
Richard S. Bodman ................ 61 Director
Alan D. Schwartz ................. 49 Director
Sir Christopher Lewinton ......... 67 Director
John F. McGillicuddy ............. 68 Director
</TABLE>
-----------------------------
The business address of each of our executive officers is 285 Madison
Avenue, New York, New York 10017. The business address of Messrs. Hellman and
Hammarskjold is One Maritime Plaza, San Francisco, California 94111. The
business address of Mr. Schwartz is c/o Bear, Stearns & Co. Inc., 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 Sir Christopher Lewinton is
c/o TI Group plc, 50 Curzon Street, London W1Y 7PN, United Kingdom. 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 Y&R since
1980. Mr. Georgescu's career at Y&R spans 36 years with top management
experience both in the United States and Europe. Prior to becoming Chairman,
Mr. Georgescu was President of Y&R 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.
EDWARD H. VICK Mr. Vick has been Chief Operating Officer of Y&R since
November 1997 and a director of Y&R since February 1998. Mr. Vick was Chairman
and Chief Executive Officer of Young & Rubicam Advertising from April 1996 to
September 1998 and was President and Chief Executive Officer of Young & Rubicam
New York from February 1994 to April 1996. He began his career with Benton &
Bowles and was a Senior Vice President of Ogilvy & Mather. From 1985 to 1991,
he was President and Chief Operating Officer of Ammirati & Puris. In 1991,
Mr. Vick came to Y&R as President and Chief Executive Officer of its branding
consultancy and strategic design firm, Landor Associates. Mr. Vick is a member
of the board of directors of the United Negro College Fund and the American
Foundation for AIDS Research and a member of the advisory board of directors of
the University of North Carolina and of Northwestern University.
THOMAS D. BELL, JR. Mr. Bell has been Executive Vice President of Y&R
since 1995, Chairman and Chief Executive Officer of Young & Rubicam Advertising
since September 1998, and a director of Y&R since February
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1998. From 1995 until September 1998, he was President and Chief Executive
Officer of Burson-Marsteller. From 1994 to 1995, Mr. Bell served as Vice
Chairman of Gulfstream Aerospace Corporation. Prior thereto, Mr. Bell was Vice
Chairman and Chief Operating Officer of Burson-Marsteller from 1991 to 1994.
Before initially joining Burson-Marsteller in 1989, Mr. Bell held senior
positions in business and government. Mr. Bell is a member of the board of
directors of Gulfstream Aerospace Corporation, Lincoln National Corporation and
Lincoln Life & Annuity of New York.
STEPHANIE W. ABRAMSON Ms. Abramson has been Executive Vice President and
General Counsel of Y&R since 1995. Ms. Abramson was a director of Y&R 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 Y&R since July 1996. From 1991 to 1996, he was
President and Chief Executive Officer of the joint venture, Snack Ventures
Europe, between PepsiCo Foods International and General Mills. Mr. Dolan also
served PepsiCo Foods International as Senior Vice President, Operations. From
1987 to 1991, Mr. Dolan was with Peter Kiewet Sons, Inc., or 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 Y&R since December
1996. Mr. Hellman is Chairman of Hellman & Friedman LLC, 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 our board of directors as a representative of the H&F
investors. Mr. Hellman is a member of the board of directors of Levi Strauss &
Co., Franklin Resources, Inc., Il Fornaio (America) Corp. and PowerBar Inc., as
well as a number of private and venture-backed companies.
PHILIP U. HAMMARSKJOLD Mr. Hammarskjold has been a director of Y&R since
December 1996. Mr. Hammarskjold is a Managing Director of Hellman & Friedman
LLC. Prior to joining Hellman & Friedman in 1992, Mr. Hammarskjold was employed
by Dominguez Barry Samuel Montagu in Australia and by Morgan Stanley & Co. in
New York. Mr. Hammarskjold serves on our board of directors 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 Y&R since April
1998. Mr. Bodman has been Managing General Partner of AT&T Ventures, LLC, 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, LLC, 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 Tyco International Ltd. and ISS Group, Inc.
ALAN D. SCHWARTZ Mr. Schwartz has been a director of Y&R since December
1996. Mr. Schwartz has been Executive Vice President and Head of the Investment
Banking Department at Bear, Stearns & Co. Inc. since 1989. He is 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.
SIR CHRISTOPHER LEWINTON Sir Christopher Lewinton has been a director of
Y&R since May 1, 1999. Sir Christopher is Chairman of TI Group plc, a position
he has held since 1989. He is a member of the board of directors of Reed
Elsevier plc and a member of the supervisory board of directors of Mannesmann
AG.
JOHN F. MCGILLICUDDY Mr. McGillicuddy has been a director of Y&R since
May 1997. Mr. McGillicuddy was the Chairman and Chief Executive Officer of
Chemical Banking Corporation from 1992 to 1993 and Chairman and Chief Executive
Officer of Manufacturers Hanover Corporation and Manufacturers Hanover Trust
Company from 1979 to 1991.
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Mr. McGillicuddy is a member of the board of directors of UAL Corporation, USX
Corporation and Southern Peru Copper Corporation.
We intend that the board of directors will continue to be comprised of a
majority of directors who are independent of management.
Our board of directors is divided into three classes, as nearly equal in
number as is possible, serving staggered three-year terms, so that the
directors' initial terms will expire at the annual meetings of our stockholders
held in 1999, 2000 and 2001, respectively. At each annual meeting of our
stockholders, successors to the class of directors whose term expires at that
meeting will be elected to serve for three-year terms and until their
successors are elected and qualified. Messrs. Hellman, Schwartz and Vick are
Class I directors, with terms expiring in 1999. Messrs. Dolan, Georgescu and
Hammarskjold are Class II directors, with terms expiring in 2000. Messrs. Bell,
Bodman and McGillicuddy and Sir Christopher Lewinton are Class III directors,
with terms expiring in 2001.
The H&F investors have the right to nominate and elect two members of
the board of directors as long as they continue to hold in the aggregate at
least 10% of the outstanding shares (as defined in the Stockholders' Agreement)
and one member of the board of directors as long as they continue to hold in
the aggregate at least 5% of the outstanding shares. See "Description of
Capital Stock--The Stockholders' Agreement" for additional information on the
rights of the H&F investors.
Executive officers are appointed by, and serve at the discretion of, the
board of directors.
COMMITTEES
Our compensation committee consists of Mr. Bodman, Chairman, and Mr.
Hammarskjold and Sir Christopher Lewinton. The compensation committee is
responsible for reviewing and making recommendations to the board of directors
concerning the compensation of Y&R's executive officers and other members of
senior management. The compensation committee also makes recommendations to the
board of directors and/or determinations with respect to awards to be granted
under our 1997 Incentive Compensation Plan, or 1997 ICP, and is responsible for
reviewing and administering the 1997 ICP.
Our audit committee consists of Messrs. Bodman, Schwartz and
McGillicuddy, Chairman. The audit committee is responsible for reviewing any
transactions, other than compensation arrangements, between Y&R and its
executive officers and directors, the plans for and results of audits of Y&R,
and the results of any internal audits, compliance with any written policies
and procedures and the adequacy of Y&R's systems of internal accounting
controls. The audit committee also considers annually the qualifications of
Y&R's independent auditors.
The board of directors may create other committees as it may determine
from time to time.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation and by-laws 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 specified 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. Our certificate of incorporation
provides that our directors are not liable to us or our stockholders for
monetary damages for breach of their fiduciary duties, subject to the
exceptions specified by Delaware law.
COMPENSATION OF DIRECTORS
Y&R compensates only those members of the board of directors who are not
employees of Y&R for their participation as directors. During 1998, Richard S.
Bodman, Alan D. Schwartz and John C. McGillicuddy each received $50,000 in cash
as an annual stipend for serving as a member of the board of
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<PAGE>
directors and each will receive $50,000 as an annual stipend in 1999. Messrs.
Hellman and Hammarskjold each waived this fee in 1998 but have indicated that
they intend to accept it in the future. Sir Christopher Lewinton will receive
$80,000 as an annual stipend for serving as a member of the board of directors.
Our board of directors has adopted a director deferred fee plan to provide our
non-employee directors with the opportunity to defer taxation of their annual
directors' stipend and to provide directors with an equity interest in Y&R. Any
eligible director may defer payment of their annual directors' stipend. Each
year, the deferred stipend will be credited as shares of common stock and
generally distributed to him on the earlier of (1) May 15 of the third calendar
year beginning after the calendar year to which the stipend related and (2) when
he ceases to be a director. Directors may receive shares credited to them
earlier upon a change in control of Y&R or upon termination of the plan.
Out-of-pocket expenses for attendance at meetings of the board of directors are
reimbursed for all members.
EXECUTIVE COMPENSATION
The following table sets forth information about the cash and non-cash
compensation paid to, earned by or awarded to the chief executive officer and
the four other most highly compensated executive officers of Y&R for the year
ended December 31, 1998, who are collectively referred to in this prospectus as
the named executive officers. John P. McGarry, Jr. retired as President of Y&R
effective at the end of 1998.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------ ---------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) OPTIONS COMPENSATION (3)
- ----------------------------- ------ ----------- ------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu . 1998 $950,000 $1,000,000 $601,272 -- $8,000
Chairman and Chief Executive 1997 $950,000 $ 598,500 -- -- $8,000
Officer
Edward H. Vick . 1998 $800,000 $ 600,000 $234,702 26,374 $8,199
Chief Operating Officer 1997 $700,000 $ 272,250 $740,000 172,500 $8,199
John P. McGarry, Jr. . 1998 $730,000 $ 300,000 $324,032 -- $8,000
President 1997 $730,000 $ 297,000 -- -- $8,000
Thomas D. Bell, Jr. ......... 1998 $575,000 $ 300,000 $168,305 -- $8,000
Chairman and Chief Executive 1997 $575,000 $ 168,750 -- 176,550 $8,000
Officer, Young & Rubicam
Advertising
Michael J. Dolan . 1998 $550,000 $ 300,000 $116,149 -- $7,919
Vice Chairman and Chief 1997 $550,000 $ 198,000 $555,000 150,000 $2,190
Financial Officer
</TABLE>
- ----------
(1) The named executive officers were awarded annual cash bonuses under the key
corporation managers bonus plan. These bonuses were generally based on
Y&R's achievement of target levels of operating profit and EBITA (earnings
before interest, taxes and amortization), each as defined in the plan, as
well as the achievement of individual objectives.
(2) The information in the table is based upon the value of the common stock on
the date of grant. All shares of restricted stock awarded to the named
executive officers under the Young & Rubicam Holdings Inc. restricted
stock plan vested upon completion of the IPO in May 1998. As a result,
none of the named executive officers held any shares of restricted stock
at December 31, 1998. Upon vesting, the shares of restricted stock awarded
to the named executive officers were distributed either to the recipients
or to the Young & Rubicam Inc. grantor trust, which we refer to as the
deferral trust, pursuant to the Young & Rubicam Inc. deferred compensation
plan for tax deferral purposes. The restricted stock awards set forth in
the table above with respect to 1997 were distributed to the deferral
trust upon vesting under the deferred compensation plan. The deferral
trust will hold those shares prior to their distribution to Messrs. Vick
and Dolan. This distribution 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. Some of the named executive officers
voluntarily elected under the deferred compensation plan to defer the
receipt of other shares of restricted stock and to have those shares
distributed to them from the deferral trust at specified times in the
future.
(3) "All other compensation" for 1998 consisted of Y&R's contribution of: (1)
$8,000 on behalf of each of the named executive officers as matching
contributions under the Young & Rubicam employees' savings plan, a defined
contribution plan, except for Mr. Dolan, whose matching contribution was
$5,729 and (2) an additional $199 and $2,190 on behalf of Mr. Vick and Mr.
Dolan, respectively, as matching contributions under Y&R's education
incentive plan. Under this plan, U.S. employees may elect to have limited
amounts of compensation, together with a match by Y&R, invested in a group
annuity insurance contract for purposes of meeting their children's future
education costs.
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<PAGE>
The option grants in 1998 for the named executive officers under the 1997
ICP are shown in the following table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ------------------------ ------------------------ -------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter A. Georgescu ..... -- -- -- -- -- --
Edward H. Vick ......... 26,374 (1) 1.07% $ 28.4375 12/15/08 $471,678 $1,195,324
John P. McGarry, Jr.. -- -- -- -- -- --
Thomas D. Bell, Jr...... -- -- -- -- -- --
Michael J. Dolan ....... -- -- -- -- -- --
</TABLE>
- ----------------------
(1) This represents a non-qualified option granted under the 1997 ICP. This
option has a ten-year term and will become exercisable with respect to
100% of the shares subject to the option on December 15, 1999. This option
will also become fully exercisable with respect to 100% of the shares
subject to the option upon a change in control of Y&R, 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 option
that was not exercisable at that time will expire.
The following table summarizes for the named executive officers
information about the number of options held and their value at the end of
1998. None of the named executive officers exercised any options during 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR END FISCAL YEAR END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ------------------------------ ------------- ---------- ---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Peter A. Georgescu ........... -- -- --/-- --/--
Edward H. Vick ............... -- -- 895,245 / 198,874 $27,264,686 / $3,561,610
John P. McGarry, Jr. ......... -- -- --/-- --/--
Thomas D. Bell, Jr. .......... -- -- 1,165,215 / 176,550 $35,486,623 / $3,538,945
Michael J. Dolan ............. -- -- 104,340 / 306,525 $2,577,720 / $6,873,700
</TABLE>
- ----------------------
(1) The value of unexercised in-the-money options equals the difference between
the option exercise price and the closing price of the common stock at the
fiscal year end, multiplied by the number of shares underlying the
options. The closing price of the common stock on December 31, 1998, as
reported by the New York Stock Exchange composite tape, was $32.375 per
share.
------------------------------
MANAGEMENT STOCK OPTION PLAN. At the time of the recapitalization of Y&R
in 1996, non-qualified options to purchase shares of common stock were granted
under the Young & Rubicam Holdings Inc. management stock option plan, which we
refer to as the management stock option plan, to members of management of Y&R.
These options were granted to 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. We refer to these options as
rollover options. As of May 21, 1999, assuming completion of the common stock
offerings, an aggregate of 8,162,543 rollover options remain outstanding. We
refer to the management stock option plan and the 1997 ICP as the stock option
plans.
The rollover options were immediately vested and exercisable upon grant.
Each rollover option has an exercise price of $1.92
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per share of common stock subject to the rollover option, with limited
exceptions outside the United States. Each rollover option has a term of five
years with respect to 50% of the shares subject to the option and a term of
seven years with respect to the other 50%.
Immediately following the closing of the recapitalization of Y&R in
1996, non-qualified options to purchase shares of common stock were granted by
the compensation committee to key employees of Y&R under the management stock
option plan. We refer to these options as closing options. We have granted
additional options since the recapitalization with the same terms and
conditions as the closing options, and we refer to all of these options as the
executive options. As of May 21, 1999, assuming completion of the common stock
offerings, an aggregate of 4,870,411 executive options remain outstanding.
Each executive option became exercisable immediately with respect to 40%
of the shares subject to the executive option and will become exercisable
(1) on the third anniversary of its grant date with respect to 30% of those
shares and (2) on the fifth anniversary of its grant date with respect to the
remaining 30% of those shares. The exercise price for the executive options is
$7.67 per share of common stock.
Executive options will not be exercisable after the expiration of ten
years from the date of grant. 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. However,
with respect to the period during which the H&F investors and six other
investors not affiliated with Y&R (whom we refer to as, together with the H&F
investors, the recapitalization investors) own at least 20% of the outstanding
shares (which period we refer to as the extended consent period), this action
will only be effective with the written consent of the recapitalization
investors unless the acceleration involves only the waiver of terms or
conditions not expressly provided for by the management stock option plan.
The rollover options and executive options are transferable only by will
or intestate succession. Upon a transfer the transferee must agree to be bound
by the management stock option plan and to execute any other agreement that the
compensation committee may prescribe.
The compensation committee, with the written consent of the
recapitalization investors (during the extended consent period) and the
management voting trust, may at any time terminate the management stock option
plan or any rollover options or executive options then outstanding. Upon the
termination of an outstanding rollover option or executive option, Y&R would
pay cash consideration to the optionholder as set forth in the management stock
option plan. The compensation committee may amend the management stock option
plan and the terms and conditions of the rollover options and the executive
options with the written consent of the management voting trust. The written
consent of the recapitalization investors also would be needed during the
extended consent period for any amendment accelerating the right to exercise
any or all of the executive options or any other amendment improving the terms
of the rollover options or executive options unless the acceleration or
amendment involves the waiver or amendment of terms or conditions not expressly
provided for by the management stock option plan. However, no amendment may
impair the rights of a holder of a rollover option or executive option without
the holder's consent. The compensation committee is authorized to make
appropriate 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 corporate events specified in the management stock
option plan.
Under the management stock option plan, upon exercise of a rollover
option or executive option, the employee may pay the exercise price either in
cash or, subject to the approval of the compensation committee, by delivering
(1) a number of shares of common stock already owned by the employee with the
appropriate value or (2) a recourse note to Y&R with terms and conditions that
the compensation
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committee may require, including a pledge of the related shares. Further, upon
exercise of a rollover option or executive option, the employee may pay the
withholding taxes or other similar charges that are incurred in connection with
the exercise, or, if the compensation committee consents, the optionholder's
estimated total taxes and charges incurred upon the 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 the exercise.
Y&R has adopted a new incentive compensation plan, the 1997 ICP, that
has superseded the management stock option plan with respect to all future
grants of options and that is described under "--1997 ICP" below.
THE RESTRICTED STOCK PLAN AND TRUST AGREEMENT. With respect to the
9,231,105 shares of restricted stock granted by the compensation committee to
members of management of Y&R held in a restricted stock trust under the Young &
Rubicam Holdings Inc. Restricted Stock Plan, the board of directors elected to
accelerate the vesting to the date on which the IPO was completed. As of May 21,
1999, 482,805 shares of this restricted stock remain in the restricted stock
trust either unallocated or with their distribution subject to additional
conditions set forth in the award agreements. Upon completion of the IPO, an
aggregate of 8,665,065 shares of this restricted stock in the restricted stock
trust were distributed to the employees or to the deferral trust under the
deferred compensation plan.
Recipients of 1,832,235 shares of restricted stock granted in December
1997 were required to place those shares in a deferral trust upon vesting,
subject to the claims of Y&R's creditors in the event of its insolvency. The
deferral trust will hold the shares prior to their distribution to the
recipients, which will occur with respect to one-third of the shares on
January 15, 2001, with respect to an additional one-third of the shares on
January 15, 2002 and with respect to the remaining one-third of the shares on
January 15, 2003.
Upon termination of employment for any reason prior to vesting an
employee will forfeit all unvested restricted stock granted to him or her
without consideration on the date of termination.
While the management voting trust agreement is in effect, all restricted
stock is required to be delivered to the management voting trust and voted in
accordance with the provisions of the management voting trust agreement. After
the management voting trust agreement is no longer in effect, each employee who
has been awarded restricted stock will be entitled to instruct the trustee of
the restricted stock trust as to the voting of the restricted stock held in his
account. Restricted stock as to which no voting instructions are received by
the trustee or which have not been granted to any employee will be voted by the
trustee pro rata in accordance with the vote of the restricted stock that has
been granted and with respect to which voting instructions have been given.
Among other powers, the compensation committee has the authority to
accelerate the vesting of all awards and the release of the related restricted
stock.
Restricted stock granted to an employee and held in the restricted stock
trust is not transferable and any attempt to transfer that restricted stock may
lead to its forfeiture without consideration.
The compensation committee, with the written consent of the management
voting trust, may at any time terminate the restricted stock plan or any awards
of restricted stock then outstanding. Upon the termination of the restricted
stock plan or of an outstanding award of restricted stock, the compensation
committee may, with the written consent of the management voting trust, either
declare that a vesting event has occurred and release restricted stock to
employees or cause Y&R to pay an amount in cash equal to the value of the
restricted stock subject to the terminated award minus any applicable
withholding taxes or other similar charges. Within two years of any termination
of the restricted stock plan, the compensation committee will distribute any
unawarded restricted stock remaining in the restricted stock trust to those
employees that it designates. In no event will 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
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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,
but no amendment may impair the rights of a holder of any award without the
holder's consent. However, the compensation committee is authorized to make
appropriate 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 corporate events specified in the restricted stock plan.
Y&R has adopted a new incentive compensation plan, the 1997 ICP, that
has amended and restated the restricted stock plan with respect to all grants
made subsequent to March 31, 1998, and that is described under "--1997 ICP"
below. In order to assist Y&R and its affiliates in meeting various cash
compensation obligations of Y&R and its affiliates, Y&R has amended the
restricted stock trust agreement. The amendments 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. These amendments also permit the trustee of the restricted stock
trust to require Y&R to purchase unallocated shares of common stock held in the
restricted stock trust so that proceeds from the sale are sufficient to make
those salary and bonus payments. Under these amendments, Y&R repurchased
1,855,845 unallocated shares of common stock in the restricted stock trust upon
the completion of the IPO.
1997 ICP. In December 1997, Y&R adopted, and in February 1998
subsequently amended, the 1997 Incentive Compensation Plan. The 1997 ICP has
superseded the management stock option plan and has amended and restated the
restricted stock plan. We refer to the management stock option plan and the
restricted stock plan, prior to its amendment and restatement, as the
preexisting plans. All awards granted prior to the adoption of the 1997 ICP,
and any grants of restricted stock made after the adoption but on or prior to
March 31, 1998, will remain outstanding in accordance with their terms and be
subject to the terms of the preexisting plans.
As of May 21, 1999, an aggregate of 10,696,198 non-qualified options
granted by the compensation committee to members of management of Y&R under the
1997 ICP remain outstanding. These options have exercise prices ranging from
$12.33 per share to $38.00 per share. All of these options will expire if not
exercised ten years after their date of grant. Substantially all of these
options will be fully exercisable with respect to 33 1/3% of the shares subject
to these options on the third, fourth and fifth anniversaries of the date of
grant.
On May 14, 1999, our board of directors approved the compensation
committee's plan to issue additional non-qualified options to purchase an
aggregate of 3,075,000 shares of our common stock to members of management of
Y&R under the 1997 ICP. These options will be granted on the date of this
prospectus, and will have an exercise price per share equal to the public
offering price set forth on the cover page of this prospectus. All of these
options will expire if not exercised ten years after their date of grant, and
will be fully exercisable with respect to 33 1/3% of the shares subject to
these options on the first, second and third anniversaries of the date of
grant.
All outstanding options granted under the 1997 ICP will become fully
exercisable with respect to 100% of the shares subject to the options upon a
change in control of Y&R, 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 option that was not exercisable at that time
will expire.
The following is a general 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, restricted stock, deferred stock, other
stock-related awards, and performance or annual incentive awards that may be
settled in cash, stock or other property, all of which we collectively refer to
as "awards".
Shares Subject to the 1997 ICP; Annual Per-Person Limitations. Under the
1997 ICP, the total number of shares of common stock reserved and available for
delivery to participants in connection with awards is (1) 19,125,000, plus
(2) the number of shares of common stock subject to awards under preexisting
plans that become available,
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generally due to cancellation or forfeiture of awards, after the effective date
of the 1997 ICP. However, the total number of shares of common stock with
respect to which incentive stock options 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 some awards
in order to comply with Section 162(m) of the Internal Revenue Code. Under
these limitations, during any fiscal year the number of options, stock
appreciation rights, shares of restricted stock, shares of deferred stock,
shares of common stock issued as a bonus or in lieu of other obligations,
dividend equivalents, other stock-based awards, performance awards and annual
incentive awards granted to any one participant must not exceed 200,000 shares
for each type of these awards, subject to adjustment under the 1997 ICP. 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. Y&R
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 these awards may otherwise be subject
to Section 162(m).
The compensation committee is authorized to adjust the number and kind
of shares subject to the aggregate share limitations and annual limitations
under the 1997 ICP and subject to outstanding awards, including adjustments to
exercise prices and number of shares underlying options and other affected
terms of awards, in the event that a dividend or other distribution,
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event affects the common stock so that an
adjustment is determined by the compensation committee to be appropriate. The
compensation committee is also authorized to adjust performance conditions and
other terms and conditions of awards in response to these kinds of events or in
response to changes in applicable laws, regulations, or accounting principles
or in view of any other circumstances deemed relevant by the compensation
committee, subject to limitations in light of Section 162(m).
Eligibility. Executive officers and other officers and employees of Y&R
or any affiliate, including persons who have accepted offers of employment from
Y&R or any affiliate, persons who may also be directors of Y&R, and each other
person who provides services to Y&R or any affiliate shall be eligible to be
granted awards under the 1997 ICP. An affiliate of Y&R for this purpose
includes any entity required to be aggregated with Y&R under Section 414 of the
Internal Revenue Code and any 10% owned joint venture or partnership of Y&R or
an affiliate.
Administration. The 1997 ICP is administered by the compensation
committee except to the extent the board of directors elects to administer the
1997 ICP. Subject to the terms and conditions of the 1997 ICP, the compensation
committee is authorized to: (1) select participants, (2) determine the type and
number of awards to be granted and the number of shares of common stock
underlying awards, (3) specify times at which awards will be exercisable or
settleable, including performance conditions that may be required as a
condition to exercise or settlement, (4) set other terms and conditions of
these awards, (5) prescribe forms of award agreements, (6) interpret and
specify rules and regulations relating to the 1997 ICP, and (7) 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 Stock Appreciation Rights. The compensation committee
is authorized to grant stock options, including both incentive stock options
that can result in potentially favorable tax treatment to the participant and
non-qualified stock options, i.e.,
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options not qualifying as incentive stock options. The compensation committee
is also authorized to grant stock appreciation rights 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 stock appreciation right. The
exercise price per share subject to an option and the grant price of an stock
appreciation right 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 as otherwise specified in the 1997 ICP. The maximum term of each
option or stock appreciation right, the times at which each option or stock
appreciation right will be exercisable, and provisions requiring forfeiture of
unexercised options or stock appreciation rights at or following termination of
employment generally is fixed by the compensation committee, except no option
or stock appreciation right 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 stock appreciation rights 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 some kinds of termination of employment and/or failure to meet
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 Y&R stockholder, including the right to vote the
shares and to receive dividends, unless otherwise determined by the
compensation committee. An award of deferred stock gives a participant the
right to receive shares or cash or a combination of shares and cash at the end
of a specified deferral period, subject to possible forfeiture of the award in
the event of some kinds of termination of employment and/or failure to meet
performance requirements prior to the end of a specified period. Prior to
settlement, an award of deferred stock carries no voting or dividend rights or
other rights associated with stock ownership, although dividend equivalents may
be granted, as discussed below.
Dividend Equivalents. The compensation committee is authorized to grant
dividend equivalents giving 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. They may
be paid currently or on a deferred basis, and, if deferred, may be deemed to
have been reinvested in additional shares, awards, or other investment vehicles
specified by the compensation committee.
Bonus Stock and Awards in Lieu of Cash Obligations. The compensation
committee is authorized to grant shares as a bonus free of restrictions, or to
grant shares or other awards in lieu of obligations to pay cash or deliver
other property under the 1997 ICP or other plans or compensatory arrangements,
subject to 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. These 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 Y&R 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
these awards, including consideration to be paid to exercise awards in the
nature of purchase rights, the period during which they will be outstanding,
and forfeiture conditions and restrictions.
Performance Awards, Including Annual Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an
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award, and the timing thereof, may be subject to performance conditions
specified by the compensation committee, measurable over performance periods of
up to 10 years. In addition, the 1997 ICP authorizes specific annual incentive
awards, which represent a conditional right to receive cash, shares or other
awards upon achievement of preestablished performance goals during a specified
one-year period. Performance awards and annual incentive awards granted to
persons the compensation committee expects will, for the year in which a
deduction arises, be among the chief executive officer and four other most
highly compensated executive officers, will, if the compensation committee
chooses, be subject to provisions that should qualify these awards as
"performance-based compensation." As a result, those awards would not be
subject to the limitation on tax deductibility by Y&R under Internal Revenue
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
(1) one or more business criteria and (2) a targeted level or levels of
performance with respect to each of these business criteria as specified by the
compensation committee. In the case of performance and annual incentive awards
intended to meet the requirements of Section 162(m), the business criteria used
must be one of those specified in the 1997 ICP. For other participants the
compensation committee may specify any other criteria. The following business
criteria for Y&R are specified in the 1997 ICP: (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 comparative companies. These criteria may be used on
a consolidated basis, and/or for specified affiliates or business units of Y&R,
except with respect to the total shareholder return and earnings per share
criteria.
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 these 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 terms and
conditions as the compensation committee may establish. The compensation
committee is authorized to place cash, shares, or other property in trusts or
make other arrangements to provide for payment of Y&R'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. The compensation committee may, in its discretion,
however, permit transfers for estate planning or other purposes.
The compensation committee may cancel or rescind awards, or require
repayment of any profits resulting from awards, if the participant fails to
comply with 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. This accelerated
exercisability, lapse,
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expiration and vesting shall occur automatically in the case of a "change in
control" of Y&R except to the extent otherwise provided in an 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:
(1) any person (other than Y&R, some companies owned by the stockholders
of Y&R or any Y&R employee benefit plans) becoming the beneficial
owner of securities representing (a) 40% or more of the combined
voting power of Y&R's then outstanding securities and (b) so long as
the management voting trust is still in existence, representing a
greater percentage of the combined voting power of Y&R'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 Y&R;
(2) during a two-year period, individuals who constitute the board of
directors at the start of such period, and any new director whose
election or nomination for election to the board of directors was
approved by a vote of at least two-thirds of the directors then in
office who either were directors at the start of the two-year period
or whose election or nomination was previously so approved (excluding
directors whose elections were as a result of some proxy contests or
who were designated by any entity who had entered into a change in
control agreement with Y&R), ceasing to constitute a majority of the
board of directors;
(3) the completion of a merger or consolidation of Y&R with another
entity which would result in either (a) the voting securities of Y&R
outstanding immediately prior to such merger or consolidation failing
to represent (either by remaining outstanding or being converted into
voting securities of the surviving or resulting entity) 40% or more
of the combined voting power of the surviving or resulting entity
outstanding immediately after such merger or consolidation or (b) (i)
the voting securities of Y&R 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;
(4) the stockholders of Y&R approve a plan or agreement for the sale or
disposition of all or substantially all of the consolidated assets of
Y&R, other than a sale or disposition immediately after which such
assets will be owned directly or indirectly by the stockholders of
Y&R in substantially the same proportions as their ownership of
common stock immediately prior thereto, in which case the board of
directors shall determine the effective date of the change in
control; or
(5) any other event which the board of directors determines, in its
discretion, would materially alter the structure of Y&R or its
ownership.
A change in control will also be deemed to have occurred immediately
prior to the completion of (1) a tender offer for securities of Y&R
representing more than 50% of the combined voting power of Y&R's then
outstanding securities in which there is not disclosed an intention to follow
the completion of the tender offer with a merger, reorganization,
consolidation, share exchange or similar transaction or (2) a tender offer for
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securities of Y&R representing any percentage of the combined voting power of
Y&R's then outstanding securities in which there is disclosed an intention to
follow the completion 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 these securities is lower than the value of the
consideration offered for these securities in the tender offer, as determined
by the board of directors at the time, in order to allow holders of previously
unexercisable options the opportunity to participate with respect to shares
underlying the options.
Amendment and Termination of the 1997 ICP. The board of directors may
amend, alter, suspend, discontinue, or terminate the 1997 ICP or the
compensation committee's authority to grant awards without the consent of
stockholders or participants, except stockholder approval must be obtained for
any amendment or alteration if required by law or regulation or under the rules
of any stock exchange or automated quotation system on which the shares are
then listed or quoted. Moreover, participant consent must be obtained if this
action would materially and adversely affect the rights of a participant under
an outstanding award. Stockholder approval will not be deemed to be required
under laws or regulations, such as those relating to incentive stock options,
that condition favorable treatment of participants on this approval. However,
the board of directors may, in its discretion, seek shareholder approval in any
circumstance in which it deems this approval advisable. Thus, stockholder
approval will not necessarily be required for amendments that might increase
the cost of the 1997 ICP or broaden eligibility. The compensation 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 this action would materially and adversely affect the
rights of a participant under the award. However, the compensation committee
may terminate any outstanding award in whole or in part, provided that upon
termination Y&R pays to the participant (1) with respect to an option or any
portion of an option, whether or not exercisable, an amount in cash for each
share of common stock subject to the option or portion 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 the option would have been valued by Y&R
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 the option
and applicable withholding taxes and other similar charges, and (2) 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 the award or portion being terminated as of the date of termination,
assuming the acceleration of the exercisability of the award, the lapsing of
any restrictions on the award or the expiration of any deferral or vesting
period of the award, as determined by the compensation committee in its sole
discretion.
DEFERRED COMPENSATION PLAN. The deferred compensation plan permits
members of a select group of management or highly compensated employees of Y&R
and its affiliates to defer receipt of specified portions of cash, stock or
stock-based compensation and to have these 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, dates or occurrence of specified events, and in the number of
installments, 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 Y&R's obligations under
the deferred compensation plan. This trust will be subject to the claims of the
creditors of Y&R in the event of Y&R's insolvency.
CAREER CASH BALANCE PLAN. The career cash balance plan is a defined
benefit plan available to all Y&R employees and its participating affiliates.
Subject to limitations, most vested retirement benefits available under the
career cash balance plan are insured by the Pension Benefit Guaranty
Corporation. Y&R pays the full cost of the benefit provided under the career
cash balance plan. Participants become vested in their career cash balance plan
benefits
51
<PAGE>
after completing five full years of service with Y&R. Under the career cash
balance plan, effective July 1, 1996, a participant's starting account balance
equalled the lump sum value of his benefit under prior plan provisions. Y&R
annually credits to each participant's account 3.2% of the participant's salary
up to $150,000. Salary is defined to include base salary or wages and excludes
bonus, overtime, commissions and other special compensation. Y&R will credit to
each account interest equal to the amount of the account on the first day of
the plan year multiplied by 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. 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 Y&R. 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
specified circumstances to the participant, for reinvestment in other qualified
plans prior to retirement at the participant's election, or for distribution
upon retirement. Career cash balance plan benefits are not reduced by Social
Security benefits. Loans cannot be taken from the career cash balance 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--$1,812.
SELECTED EXECUTIVE RETIREMENT INCOME PLAN. The selected executive
retirement income plan is a supplemental executive retirement arrangement for
selected members of senior management under separate contracts with Y&R.
Subject to 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 the
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. Y&R's obligations to participants
under the selected executive retirement income plan are subordinate in right of
payment to its obligations to senior lenders and other creditors.
The estimated annual benefits payable upon retirement at normal
retirement age for the named executive officers are as follows: Mr.
Georgescu--$1,050,000, Mr. Vick-- $300,000, Mr. McGarry--$200,000, Mr.
Bell--none, and Mr. Dolan--none.
EMPLOYMENT AND TERMINATION OF EMPLOYMENT ARRANGEMENTS. Y&R and Michael
Dolan entered into a letter agreement, as amended, regarding Mr. Dolan's
principal terms of employment with Y&R 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 Y&R policies as other employees
of the same rank.
Under the management voting trust agreement, Y&R has agreed to give each
management investor, including each named executive officer, six months
severance pay upon termination of employment for any reason other than for
cause, but each management investor is required to waive any possible right to
more than six months severance pay and any claims for damages under any
employment agreement. Upon termination of the management voting trust, in the
event of termination of employment, the named executive officers may be
eligible to receive severance pay of up to 13 weeks base salary, based upon
length of service, under a severance plan previously established for U.S.
employees of Y&R. In addition, under some stock option agreements with some of
the named executive officers, upon termination of employment by Y&R other than
for cause, the named executive officer may receive severance pay equal to six
months base salary in return for a release of claims against Y&R and in lieu of
any other severance payments.
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 specified
52
<PAGE>
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, Satish Korde 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 his 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
compensation committee was established in 1996 and consists of Messrs. Bodman,
Hammarskjold and Sir Christopher Lewinton, none of whom was or had been an
officer or employee of Y&R or any of its subsidiaries. None of Y&R's executive
officers served on the board of directors of any entities whose directors or
officers serve on the compensation committee. Alan D. Schwartz, who was a
member of the compensation committee during a part of 1998, is an Executive
Vice President of Bear, Stearns & Co. Inc. Bear Stearns from time to time
performs investment banking and other financial services for Y&R, including as
an underwriter for Y&R's two public offerings during 1998, and is acting as an
underwriter in the common stock offerings. For these services, Bear Stearns may
receive advisory or transaction fees, as applicable, plus reimbursement of
out-of-pocket expenses, of the nature and in amounts customary in the industry
for these services.
53
<PAGE>
CERTAIN TRANSACTIONS
Upon the completion of the recapitalization of Y&R in 1996, several of
the recapitalization investors were granted an approval right over a number of
specified fundamental corporate actions, and were granted the right to nominate
and have elected three members of the board of directors. After the IPO, this
approval right terminated, and the H&F investors retained the right to nominate
and have elected (1) two members of the board of directors for so long as those
investors continue to hold, in the aggregate, at least 10% of the outstanding
shares and (2) one member of the board of directors for so long as the H&F
investors continue to hold, in the aggregate, at least 5% of the outstanding
shares.
In addition, several of the recapitalization investors have demand and
piggyback registration rights with respect to the common
stock they hold. These recapitalization investors have the right to require Y&R
to register for resale shares of common stock held by the recapitalization
investors pursuant to demand registration rights, and to have shares they hold
included in any public offering of common stock made by Y&R. Y&R is required to
pay expenses incurred by it and the reasonable fees and disbursements of one
counsel to those investors in connection with any demand as piggy-back
registration. Y&R paid the expenses incurred by the H&F investors in connection
with the IPO as well as the offering of common stock by the H&F investors
(among other selling stockholders) in November 1998, which totalled
approximately $125,000. For a further discussion of registration rights with
respect to the common stock, see "Shares Eligible for Future Sale."
For a discussion of other transactions between Y&R and directors or
related entities, see "Management--Compensation Committee Interlocks and
Insider Participation."
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial
ownership of the common stock and vested options to purchase common stock as of
May 21, 1999, including beneficial ownership by:
o each person who is known by Y&R to own beneficially 5% or more of the
outstanding shares of the common stock;
o each of the directors and named executive officers; and
o all directors and executive officers as a group.
The information in the table below has been calculated in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, and also includes
shares of common stock held in the deferral trust under the deferred
compensation plan. Except as described below, 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 shares of common stock held by Y&R employees, as well as
a number of retired and former employees, have been deposited into the
management voting trust, and the management voting trust exercises sole voting
power over all those shares. Beneficial ownership by the management voting
trust includes an aggregate of 3,501,733 shares of common stock held in the
deferral trust.
The business address of the management voting trust, the deferral trust,
our executive officers and our directors, other than Messrs. Bodman,
Hammarskjold, Hellman, McGillicuddy, Schwartz and Sir Christopher Lewinton, is
c/o Y&R at 285 Madison Avenue, New York, New York 10017. The business address
of Mr. Bodman is c/o AT&T Ventures, Chevy Chase Metro Building, 2 Wisconsin
Circle, Chevy Chase, Maryland 20815-7003. The business address of the H&F
investors and Messrs. Hammarskjold and Hellman is c/o Hellman & Friedman LLC,
One Maritime Plaza, San Francisco, California 94111. The business address of
Mr. McGillicuddy is 270 Park Avenue, 32nd Floor, New York, New York 10017. The
business address of Mr. Schwartz is c/o Bear, Stearns & Co. Inc., 245 Park
Avenue, New York, New York 10167. The business address of Sir Christopher
Lewinton is c/o TI Group plc, 50 Curzon Street, London W1Y 7PN, United Kingdom.
All information set forth below with respect to the H&F investors is based upon
a Statement on Schedule 13G, dated February 12, 1999, filed on behalf of the
H&F investors. For information on the selling stockholders, see "Selling
Stockholders."
<TABLE>
<CAPTION>
NAME SHARES AND VESTED OPTIONS VESTED OPTIONS PERCENT
- ------------------------------------------------------- --------------------------- ---------------- ----------
<S> <C> <C> <C>
Management voting trust ............................... 34,853,595 11,762,395 43.8%
Hellman & Friedman Capital Partners III, L.P. ......... 14,074,913 2,311,590 20.1%
H&F Orchard Partners III, L.P. ........................ 1,024,967 168,270 1.5%
H&F International Partners III, L.P. .................. 307,028 50,400 *
Deferral trust (1) .................................... 3,501,733 -- 5.2%
Peter A. Georgescu (2) ................................ 1,783,560 -- 2.6%
Edward H. Vick (2) .................................... 1,384,710 895,245 2.0%
Thomas D. Bell Jr. (2) ................................ 1,308,908 1,165,215 1.9%
Michael J. Dolan (2) .................................. 419,625 104,340 *
Richard S. Bodman ..................................... 2,000 -- *
Philip U. Hammarskjold (3) ............................ -- -- *
F. Warren Hellman (3) ................................. -- -- *
Sir Christopher Lewinton .............................. -- -- *
John P. McGarry, Jr. (4) .............................. 722,647 -- 1.1%
John F. McGillicuddy .................................. 13,035 -- *
Alan D. Schwartz (5) .................................. -- -- *
All directors and executive officers
as a group (11 persons) .............................. 5,365,833 2,190,885 7.7%
</TABLE>
- ----------
* Less than one percent.
55
<PAGE>
(1) Y&R established the deferral trust to aid in meeting Y&R's obligations to
employee and former employee participants under the deferred compensation
plan. The deferral trust is administered by a committee currently
comprised of Stephanie W. Abramson, Mark T. McEnroe and Rene'e E. Becnel,
each of whom, acting alone, has the power to act on behalf of the
committee, including to dispose of the common stock held in the deferral
trust. The common stock held in the deferral trust is voted solely by the
voting trustees of the management voting trust.
(2) This amount does not include any of the 34,853,595 shares beneficially owned
by the management voting trust prior to the common stock offerings in excess
of the amount reported as beneficially owned by the stockholder, which the
stockholder may be deemed to beneficially own as a result of the
stockholder's position as a voting trustee of the management voting trust.
This amount also does not include any of the 2,100,980 shares beneficially
owned prior to the common stock offerings by stockholders who acquired such
shares in connection with Y&R's acquisition of KnowledgeBase Marketing,
which the stockholder may be deemed to beneficially own as a result of the
stockholder's having a voting proxy over such shares. The stockholder
disclaims beneficial ownership of any of these shares in excess of the
amount reported above as beneficially owned by the stockholder.
(3) Excludes 15,406,908 shares beneficially owned by the H&F investors prior to
the common stock offerings. The sole general partner of the H&F investors
is H&F Investors III, L.P. The managing general partner of H&F Investors
III, L.P. is Hellman & Friedman Associates III, L.P., and the general
partners of Hellman & Friedman Associates III, L.P. are H&F Management
III, L.L.C. and H&F Investors III, Inc. The sole shareholder of H&F
Investors III, Inc. is The Hellman Family Revocable Trust. The investment
decisions of H&F Management III, L.L.C. and H&F Investors III, Inc. are
made by an executive committee, of which Mr. Hellman is a member. Mr.
Hammarskjold is a member of H&F Management III, L.L.C. Mr. Hellman is a
managing member of H&F Management III, L.L.C., a director of H&F Investors
III, Inc. and a trustee of The Hellman Family Revocable Trust. H&F
Investors III, L.P., Hellman & Friedman Associates III, L.P., H&F
Management III, L.L.C., H&F Investors III, Inc., The Hellman Family
Revocable 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 these
shares, but each of them disclaims beneficial ownership except to the
extent of its or his indirect pecuniary interest in these shares.
(4) Mr. McGarry retired as President of Y&R effective at the end of 1998.
(5) Excludes 133,652 shares held by BearTel Corp., a wholly owned subsidiary of
The Bear Stearns Companies Inc., the parent company of Bear Stearns, of
which Mr. Schwartz is an executive officer.
56
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the name of each selling stockholder and
information regarding the beneficial ownership of the common stock and options
to purchase common stock by the selling stockholders as of May 21, 1999, and as
adjusted to reflect the sale of shares of common stock in the common stock
offerings. The information in the table below has been calculated in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, and includes shares
of common stock held in the deferral trust under the deferred compensation
plan. Except as described below, 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.
Beneficial ownership by the management voting trust prior to the common
stock offerings includes an aggregate of 34,853,595 shares held by the
management voting trust (including shares issuable upon the exercise of
options) offered hereby by management investors who are selling stockholders.
Other than the H&F investors and BearTel Corp., all selling stockholders are
management investors who are officers, employees or former employees of Y&R and
whose shares of common stock are held by the management voting trust. See
"Management--Executive Officers and Directors." All of these shares offered
hereby will be delivered out of the management voting trust upon completion of
the common stock offerings. All shares of common stock held by management
investors have been deposited into the management voting trust, and the
management voting trust exercises sole voting power over all these shares.
Beneficial ownership by the management voting trust includes an aggregate of
3,501,733 shares of common stock held in the deferral trust. For information on
our principal stockholders, see "Principal Stockholders."
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
----------------------------------- -----------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ ------------ --------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management voting trust .................. 34,853,595 11,762,395 43.8% 6,858,528 27,995,067 9,765,909 35.2%
Hellman & Friedman Capital Partners
III, L.P. ............................... 14,074,913 2,311,590 20.1% 6,793,071 7,281,842 2,311,590 10.1%
H&F Orchard Partners III, L.P. ........... 1,024,967 168,270 1.5% 494,461 530,506 168,270 *
H&F International Partners III, L.P. ..... 307,028 50,400 * 147,966 159,062 50,400 *
BearTel Corp. ............................ 133,652 -- * 64,502 69,150 -- *
Stephanie W. Abramson (1)(2).............. 453,995 26,085 * 45,400 408,595 26,085 *
Stuart Agres ............................. 275,820 -- * 40,000 235,820 -- *
Stephen S. Aiello ........................ 137,811 51,560 * 20,672 117,139 51,560 *
Stig Albinus ............................. 23,250 -- * 10,000 13,250 -- *
Jean-Marc Bara ........................... 201,669 -- * 35,588 166,081 -- *
Bernard Barnett .......................... 13,050 13,050 * 1,050 12,000 12,000 *
Stephen Baum ............................. 8,400 -- * 3,120 5,280 -- *
Kimberly Bealle .......................... 91,355 49,995 * 20,000 71,355 49,995 *
Martin Beck .............................. 39,315 33,915 * 33,915 5,400 -- *
Urs Beer ................................. 69,195 -- * 25,000 44,195 -- *
Jed Beitler .............................. 74,835 15,660 * 11,225 63,610 4,435 *
Theodore A. Bell ......................... 713,810 334,065 1.0% 60,000 653,810 334,065 *
Thomas D. Bell, Jr. (1)(2)................ 1,308,908 1,165,215 1.9% 130,891 1,178,017 1,165,215 1.7%
Tom Benelli .............................. 38,760 34,785 * 7,000 31,760 27,785 *
Thomas Blach ............................. 19,050 19,050 * 19,050 -- -- *
June Blocklin ............................ 20,100 -- * 10,225 9,875 -- *
Rene Boender ............................. 50,960 14,400 * 24,312 26,648 -- *
Bonnie Bohne ............................. 98,820 23,820 * 30,000 68,820 23,820 *
Etienne Boisrond ......................... 191,295 -- * 33,750 157,545 -- *
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ --------- --------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
William Borrelle ................ 13,184 -- * 1,841 11,343 -- *
Tiemen Bosma .................... 80,000 -- * 40,000 40,000 -- *
Heinz-Georg Brands .............. 22,712 -- * 22,712 -- -- *
Craig Branigan .................. 204,230 -- * 46,446 157,784 -- *
Howard Breen .................... 15,450 11,475 * 3,090 12,360 8,385 *
Jane Brite ...................... 159,620 -- * 99,810 59,810 -- *
T. J. Broadbent ................. 20,357 17,385 * 15,500 4,857 1,885 *
David Butter .................... 61,262 24,465 * 24,465 36,797 -- *
Ignacio Cabezon ................. 37,290 22,005 * 10,720 26,570 22,005 *
Patricia Cafferata .............. 158,205 -- * 16,000 142,205 -- *
Roger Chiocchi .................. 62,807 25,875 * 14,191 48,616 11,684 *
Ira Chynsky ..................... 68,750 -- * 13,750 55,000 -- *
Michael Claes ................... 35,230 24,360 * 7,500 27,730 24,360 *
Neil Clark ...................... 75,651 52,170 * 23,481 52,170 52,170 *
Don Cogman ...................... 349,070 130,175 * 61,601 287,469 68,574 *
Thomas Coleman .................. 9,780 -- * 2,300 7,480 -- *
Janet Coombs .................... 127,521 104,355 * 16,428 111,093 93,093 *
David Coronna ................... 32,690 32,690 * 6,000 26,690 26,690 *
Jose Maria Costa ................ 60,000 -- * 12,000 48,000 -- *
Massimo Costa ................... 11,110 -- * 11,110 -- -- *
Charles Courtier ................ 52,000 46,965 * 10,000 42,000 36,965 *
Michael Cozens .................. 26,715 20,865 * 20,000 6,715 865 *
Dominique Damato ................ 73,050 73,050 * 15,000 58,050 58,050 *
Donald H. Davis ................. 76,320 50,685 * 19,080 57,240 50,685 *
Ferdinand de Bakker ............. 151,740 -- * 60,000 91,740 -- *
Pierre de Roualle ............... 131,550 97,980 * 25,000 106,550 72,980 *
Jerome Dean ..................... 93,570 35,310 * 18,000 75,570 35,310 *
Joseph E. Dedeo ................. 469,602 -- * 134,172 335,430 -- *
Lawrence Deutsch ................ 41,380 17,245 * 19,660 21,720 -- *
Shelley Diamond ................. 55,695 -- * 13,314 42,381 -- *
Michael J. Dolan (1)(2).......... 419,625 104,340 * 41,926 377,699 104,340 *
Terry Dukes ..................... 38,720 35,495 * 6,150 32,570 29,345 *
Daryl Elliott ................... 27,185 20,885 * 20,885 6,300 -- *
Daisy Exposito .................. 115,501 24,031 * 26,953 88,548 -- *
Michael Faems ................... 135,840 -- * 20,440 115,400 -- *
Charles P. Farley ............... 28,225 10,440 * 2,100 26,125 10,440 *
Peter Farnell-Watson ............ 47,494 -- * 14,494 33,000 -- *
John Fenton ..................... 37,875 -- * 6,500 31,375 -- *
Ian Ferguson Brown .............. 44,537 -- * 2,250 42,287 -- *
Patrick Ford .................... 26,865 26,055 * 6,055 20,810 20,000 *
Richard Ford .................... 40,020 36,795 * 7,500 32,520 29,295 *
Clark J. Frankel ................ 104,352 -- * 30,000 74,352 -- *
Volker Franz .................... 25,085 25,085 * 16,385 8,700 8,700 *
Eric Fredericks ................. 91,440 -- * 80,000 11,440 -- *
John Frew ....................... 27,300 12,045 * 6,030 21,270 6,015 *
Enrico Gervasi .................. 71,220 -- * 12,033 59,187 -- *
Christopher Grabenstein ......... 50,940 46,965 * 10,188 40,752 36,777 *
William Green ................... 91,805 -- * 10,000 81,805 -- *
David E. Greene ................. 55,220 -- * 5,000 50,220 -- *
Victor Gutierrez ................ 30,390 -- * 27,145 3,245 -- *
Cynthia Hampton ................. 29,310 26,085 * 10,000 19,310 16,085 *
Tom Hansen ...................... 29,310 25,335 * 2,000 27,310 23,335 *
Peter Harleman .................. 45,095 15,660 * 16,000 29,095 15,660 *
Fred Hawrysh .................... 19,905 19,905 * 5,000 14,905 14,905 *
Jan Hedquist .................... 182,610 95,655 * 36,522 146,088 59,133 *
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ --------- --------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Heggenes ...................... 87,255 66,960 * 17,451 69,804 49,509 *
Stefan Himpe ...................... 5,500 -- * 3,000 2,500 -- *
Toby Hoare ........................ 209,839 121,020 * 55,000 154,839 66,020 *
Barry Hoffman ..................... 34,095 -- * 6,800 27,295 -- *
Charles Hollenkamp ................ 6,990 -- * 3,000 3,990 -- *
James W. Hood ..................... 168,520 -- * 45,000 123,520 -- *
Penny Hooper ...................... 93,945 23,595 * 14,000 79,945 23,595 *
Roseanne Horn ..................... 28,560 12,660 * 12,675 15,885 12,660 *
Peter Horovitz .................... 41,373 37,398 * 32,828 8,545 4,570 *
Richard Hosp ...................... 34,240 -- * 30,000 4,240 -- *
Eric Garrison Hoyt ................ 79,465 71,590 * 7,670 71,795 63,920 *
Brian Hubbard ..................... 17,025 -- * 5,000 12,025 -- *
Jeff Hunt ......................... 81,463 29,856 * 17,014 64,449 12,842 *
Gigliola Ibba ..................... 85,410 36,210 * 21,000 64,410 36,210 *
Robert Igiel ...................... 208,690 208,690 * 52,170 156,520 156,520 *
Barbara Jack ...................... 464,631 395,565 * 178,560 286,071 279,292 *
Paal Marius Jebsen ................ 13,745 13,695 * 11,085 2,660 2,610 *
William Johnston .................. 74,185 60,000 * 19,185 55,000 55,000 *
James Kaplove ..................... 41,680 8,230 * 4,000 37,680 4,230 *
Mary Ellen Kenny .................. 67,458 5,535 * 14,796 52,662 5,535 *
Kevin King ........................ 31,441 26,085 * 25,000 6,441 1,085 *
Edna Kissmann ..................... 52,220 -- * 21,500 30,720 -- *
Jackie Koh ........................ 27,535 27,535 * 27,535 -- -- *
Christopher Komisarjevsky ......... 150,377 109,575 * 22,557 127,820 87,018 *
Satish Korde (2)................... 967,265 39,735 1.4% 96,727 870,538 39,735 1.2%
Philippe Krakowsky ................ 43,169 26,085 * 7,375 35,794 26,085 *
Ingo Krauss ....................... 391,725 -- * 162,000 229,725 -- *
Kurt Krauss ....................... 21,948 -- * 3,120 18,828 -- *
Stephanie Kugelman ................ 307,277 88,485 * 57,011 250,266 88,485 *
Mitchell Kurz ..................... 527,577 -- * 356,000 171,577 -- *
Jay Kushner ....................... 68,960 37,000 * 11,994 56,966 37,000 *
Marta La Rock ..................... 20,060 16,085 * 15,000 5,060 1,085 *
Jean-Paul Lafaye .................. 322,980 225,825 * 64,400 258,580 180,825 *
Timothy Laing ..................... 35,000 35,000 * 25,000 10,000 10,000 *
Robert Lallamant .................. 97,830 -- * 19,566 78,264 -- *
Kevin Lavan ....................... 49,807 12,000 * 9,000 40,807 12,000 *
Mark Levine ....................... 76,095 -- * 15,219 60,876 -- *
Marco Lombardi .................... 105,205 20,865 * 16,680 88,525 20,865 *
Bennett R. Machtiger .............. 66,950 12,000 * 6,450 60,500 12,000 *
Duncan Mackinnon .................. 28,915 28,915 * 7,000 21,915 21,915 *
John F. Maltese ................... 67,932 13,575 * 13,575 54,357 -- *
Helmut Matthies ................... 367,090 -- * 174,503 192,587 -- *
Martin Maurice .................... 82,830 -- * 16,000 66,830 -- *
Robert M. McDuffey ................ 52,530 49,305 * 10,506 42,024 38,799 *
John P. McGarry, Jr. .............. 722,647 -- 1.1% 309,706 412,941 -- *
Austin McGhie ..................... 64,365 56,490 * 22,875 41,490 33,615 *
David McLean ...................... 159,270 42,600 * 31,853 127,417 34,081 *
Gordon McLean ..................... 35,865 35,865 * 11,955 23,910 23,910 *
Bert Meerstadt .................... 88,315 -- * 14,440 73,875 -- *
William C. Melzer ................. 415,379 401,879 * 73,300 342,079 328,579 *
Diane Meskill-Spencer ............. 113,208 22,140 * 27,195 86,013 22,140 *
Craig Middleton ................... 204,974 26,085 * 34,700 170,274 26,085 *
David Minear ...................... 162,045 111,855 * 40,000 122,045 71,855 *
Dominique Missoffe ................ 77,370 48,600 * 15,474 61,896 48,600 *
Fernan Montero .................... 658,000 -- * 158,000 500,000 -- *
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ --------- --------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred Moolhuijsen ................. 15,000 -- * 15,000 -- -- *
Frans Mootz ...................... 106,488 -- * 26,622 79,866 -- *
John Morris ...................... 57,603 47,388 * 11,519 46,084 35,869 *
Janice Muniz ..................... 38,760 34,785 * 17,400 21,360 17,385 *
Bruce S. Nelson .................. 155,008 105,000 * 28,250 126,758 105,000 *
Charles G. Newton, Jr. ........... 18,000 -- * 3,600 14,400 -- *
Lori Nicholson ................... 61,176 15,660 * 10,000 51,176 15,660 *
Lars Nordstrom ................... 17,025 13,050 * 13,050 3,975 -- *
Laurie Null ...................... 53,670 47,820 * 10,850 42,820 36,970 *
Hans Ohman ....................... 17,025 13,050 * 13,050 3,975 -- *
Steve Oroho ...................... 73,512 -- * 59,010 14,502 -- *
Stewart Owen ..................... 200,363 119,265 * 33,054 167,309 119,265 *
Santiago Alonso Paniagua ......... 52,184 35,055 * 38,715 13,469 10,590 *
Manuel Perez ..................... 171,535 -- * 40,704 130,831 -- *
Diane Perlmutter ................. 31,975 8,940 * 8,035 23,940 8,940 *
Graham Phillips .................. 52,399 -- * 40,000 12,399 -- *
Dan Plouffe ...................... 3,300 -- * 3,300 -- -- *
Tim Pollak ....................... 625,557 -- * 264,000 361,557 -- *
Michael Porter ................... 17,000 17,000 * 2,500 14,500 14,500 *
William A. Power ................. 210,865 -- * 42,000 168,865 -- *
Tom Pratt ........................ 12,110 7,385 * 6,385 5,725 1,000 *
Joerg Puphal ..................... 12,970 6,960 * 9,745 3,225 -- *
John E. Putnam ................... 31,237 9,172 * 9,172 22,065 -- *
Matthias Quadflieg ............... 5,460 1,485 * 1,484 3,976 1 *
Serge Rancourt ................... 121,895 -- * 121,895 -- -- *
Sheila Raviv ..................... 36,240 -- * 20,000 16,240 -- *
Courtney Reeser .................. 56,388 50,088 * 10,017 46,371 40,071 *
Ken Rietz ........................ 125,650 117,390 * 31,000 94,650 86,390 *
Jorg Rindlisbacher ............... 45,640 -- * 19,500 26,140 -- *
Jorge Rodriguez .................. 104,235 90,315 * 1,755 102,480 90,315 *
Robert Rosiek .................... 52,170 -- * 2,170 50,000 -- *
John J. Ross ..................... 50,395 47,170 * 10,000 40,395 37,170 *
Maggie Ross ...................... 47,460 21,735 * 4,000 43,460 21,735 *
James Rossman .................... 58,410 11,955 * 38,580 19,830 11,955 *
Seith Rothstein .................. 135,660 71,925 * 33,915 101,745 71,925 *
Alain Rousset .................... 310,638 216,375 * 55,352 255,286 161,023 *
Amy Rubenstein ................... 73,680 15,660 * 14,736 58,944 15,660 *
Nicholas Rudd .................... 130,440 -- * 39,132 91,308 -- *
Cas Saeys ........................ 27,465 -- * 27,465 -- -- *
Michael Samet .................... 218,552 -- * 77,136 141,416 -- *
John Sanders ..................... 156,385 125,275 * 112,435 43,950 12,840 *
Chris Savage ..................... 54,795 54,795 * 52,000 2,795 2,795 *
Matthew Schetlick ................ 83,485 60,870 * 8,185 75,300 60,870 *
Angelika Schug ................... 6,085 6,085 * 3,400 2,685 2,685 *
Gertrude Schutz .................. 32,085 6,000 * 11,217 20,868 -- *
Tom Schwartz ..................... 29,310 8,700 * 3,500 25,810 8,700 *
James Scielzo .................... 94,932 23,052 * 23,052 71,880 -- *
Steve Seyferth ................... 86,510 86,510 * 17,300 69,210 69,210 *
Keith Sharp ...................... 70,968 8,352 * 14,194 56,774 -- *
Jessie Shaw ...................... 29,170 25,195 * 10,000 19,170 15,195 *
Alan Sheldon ..................... 616,310 -- * 116,310 500,000 -- *
Thomas Shortlidge ................ 227,130 -- * 44,000 183,130 -- *
Richard Sinreich ................. 47,695 -- * 7,695 40,000 -- *
Robert Sive ...................... 53,590 50,365 * 13,236 40,354 37,129 *
Barbara Smith .................... 58,670 10,440 * 10,000 48,670 10,440 *
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ --------- --------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sylvia Soler .......................... 87,510 75,225 * 5,000 82,510 75,225 *
Linda Srere ........................... 163,464 37,545 * 50,000 113,464 37,545 *
Christoph Stadeler .................... 93,580 -- * 85,705 7,875 -- *
Stanley Stefanski ..................... 455,154 111,675 * 160,642 294,512 -- *
Peter Steigrad ........................ 51,185 51,185 * 8,000 43,185 43,185 *
Debra Stern-Marrone ................... 90,655 -- * 10,000 80,655 -- *
Peter Stringham ....................... 76,722 45,000 * 7,672 69,050 45,000 *
John Swan ............................. 144,045 39,825 * 28,000 116,045 39,825 *
Jane Talcott .......................... 26,085 2,805 * 5,217 20,868 2,805 *
Charlee Taylor-Hines .................. 20,130 16,620 * 7,500 12,630 9,120 *
Lars Thalen ........................... 16,000 10,440 * 16,000 -- -- *
Clay Timon ............................ 530,745 521,745 * 85,088 445,657 436,657 *
Alan Vandermolen ...................... 33,390 33,390 * 33,390 -- -- *
John Vanderzee ........................ 130,440 130,440 * 39,132 91,308 91,308 *
Edward H. Vick (1)(2).................. 1,384,710 895,245 2.0% 130,567 1,254,143 895,245 1.8%
Marvin Waldman ........................ 102,425 5,880 * 25,305 77,120 4,704 *
Paula Waters .......................... 41,745 41,745 * 10,000 31,745 31,745 *
Charles Webre ......................... 127,176 55,656 * 55,656 71,520 -- *
Gus Weill ............................. 26,610 13,560 * 13,560 13,050 -- *
Robert Wells .......................... 174,270 47,595 * 12,500 161,770 47,595 *
Anders Wester ......................... 153,900 70,935 * 22,965 130,935 70,935 *
Bruno Widmer .......................... 267,205 -- * 40,000 227,205 -- *
James Williams ........................ 93,870 76,765 * 16,000 77,870 60,765 *
Allan Winneker ........................ 148,290 105,030 * 44,487 103,803 99,093 *
Bob Wyatt ............................. 9,780 -- * 2,500 7,280 -- *
Kenneth Yagoda ........................ 59,580 15,375 * 13,116 46,464 15,375 *
Joanne Zaiac .......................... 138,147 -- * 27,629 110,518 -- *
Michael Zeigler ....................... 6,875 2,900 * 2,900 3,975 -- *
KnowledgeBase Marketing Selling Stockholders:
207 Ventures, LLC ..................... 16,281 -- * 14,652 1,629 -- *
Wand Affiliates Fund L.P. ............. 631 -- * 567 64 -- *
Wand Equity Portfolio II, L.P. ........ 62,446 -- * 56,201 6,245 -- *
Wand/CMS Investments I, L.P. .......... 62,842 -- * 56,556 6,286 -- *
Wand/CMS Investments II, L.P. ......... 21,490 -- * 19,340 2,150 -- *
Wand/CMS Investments III, L.P. ........ 37,329 -- * 33,595 3,734 -- *
Wand/CMS Investments IV, L.P. ......... 69,871 -- * 62,883 6,988 -- *
Tom Benedict .......................... 52 -- * 46 6 -- *
Bertrand Billiot ...................... 183 -- * 164 19 -- *
Todd Board ............................ 1,756 -- * 790 966 -- *
Ret Boney ............................. 782 -- * 703 79 -- *
Joe Branch ............................ 183 -- * 164 19 -- *
Clifton J. Brayshaw ................... 403 -- * 181 222 -- *
Thomas V. Butta ....................... 7,278 -- * 6,550 728 -- *
Marti Campbell ........................ 52 -- * 46 6 -- *
Shawn Cheston ......................... 105 -- * 94 11 -- *
Thomas A. Cook ........................ 968 -- * 697 271 -- *
Steve Cureton ......................... 83 -- * 74 9 -- *
Dave Dietrich ......................... 42 -- * 37 5 -- *
Beryle P. Faier ....................... 2,016 -- * 1,814 202 -- *
Susan D. Faulk ........................ 16,125 -- * 7,256 8,869 -- *
Joseph Ficarra III .................... 1,209 -- * 871 338 -- *
Wilfer Garcia ......................... 322 -- * 232 90 -- *
M. Peggy R. Garner .................... 161 -- * 144 17 -- *
Wayne Gibbons ......................... 183 -- * 164 19 -- *
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS AFTER OFFERINGS
-------------------------------- ------------------------------
SHARES AND SHARES SHARES AND
VESTED VESTED BEING VESTED VESTED
OPTIONS OPTIONS PERCENT SOLD OPTIONS OPTIONS PERCENT
------------ --------- --------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger L. Hackman ...................... 179,079 -- * 80,586 98,493 -- *
Billy R. Howard ....................... 2,016 -- * 907 1,109 -- *
E. Dean Jones ......................... 2,016 -- * 1,814 202 -- *
Mike Keheler .......................... 293 -- * 263 30 -- *
Carol King ............................ 42 -- * 37 5 -- *
Tracy King ............................ 42 -- * 37 5 -- *
Melissa E. Legge ...................... 1,612 -- * 1,450 162 -- *
Lerner Family Irrevocable Trust ....... 48,521 -- * 21,834 26,687 -- *
Steve Lerner .......................... 65,717 -- * 29,570 36,147 -- *
Julie Mathison ........................ 44 -- * 39 5 -- *
Guadalupe Mendoza ..................... 1,612 -- * 1,450 162 -- *
Neesha Mirchandani .................... 105 -- * 47 58 -- *
Lynne F. Moneypenny ................... 2,016 -- * 1,814 202 -- *
Geoffrey Monsees ...................... 98 -- * 88 10 -- *
William H. Moore ...................... 2,016 -- * 907 1,109 -- *
Michael E. Patterson .................. 2,016 -- * 1,361 655 -- *
Henry B. Ponder ....................... 201,110 -- * 90,498 110,612 -- *
Jim Protzman .......................... 60,287 -- * 51,546 8,741 -- *
Archie Purcell ........................ 94,251 -- * 84,825 9,426 -- *
Dana Raburn ........................... 183 -- * 164 19 -- *
Rob Sandefuer ......................... 73 -- * 65 8 -- *
Charles Sanders ....................... 73 -- * 65 8 -- *
Robert Sher ........................... 6,432 -- * 5,788 644 -- *
William A. Thornton ................... 161 -- * 144 17 -- *
Carter J. Wagner ...................... 1,612 -- * 870 742 -- *
Scott Watkins ......................... 139 -- * 125 14 -- *
Christian Wright ...................... 84 -- * 75 9 -- *
Michelle Wright ....................... 73 -- * 65 8 -- *
Conroy Zien ........................... 42 -- * 37 5 -- *
Gary J. Zupke ......................... 2,016 -- * 1,180 836 --
</TABLE>
- ----------
* Less than one percent.
(1) This amount does not include any of the 34,853,595 shares beneficially
owned by the management voting trust prior to the common stock offerings in
excess of the amount reported as beneficially owned by the stockholder,
which the stockholder may be deemed to beneficially own as a result of the
stockholder's position as a voting trustee of the management voting trust.
The stockholder disclaims beneficial ownership of any of these shares in
excess of the amount reported above as beneficially owned by the
stockholder.
(2) This amount does not include any of the 2,100,980 shares beneficially owned
prior to the common stock offerings, or the 1,459,508 shares beneficially
owned after the common stock offerings, by stockholders who acquired such
shares in connection with Y&R's acquisition of KnowledgeBase Marketing,
which the stockholder may be deemed to beneficially own as a result of the
stockholder's having a voting proxy over such shares.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Y&R is authorized to issue 250,000,000 shares of common stock, par value
$0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per
share. As of May 21, 1999, Y&R's issued and outstanding capital stock consists
of 67,758,242 shares of issued and outstanding common stock held by
approximately 1,135 holders and 87 shares of issued and outstanding Money
Market Preferred Stock, par value $0.01 per share held by one holder. Also as
of May 21, 1999, an additional 28,448,743 shares of common stock are issuable
upon exercise of outstanding options. All of Y&R's issued and outstanding
capital stock has been fully paid.
The following description of Y&R's capital stock does not purport to be
complete and is subject to and qualified in its entirety by reference to our
certificate of incorporation 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.
Our certificate of incorporation and by-laws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the effect of
delaying, deterring, or preventing a future takeover or change in control of
Y&R unless the takeover or change in control is approved by the board of
directors.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on
all matters voted on by stockholders, and the holders of common stock, together
with the holders of shares of money market preferred stock, possess all voting
power, except as otherwise required by law or as provided in the certificate of
incorporation. Holders of common stock who are employees of Y&R or its
affiliates are subject to the provisions of the management voting trust and the
amended stockholders' agreement. See "--The Management Voting Trust Agreement"
and "--The Stockholders' Agreement." The holders of common stock do not have
cumulative voting rights. Holders of common stock do not have any preemptive
right to subscribe for or purchase any kind or class of securities of Y&R.
Holders of common stock have no subscription, conversion or redemption rights,
and will not be subject to further calls or assessments. Subject to any
preferential or other rights of any outstanding series of preferred stock that
may be designated by the board of directors, the holders of common stock are
entitled to the dividends, if any, as may be declared from time to time by the
board of directors. Our credit facility permits the payment of cash dividends
except in the event of a continuing default under the credit agreement. See
"Price Range of Common Stock and Dividend Policy" for a discussion of our
dividend policy. In the event of the liquidation, dissolution or winding up of
Y&R, holders of common stock will be entitled to receive on a pro rata basis
any assets of Y&R remaining after provision for payment of creditors and after
payment of any liquidation preferences to holders of preferred stock.
PREFERRED STOCK
Y&R is authorized to issue 10,000,000 shares of preferred stock. The
board of directors 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 series, 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 decrease the number of shares
constituting each series. See "--Authorized But Unissued Capital Stock" and
"--Anti-Takeover Effects of Provisions of the Certificate of Incorporation, the
By-Laws, the Rights Plan and Delaware Law--Preferred Stock."
The certificate of incorporation 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 of directors, cumulative cash dividends that are
payable quarterly and calculated with reference to the interest rate for the
three-month London interbank deposit market. On or after December 12, 2001, any
money market preferred stock issued and outstanding for five years may, at the
option of the board of directors and subject to providing
63
<PAGE>
holders with notice of redemption, be redeemed by Y&R at a redemption price per
share of $115.00 together with all accrued and unpaid dividends. Redeemed money
market preferred stock may be reissued by the board of directors as shares of
the initial series or as shares of any other series of preferred stock. Shares
of money market preferred stock are not convertible, have a liquidation
preference of $115.00 per share together with all accrued and unpaid dividends
and have voting rights equal to one-tenth of one vote for each share of money
market preferred stock.
The certificate of incorporation authorizes a series of preferred stock
designated cumulative participating junior preferred stock, consisting of
2,500,000 shares, in connection with the rights plan. For a description of the
rights plan and the junior preferred stock, see "--Rights Plan" and
"--Anti-Takeover Effects of Provisions of the Certificate of Incorporation, the
By-Laws, the Rights Plan and Delaware Law."
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Based on the calculations set forth above, Y&R estimates that, following
the completion of the common stock offerings, it will have approximately
180,245,272 shares of authorized but unissued common stock (including an
aggregate of 23,854,152 shares reserved for issuance upon the exercise of
options issued to employees, 2,598,105 shares reserved for issuance upon the
exercise of options issued to recapitalization investors, 3,075,000 shares of
common stock reserved for issuance upon the exercise of options to be granted to
employees on the date of this prospectus and 275,000 shares of common stock
reserved for issuance upon the exercise of options to be granted to employees of
KnowledgeBase Marketing in connection with the acquisition of KnowledgeBase
Marketing) and 9,999,913 shares of authorized but unissued preferred stock
(including the 2,500,000 shares designated as junior preferred stock and 49,913
shares designated as money market preferred stock). Delaware law does not
require stockholder approval for the issuance of authorized shares. However, the
listing requirements of the New York Stock Exchange, which apply so long as the
common stock is listed on the New York Stock Exchange, require prior stockholder
approval of specified 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. Y&R 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 directors to issue shares to persons friendly to
current management. This type of issuance could render more difficult or
discourage an attempt to obtain control of Y&R by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of Y&R's
management and possibly deprive the stockholders of the opportunity to sell
their shares of common stock at prices higher than prevailing market prices.
These additional shares also could be used to dilute the stock ownership of
persons seeking to obtain control of Y&R pursuant to the operation of the rights
plan, which is discussed below. See "--Anti-Takeover Effects of Provisions of
the certificate of incorporation, the by-laws, the Rights Plan and Delaware
Law."
THE MANAGEMENT VOTING TRUST AGREEMENT
Under the management voting trust agreement, the management investors
and the restricted stock trust are required to deposit with the management
voting trust all shares of common stock and all shares of money market
preferred stock acquired by them prior to the termination of the management
voting trust, including common stock acquired upon the exercise of options,
distributions from the restricted stock trust or otherwise. Common stock sold
in the public market by management investors and the restricted stock trust
will be withdrawn from, and delivered free of, the management voting trust.
The management voting trust has the unqualified right and power to vote
and to execute consents with respect to all shares of
64
<PAGE>
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 members of senior management of Y&R, in their capacities as voting
trustees. The current voting trustees are Peter A. Georgescu, Stephanie W.
Abramson, Thomas D. Bell, Jr., Michael J. Dolan, Satish Korde 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
(1) approved in writing or at a meeting by Peter A. Georgescu or his successor
and any two other voting trustees and (2) any action approved over the
objection of Peter A. Georgescu or his 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 (2) shall require the vote of all the voting trustees other
than Peter A. Georgescu or his successor). The foregoing voting procedures will
also apply to the election and removal of voting trustees, to proposals to
increase or decrease the number of voting trustees and to proposals to amend
the foregoing voting procedures.
The management voting trust will terminate when:
o no person, including the recapitalization investors and the
management voting trust, is the owner of more than 20% of the
outstanding shares;
o the number of shares of common stock held by the management voting
trust is less than 10% of the outstanding shares; or
o the voting trustees determine to terminate the management voting
trust.
Under an irrevocable unanimous written consent of the voting trustees,
the management voting trust will terminate 24 months after the completion of
the IPO, which occurred on May 15, 1998, assuming no earlier termination in
accordance with its terms.
The management voting trust has issued and will issue voting trust
certificates representing the shares of common stock and money market preferred
stock deposited with it. The voting trust certificates are subject to the
transfer restrictions set forth in the amended stockholders' agreement. See
"--The Stockholders' Agreement."
Y&R has agreed to assume all liability and indemnify and defend all
voting trustees and their successors, assigns, agents and servants from any and
all losses incurred or asserted against any voting trustees relating to their
administration of the management voting trust, unless there is clear and
convincing evidence that these 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 stock option and
restricted stock agreements, each of the management investors is subject to
non-competition, non-solicitation, confidentiality and notice requirements in
connection with the termination of that person's employment. They include the
following:
o 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 the management investor had
a direct relationship or as to which the management investor had a
significant supervisory responsibility or otherwise was significantly
involved at any time during the two years prior to termination;
o for six months after termination of employment, (1) 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 (2) a
management investor with principally client service
65
<PAGE>
related responsibilities may not work for a competitor of Y&R or its
affiliates on the account of or directly for any substantial
competitor of any client of Y&R or any of its affiliates for whom the
management investor had substantial responsibility during the two
years prior to termination;
o for one year after termination of employment, a management investor
may not (1) 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 (2) induce any
Y&R employee to terminate his or her employment with Y&R or any of
its affiliates;
o a management investor shall keep confidential information of Y&R, its
affiliates and their clients learned during his or her employment;
and
o a management investor shall give six weeks written notice prior to
voluntary termination unless a shorter period is approved by Y&R.
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 in the management
voting trust agreement, and each management investor is required to waive any
possible right to more than six months' severance pay or similar compensation
and any claims for damages under any employment agreement.
THE STOCKHOLDERS' AGREEMENT
In connection with the recapitalization of Y&R in 1996, the
recapitalization investors, the management investors, the restricted stock
trust, the management voting trust and Y&R entered into a stockholders'
agreement with respect to the restrictions on transferability of shares of
common stock and related voting trust certificates, and with respect to the
management of Y&R. Upon completion of the IPO, that stockholders' agreement was
terminated, and the H&F investors, the management investors, the management
voting trust and Y&R entered into an amended stockholders' agreement.
RIGHT TO NOMINATE DIRECTORS. Under the amended stockholders' agreement,
the H&F investors have the right to nominate and have elected two members of
the board of directors for so long as they continue to hold, in the aggregate,
at least 10% of the outstanding shares, and one member of the board of
directors for so long as they continue to hold, in the aggregate, at least 5%
of the outstanding shares. Outstanding shares is defined in the amended
stockholders' agreement to include all shares of common stock subject to vested
options, not including options that would vest on a change in control.
TRANSFER RESTRICTIONS. Under the amended stockholders' agreement, the
transfer restrictions described below apply. Purported transfers in violation
of these restrictions will be null and void.
H&F investors may not transfer shares of common stock, options to
purchase common stock or other voting capital stock:
o prior to termination of the management voting trust (which will occur
no later than the second anniversary of the completion of the IPO),
if at least 20% of the outstanding shares are then subject to the
management voting trust, to any party who as a result thereof would,
together with its affiliates, own a percentage of the outstanding
shares that is greater than the percentage then subject to the
management voting trust; or
o after the termination of the management voting trust and (1) prior to
the first anniversary of the termination, to any party who as a
result thereof would, together with its affiliates, own a percentage
of the outstanding shares that is greater than the greater of (a) 20%
and (b) the percentage of the outstanding shares subject to the
management voting trust upon termination thereof (the "termination
percentage") less 5% and (2) from and after the first anniversary of
the termination of the management
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voting trust until December 12, 2002, to any party who as a result
thereof would, together with its affiliates, own a percentage of the
outstanding shares that is greater than the greater of (a) 20% and
(b) the termination percentage less 10%,
unless, in any of these cases:
o Y&R fails to arrange for the sale of the shares to a third party for
the benefit of the H&F investors at a price to the H&F investors not
less than the price proposed to be paid by the proposed transferee;
and
o the management voting trust, or, following its termination, Y&R,
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.
TRANSFER RESTRICTIONS
The following transfer restrictions apply to shares of common stock
issued to management investors under Regulation S under the Securities Act, but
will not apply to shares of common stock sold in the common stock offerings.
Under the by-laws, any direct or indirect sale, transfer, assignment, pledge,
hypothecation or other encumbrance or disposition, each referred to as a
"Transfer", of legal or beneficial ownership of any stock issued and sold by
Y&R under Regulation S under the Securities Act, may be made only under an
effective registration statement under the Securities Act or in a transaction
that is exempt from, or not subject to, the registration requirements of the
Securities Act. Neither Y&R nor any of its employees or agents will record any
Transfer prohibited by the preceding sentence, and the purported transferee of
a prohibited Transfer will not be recognized as a Y&R securityholder for any
purpose whatsoever in respect of the security or securities that are the
subject of the prohibited Transfer. The purported transferee in a prohibited
Transfer will not be entitled, with respect to the securities purported to be
transferred, to any rights of a Y&R securityholder, including without
limitation, in the case of common stock, the right to vote the common stock or
to receive dividends or distributions, if any, in respect of the common stock.
All certificates representing securities subject to the transfer restrictions
set forth in the by-laws will bear a legend to the effect that the securities
represented by the certificates are subject to these restrictions, unless and
until Y&R determines in its sole discretion that the legend may be removed
consistent with applicable law.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of Y&R has any preemptive right to
subscribe for or purchase any kind or class of securities of Y&R.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is The Bank of New
York.
RIGHTS PLAN
Y&R has adopted the rights plan and entered into a rights agreement
between Y&R and The Bank of New York, as rights agent. Each outstanding share
of common stock has attached to it one associated right. The terms of the
rights are set forth in the rights agreement. The certificate of incorporation
authorizes the board of directors to adopt a stockholder rights plan such as
the rights plan.
Each right entitles the registered holder under specified circumstances
to purchase from Y&R one one-hundredth of a share of junior preferred stock at
a purchase price of $87.50, subject to adjustment (the "purchase price"). The
purchase price is payable in cash or by certified check or bank draft.
Junior preferred stock purchasable upon exercise of the rights will not
be redeemable. Each share of junior preferred stock will be entitled to a
minimum preferential quarterly dividend payment of $1.00 per share but will be
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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 the liquidation
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 specified dividend aggregates, will also have the right, voting as a
class, to elect one director. In the event of any merger, consolidation or
other transaction in which shares of common stock are exchanged, each share of
junior preferred stock will be entitled to receive 100 times the amount
received per share of common stock. These rights are protected by customary
anti-dilution provisions. Because of the nature of their dividend, liquidation
and voting rights, the value of the one-one-hundredth interest in a share of
junior preferred stock purchasable upon exercise of each right should
approximate the value of one share of common stock.
Until the close of business on the distribution date, the rights will be
evidenced by the certificates representing shares of common stock and no
separate right certificates will be issued or distributed. All shares of common
stock issued prior to the earlier of the distribution date or the expiration
date will be issued with rights.
The term "distribution date" means the earlier of:
o the tenth business day after the stock acquisition date; and
o the tenth business day (or a later day as may be determined by action
of the board of directors prior to the 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
business days after this announcement), a tender or exchange offer
the completion of which would result in any person becoming an
acquiring person.
The term "stock acquisition date" means the time and day of the first
public announcement, including by the filing of a report pursuant to the
Exchange Act, by Y&R or an acquiring person indicating that an acquiring person
has become an acquiring person.
The term "acquiring person" means:
(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 that person, acquires beneficial
ownership of 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 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 this
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 this
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 this 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
that person becoming a Permitted H&F 15% Transferee, that Permitted
H&F 15% Transferee, together with all affiliates and associates of
that Permitted H&F 15% Transferee, acquires beneficial ownership of
any additional shares.
Notwithstanding the foregoing:
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(1) a person shall not become an acquiring person if that 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 Y&R, unless and
until such time as that person purchases or otherwise becomes (as a
result of actions taken by that person or any of its affiliates or
associates) the beneficial owner of any additional shares of common
stock; and
(2) the term "acquiring person" shall not include any company entity;
and
(3) the term "acquiring person" shall not include any person who or
which, together with all affiliates and associates of that 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 that person promptly (and in any
event within 10 business days after being so requested by Y&R)
enters into an irrevocable commitment satisfactory to the board of
directors promptly (and in any event within 20 business days or a
shorter period as shall be determined by the board of directors) to
divest, and thereafter promptly divests as required by the
irrevocable commitment, sufficient shares of common stock so that
that 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 Y&R, any wholly owned subsidiary
of Y&R, any employee benefit plan or employee stock plan of Y&R or any wholly
owned subsidiary of Y&R, any person or entity holding shares of common stock
which was organized, appointed or established by Y&R or any of its wholly owned
subsidiary for or under the terms of any employee benefit plan or employee
stock 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 of these trusts and any group that includes
the management voting trust, the restricted stock trust, any trustee under
either of these trusts or any affiliate or associate thereof.
The term "Permitted H&F 15% Transferee" means any person who is a
Permitted H&F Transferee who or which, immediately after the transfer from the
H&F investors that resulted in that person becoming a Permitted H&F Transferee,
together with all affiliates and associates of that 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 in 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 the tender or
exchange offer, by the board of directors.
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 these rights to acquire shares of common stock are then exercisable. For
purposes of clause (ii)(B) of the definition of "acquiring
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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, these 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 prior to the earlier of the
distribution date and the expiration date will contain a legend incorporating
the rights agreement by reference. Until the distribution date, the surrender
for transfer of any of the certificates representing shares of common stock
issued prior to the distribution date will also constitute the transfer of the
rights associated with the common stock represented by that certificate. Until
the distribution date, the number of rights associated with each share of
common stock will be proportionately adjusted in the event of any dividend in
common stock on the common stock or subdivision, combination or
reclassification of the common stock. In the event that Y&R purchases or
acquires any shares of common stock prior to the distribution date, any rights
associated with those shares of common stock shall be deemed canceled and
retired so that Y&R shall not be entitled to exercise any rights associated
with the shares of common stock that are no longer outstanding. As soon as
practicable following the distribution date, separate certificates evidencing
the rights will be mailed to holders of record of common stock as of the close
of business on the distribution date and these 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
or have been previously exchanged for shares of common stock or have been
previously redeemed by Y&R 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 specified circumstances, cash, property or
other securities of Y&R) 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
circumstances specified in the rights agreement) were, beneficially owned by
any acquiring person and specified related parties will become null and void.
To illustrate the rights described in the preceding paragraph, at a
purchase price of $87.50 per right, each right not owned by an acquiring person
(or by specified related parties) following an event set forth in the preceding
paragraph would entitle its holder to purchase common stock (or other
consideration, as noted above) with a preexisting market value of $175.00 for
$87.50. Assuming that the common stock has a preexisting market value of $25.00
per share at that time, the holder of each right would be entitled to purchase
seven shares of common stock for $87.50.
In the event that, at any time following the stock acquisition date,
(1) Y&R is acquired in a merger or other business consolidation transaction,
(2) Y&R 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 (1) or (2), a merger
or consolidation that would result in all of the voting securities of Y&R
outstanding immediately prior thereto continuing to represent all of the voting
securities of Y&R or the surviving entity outstanding immediately after the
merger or consolidation and holders of these securities not having changed as a
result of the merger or consolidation) or (3) 50% or more of Y&R's assets or
earning power is sold
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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:
o 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;
o if holders of the junior preferred stock are granted specified 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
o upon the distribution to holders of the junior preferred stock of
evidences of indebtedness or assets (excluding regular quarterly cash
dividends below specified levels or dividends payable in shares of
junior preferred stock) or of subscription rights or warrants, other
than those referred to above.
With 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 Y&R does not have sufficient shares of common
stock issuable upon exercise of the rights following the stock acquisition
date, Y&R may, in some 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, Y&R 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
of directors. Immediately upon the action of the board of directors 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 of
directors 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 common stock. Both the redemption price and
the exchange rate are subject to adjustment.
Until a right is exercised, the holder thereof will have no rights as a
stockholder of Y&R, 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 Y&R, 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 of directors prior to the stock acquisition date. After the stock
acquisition date, the provisions of the rights agreement may be amended by the
board of directors in order to cure any ambiguity, to correct any defects or
inconsistencies, to make changes that do not adversely affect the interests of
holders of rights (excluding the interests of any acquiring person) or to
shorten or lengthen any time period under the rights agreement; provided,
however, that no amendment to adjust the time period governing redemption or to
modify the ability or inability of the board of directors to redeem the rights
may be made when the rights are not redeemable.
As long as the rights are attached to the common stock, Y&R will issue
one right for each share of common stock issued prior to the distribution date
so that all those shares will have attached rights. Two million five hundred
thousand shares of junior preferred stock initially have been reserved for
issuance upon exercise of the rights.
The rights have anti-takeover effects. See "--Anti-Takeover Effects of
Provisions of the Certificate of Incorporation, the By-Laws, the Rights Plan
and Delaware Law."
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The foregoing summary of 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 PROVISIONS OF THE CERTIFICATE OF INCORPORATION, THE
BY-LAWS, THE RIGHTS PLAN AND DELAWARE LAW
The certificate of incorporation, the by-laws, the rights plan and the
Delaware general corporation law contain provisions that could make more
difficult the acquisition of control of Y&R by means of a tender offer, open
market purchases, a proxy contest or otherwise. Set forth below is a
description of these provisions in the certificate of incorporation, the
by-laws, the rights plan and the Delaware general corporation law. The
following description is intended as a summary only and is qualified in its
entirety by reference to the certificate of incorporation, the by-laws and the
rights agreement, which have been filed as exhibits to the registration
statement of which this prospectus forms a part, and to the Delaware general
corporation law. Upon completion of the common stock offerings, the management
voting trust will hold 35.2% of the outstanding shares of common stock
(assuming the exercise of all currently vested options held by management
investors), which could discourage potential acquisition proposals and could
delay or prevent a change in control of Y&R. See "Description of Capital
Stock--The Management Voting Trust Agreement."
CLASSIFIED BOARD OF DIRECTORS; REMOVAL OF DIRECTORS. The certificate of
incorporation provides that the number of directors will be not less than five
nor more than fifteen, with the exact number of directors to be determined from
time to time by a majority of the entire board of directors. The directors will
be divided into three classes, as nearly equal in number as is possible,
serving staggered three-year terms so that directors' initial terms will expire
at the annual meeting of Y&R's stockholders held in 1999, 2000 and 2001,
respectively. Starting with the 1999 annual meeting of Y&R's stockholders, one
class of directors will be elected each year for a three-year term. See
"Management."
Y&R believes that a classified board of directors will help to assure
the continuity and stability of the board of directors and Y&R's business
strategies and policies, since a majority of the directors at any given time
will have had prior experience as directors of Y&R. Y&R believes that this in
turn will permit the board of directors to represent more effectively the
interests of stockholders.
With a classified board of directors, 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 of directors. As a result, the
classification of the board of directors of Y&R 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 of directors in a relatively short period of
time. In addition, pursuant to the Delaware general corporation law and the
certificate of incorporation, 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 of directors delays stockholders who do not agree with the policies of
the board of directors from replacing directors, unless they can demonstrate
that the directors should be removed for cause and obtain the requisite vote.
This delay may help ensure that the board of directors, 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 Y&R's stockholders.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. The certificate of
incorporation provides that, subject to the rights of holders of any shares of
preferred stock, any vacancy in the board of directors that results from an
increase in the number of directors may be filled only by a majority of the
directors then in office, provided that a quorum is present. The certificate of
incorporation provides that any other vacancy in the board of directors 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 of directors by
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enlarging the board of directors and filling the new directorships with its own
nominees.
WRITTEN CONSENTS AND SPECIAL MEETINGS. The certificate of incorporation
provides that no action required or permitted to be taken at any annual or
special meeting of stockholders may be taken by stockholders of Y&R except at
an annual or special meeting. The by-laws provide that special meetings of
stockholders may be called only by the chairman of the board of directors or
the board of directors. Stockholders are not permitted to call a special
meeting or to require that the board of directors call a special meeting of
stockholders. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the purpose or purposes specified in the
written notice of the meeting. The provisions of the certificate of
incorporation prohibiting action by written consent without a meeting and the
provisions of the by-laws governing the calling of and matters considered at
special meetings may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting. These provisions also would prevent the
holders of a majority of the voting power of the outstanding shares of stock
entitled to vote generally in the election of directors from using the written
consent procedure to take stockholder action and from taking action by written
consent without giving all the stockholders entitled to vote on a proposed
action the opportunity to participate in determining the proposed action at a
meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS. The
by-laws establish an advance notice provision with regard to the nomination,
other than by or at the direction of the board of directors, of candidates for
election as directors, or the bringing before any annual meeting of any
stockholder proposal, which we refer to as 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
of directors may be transacted and candidates for director other than those
selected by the board of directors may be nominated at the annual meeting only
if the Secretary of Y&R has received a written notice identifying the 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 of directors has set a different date for the annual meeting,
not less than ninety nor more than one hundred twenty days before the other
date or, if the other date has not been publicly disclosed or announced at
least one hundred five days in advance, then not less than fifteen days after
its 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 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 of directors a meaningful
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by the board of directors, to inform the
stockholders about these qualifications. By requiring advance notice of
proposed business, the notice of meeting provision will provide the board of
directors with a meaningful opportunity to inform stockholders, prior to the
meeting, of any business proposed to be conducted at the meeting, together with
any recommendation or statement of the board of directors' position as to
action to be taken with respect to the proposed business, so as to enable
stockholders better to determine whether they desire to attend the meeting or
to grant a proxy to the board of directors as to the disposition of any
proposed business. Although the by-laws do not give the board of directors 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 these nominees or proposals might be harmful or beneficial to
Y&R and its stockholders.
RESTRICTIONS ON AMENDMENT. The certificate of incorporation provides
that the approval of holders of at least 80% of the voting power
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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 certificate of incorporation:
o classifying the board of directors;
o governing the removal of directors;
o establishing the minimum and maximum number of members of the board
of directors;
o eliminating the ability of stockholders to act by written consent;
o authorizing the board of directors to consider the interests of
clients and other customers, creditors, employees and other
constituencies of Y&R and its subsidiaries and the effect upon
communities in which Y&R and its subsidiaries do business, in
evaluating proposed corporate transactions;
o establishing the board of directors' authority to issue, without a
vote or any other action of the stockholders, any or all authorized
shares of stock of Y&R, securities convertible into or exchangeable
for any authorized shares of stock of Y&R and warrants, options or
rights to purchase, subscribe for or otherwise acquire shares of
stock of Y&R for any of these forms of consideration and on such
terms as the board of directors in its discretion lawfully may
determine; and
o authorizing the by-laws of Y&R to establish procedures regulating the
submission by stockholders of nominations and proposals for
consideration at meetings of stockholders of Y&R. In addition, the
certificate of incorporation provides that the approval of the board
of directors 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 certificate of incorporation or to
adopt any provision of the certificate of incorporation inconsistent
with the above provisions or to alter, amend or repeal specified
provisions of the by-laws or to adopt any provision of the by-laws
inconsistent with the above provisions.
PREFERRED STOCK. Subject to the certificate of incorporation and
applicable law, the authority of the board of directors 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 each series, the number of shares initially constituting each
series and whether to increase or decrease the 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 each series and, if so, the terms
and conditions thereof, and whether a purchase fund shall be provided for the
shares of each series and, if so, the terms and conditions thereof.
Y&R 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
these authorized shares available for issuance will allow Y&R to issue shares
of preferred stock without the expense and delay of a special stockholders'
meeting. The authorized shares of preferred stock, as well as shares of common
stock, will be available for issuance without further action by the
stockholders, unless further action is required by applicable law or the rules
of any stock exchange on which Y&R's securities may be listed. Although the
board of directors 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 this series, impede the completion of a merger,
tender offer or other takeover attempt. For instance, subject to applicable
law, this series of preferred stock might impede a business combination by
including class voting rights that would enable the holder to block the
transaction. The board of directors will make any determination to issue these
shares based on its judgment as to the best interests of Y&R and its
stockholders. The board of directors, in so acting, could issue preferred stock
having terms which could
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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 the stock. See "--Rights Plan."
OTHER CONSIDERATIONS. Our certificate of incorporation 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
Y&R, the board of directors may, but shall not be obligated to, take into
account the interests of clients and other customers, creditors, employees and
other constituencies of Y&R and its subsidiaries and the effect upon
communities in which Y&R and its subsidiaries do business.
EFFECTS OF THE RIGHTS PLAN. The rights plan is designed to protect
stockholders of Y&R in the event of unsolicited offers to acquire Y&R and other
coercive takeover tactics which, in the opinion of the board of directors,
could impair its ability to represent stockholder interests. The provisions of
the rights agreement may render an unsolicited takeover of Y&R more difficult
or less likely to occur or might prevent the takeover, even though the takeover
may offer Y&R'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 Y&R's
stockholders. See "--Rights Plan." The certificate of incorporation authorizes
the board of directors to adopt a stockholder rights plan.
DELAWARE BUSINESS COMBINATION STATUTE. The terms of Section 203 of the
Delaware general corporation law apply to Y&R. With 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 the person became an interested
stockholder unless:
o the transaction that results in the person's becoming an interested
stockholder or the business combination is approved by the board of
directors of directors of the corporation before the person becomes
an interested stockholder;
o upon completion 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 employee stock
plans; or
o on or after the date the person becomes an interested stockholder,
the business combination is approved by the corporation's board of
directors 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 that person), other than the
corporation and any direct or indirect majority-owned subsidiary, that is:
o the owner of 15% or more of the outstanding voting stock of the
corporation; or
o 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 that 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 this 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 certificate of incorporation and by-laws do not
exclude Y&R from the restrictions imposed under Section 203, but the
certificate of incorporation provides that in no case shall the H&F investors
or any person who is a Permitted H&F 15% Transferee, regardless
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of the total percentage of the common stock or other voting stock owned by the
H&F investors or the Permitted H&F 15% Transferee, be deemed an interested
stockholder for any purpose under Section 203 whatsoever.
In some 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 Y&R to negotiate in
advance with the board of directors, because the stockholder approval
requirement would be avoided if the board of directors approves either the
business combination or the transaction which results in the stockholder
becoming an interested stockholder. These provisions also may have the effect
of preventing changes in the board of directors. It is further possible that
these provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interests.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market
following the common stock offerings could adversely affect the market price of
the common stock and could impair Y&R's future ability to raise capital through
the sale of its equity securities.
Upon the closing of the common stock offerings, Y&R will have
outstanding 69,754,728 shares of common stock. Of these shares, approximately:
o 50,418,036 shares will be freely tradeable by persons, other than
"affiliates" of Y&R, without restriction under the Securities Act;
and
o 19,336,692 shares will be "restricted" securities, within the meaning
of Rule 144 under the Securities Act, and may not be sold in the
absence of registration under the Securities Act unless an exemption
from registration is available, including the exemption provided by
Rule 144.
In general, under Rule 144 as currently in effect, a person or persons
whose shares are aggregated, including any affiliate of Y&R, who has
beneficially owned restricted securities for at least one year, including the
holding period of any prior owner except an affiliate of Y&R, would be entitled
to sell within any three-month period, a number of shares that does not exceed
the greater of:
o one percent of the number of common stock then outstanding
(approximately 697,547 shares immediately after the common stock
offerings); or
o the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about Y&R.
Under Rule 144(k), a person who is not deemed to have been an affiliate of Y&R
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 Y&R, is entitled to sell these shares
without complying with the manner of sale, public information requirements,
volume limitations or notice requirements of Rule 144. Sales of shares by
affiliates of Y&R will continue to be subject to these volume limitations, and
manner of sale, notice and public information requirements.
REGISTRATION RIGHTS AGREEMENT
In connection with the recapitalization of Y&R in 1996, 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 sales
of common stock by the management investor would not otherwise be permitted,
the management investors, under which registration rights are available after
the completion of the common stock offerings. Under the registration rights
agreement, Y&R has granted:
o the recapitalization investors the right to require, subject to the
terms and conditions set forth in the registration rights agreement,
Y&R to register shares of common stock held by them for sale in
accordance with their intended method of disposition of those shares;
and
o the management voting trust the right to require, subject to the
terms and conditions set forth in the registration rights agreement,
Y&R to register the number of shares of common stock as is necessary
to permit management investors to pay taxes as a result of the
exercise by the management investors of rollover options or closing
options or the vesting of restricted stock awarded to the management
investors (each a "demand registration"), provided that in the case
of the management voting trust this request may not be made without
the consent of Y&R.
Subject to limitations set forth in the registration rights agreement,
the recapitalization investors may request up to four demand registrations and
the management voting trust may request up to two demand registrations. Y&R
will not be required to effect any demand registration if:
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o the aggregate market value of the shares of common stock proposed to
be registered is less than $100 million; or
o the 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.
Y&R may postpone the filing of a demand registration for up to 60 days
in some circumstances.
In addition, Y&R has granted the recapitalization investors and the
management voting trust (to the extent of the number of shares of common stock
as is necessary to permit management investors to pay taxes as a result of the
exercise by the management investors of rollover options or closing options or
the vesting of restricted stock awarded to the management investors) the right,
subject to exceptions set forth in the registration rights agreement, to
participate in registrations of common stock initiated by Y&R on its own behalf
or on behalf of any other stockholder (a "piggy-back registration"). The
recapitalization investors exercised these piggy-back registration rights in
connection with the offering of common stock completed on November 30, 1998.
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 Y&R, 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 that offering.
See "Underwriting."
Y&R 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, Y&R has agreed to
indemnify five of the recapitalization investors against liabilities, including
liabilities under the Securities Act, and to contribute to payments they may be
required to make. The registration rights agreement will terminate on
December 12, 2011.
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CERTAIN U.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of 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 (1) a U.S. court
is able to exercise primary supervision over the trust's administration and
(2) one or more United States persons have the authority to control all of the
trust's substantial decisions, and the term "United States" means the United
States of America, including the States and the District of Columbia. The
discussion does not consider specific facts and circumstances that may be
relevant to a particular non-U.S. holder's tax position. Accordingly, each
non-U.S. holder is urged to consult its own tax advisor with respect to the
U.S. tax consequences of the ownership and disposition of common stock, as well
as any tax consequences that may arise under the laws of any state,
municipality, foreign country or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of common stock ordinarily will be
subject to withholding of U.S. federal income tax at a 30 percent rate, or at a
lower rate under an applicable income tax treaty that provides for a reduced
rate of withholding. However, if the dividends are effectively connected with
the conduct by the holder of a trade or business within the United States, then
the dividends will be exempt from the withholding tax described above and
instead will be subject to U.S. federal income tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income
tax in respect of gain realized on a disposition of common stock, provided that
(a) the gain is not effectively connected with a trade or business conducted by
the non-U.S. holder in the United States and (b) in the case of a non-U.S.
holder who is an individual and who holds the common stock as a capital asset,
the 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 an individual non-U.S.
holder at the time of death will be included in the holder's gross estate for
U.S. federal estate tax purposes (and thereby may be subject to U.S. federal
estate tax), unless an applicable estate tax treaty provides otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will
not apply to dividends paid on common stock to a non-U.S. holder address
outside the United States, except that with regard to payments made after
December 31, 1999, a non-U.S. holder will be entitled to this 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 (1) is a U.S.
person, (2) derives 50 percent or more of its gross income for certain periods
from the conduct of a trade or business in the United States, (3) is a
"controlled foreign corporation" as to the United States, or (4) with respect
to payments made after December 31, 2000, is a foreign partnership that, at any
time during its taxable year is 50 percent or more (by income or capital
interest) owned by U.S. persons or is engaged in the conduct of a U.S. trade or
business, unless in any such case the broker has documentary
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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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UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1999 (the "Underwriting Agreement"), the U.S. Underwriters named below
(the "U.S. Underwriters"), who are represented by Bear, Stearns & Co. Inc.
("Bear Stearns"), Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
Goldman, Sachs & Co., ING Baring Furman Selz LLC, Morgan Stanley & Co.
Incorporated and Salomon 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 Bear, Stearns International Limited, Cazenove & Co., Donaldson, Lufkin &
Jenrette International, Goldman Sachs International, ING Barings Ltd. as agent
for ING Bank N.V., London Branch, Morgan Stanley & Co. International Limited
and Salomon Brothers International Limited (the "International
Representatives", and together with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase from the selling
stockholders the respective number of shares of common stock set forth opposite
their names below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
----------------- ---------
<S> <C>
Bear, Stearns & Co. Inc. ...........................................
Donaldson, Lufkin & Jenrette Securities Corporation ................
Goldman, Sachs & Co. ...............................................
ING Baring Furman Selz LLC .........................................
Morgan Stanley & Co. Incorporated ..................................
Salomon Smith Barney Inc. ..........................................
--------
Subtotal .......................................................... 12,000,000
INTERNATIONAL MANAGERS
----------------------
Bear, Stearns International Limited ................................
Cazenove & Co. .....................................................
Donaldson, Lufkin & Jenrette International .........................
Goldman Sachs International ........................................
ING Barings Ltd. as agent for ING Bank N.V., London Branch .........
Morgan Stanley & Co. International Limited .........................
Salomon Brothers International Limited .............................
Subtotal .......................................................... 3,000,000
----------
Total ............................................................ 15,000,000
==========
</TABLE>
-------------------------------------------------------
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval by their counsel of legal
matters and to other conditions set forth in the Underwriting Agreement. 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 that 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 and certain other selling stockholders have granted to
the U.S. Underwriters an option, exercisable within 30 days after the date of
this prospectus, to purchase,
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from time to time, in whole or in part, up to an aggregate of 2,250,000
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
common stock offerings. To the extent that the U.S. Underwriters exercise such
option, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of these additional shares based
on the U.S. Underwriter's percentage underwriting commitment in the U.S.
portion of the common stock offerings as indicated in the preceding table.
Y&R 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 of those liabilities.
Each of Y&R, certain of the management investors and certain other
stockholders, including the selling stockholders, who upon completion of the
common stock offerings collectively will hold an aggregate of 36,182,313 shares
and shares subject to vested options, has agreed not to:
o 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
o 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 these transactions are
to be settled by the delivery of common stock, or such other
securities, in cash or otherwise) for a period of 120 days after the
date of this prospectus without the prior written consent of Bear
Stearns and DLJ (and, in the case of management investors, Y&R),
except that:
o Y&R may grant stock options or stock awards under Y&R's existing
benefit or compensation plans;
o Y&R may issue shares of common stock upon the exercise of options,
warrants or rights or the conversion of currently outstanding
securities;
o 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;
o Y&R 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, by
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; and
o Y&R and any management investor may enter into any transaction or
arrangement pursuant to which Y&R withholds delivery of shares of
common stock (including shares of common stock (a) held in the
restricted stock trust under our restricted stock plan, as amended,
(b) held in the deferral trust under our deferred compensation plan
or (c) deliverable pursuant to the exercise of options) to any
management investor or accepts delivery of shares of common stock or
options to purchase shares of common stock from any management
investor to fund taxes due as a result of the exercise of options by
such management investor or as a result of the receipt of shares from
such trusts or to pay the exercise price in respect of options
exercised by such management investor.
In addition, during this period, Y&R has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors and certain stockholders of Y&R, including the selling stockholders,
has agreed not to make any demand for, or exercise any right with respect to,
the registration of any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock without the prior written
consent of Bear Stearns and DLJ.
Y&R has agreed with the Underwriters to enforce Y&R's rights under the
foregoing agreements to prohibit transfers of common
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stock and the making of demands for registration of common stock. In addition,
certain of the management investors hold an aggregate of 3,501,733 shares of
common stock in a deferral trust under the deferred compensation plan, which
shares are not transferable for a period of at least 120 days.
Under an Agreement Between U.S. Underwriters and International Managers
(the "Intersyndicate Agreement"), each U.S. Underwriter has represented and
agreed that, with certain exceptions:
o it is not purchasing any shares of common stock offered by this
prospectus for the account of anyone other than a United States or
Canadian Person (as defined below); and
o it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of common stock offered by this prospectus 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.
Under the Intersyndicate Agreement, each International Manager has
represented and agreed that, with certain exceptions:
o it is not purchasing any shares of common stock offered by this
prospectus for the account of any United States or Canadian Person;
and
o it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of common stock offered by this prospectus 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 (1) made by
it in its capacity as a U.S. Underwriter apply only to it in its capacity as a
U.S. Underwriter and (2) 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 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.
Under the Intersyndicate Agreement, sales may be made between the
syndicates of U.S. Underwriters and International Managers of a number of the
shares of common stock offered by this prospectus 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.
Under the Intersyndicate Agreement, each U.S. Underwriter has
represented and agreed that:
o it has not offered or sold and will not offer or sell, directly or
indirectly, any shares of common stock offered by this prospectus 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
o without limiting the generality of the foregoing, any offer or sale
of such shares of common stock in Canada will be made only under 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 by this prospectus a
notice stating in substance that by purchasing those shares of common stock
that dealer represents and agrees that:
o it has not offered or sold and will not offer or sell, directly or
indirectly, any of those shares of common stock in any province or
territory of Canada or to, or for the benefit
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of, any resident of any province or territory of Canada in
contravention of securities laws thereof;
o any offer or sale of those shares of common stock in Canada will be
made only under 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
o it will send to any other dealer to whom it sells any of those shares
of common stock a notice containing substantially the same statement
as is contained in this sentence.
Under the Intersyndicate Agreement, each International Manager has
represented and agreed that:
o 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 under the Underwriting Agreement, will not
offer or sell, any shares of common stock offered by this prospectus
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;
o 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 by this prospectus in,
from or otherwise involving the United Kingdom; and
o 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
common stock 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.
Under the Intersyndicate Agreement, each International Manager has
further represented and agreed that it has not offered or sold and will not
offer or sell, directly or indirectly, any shares of common stock acquired in
connection with the distribution contemplated by this prospectus 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 under 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 by this prospectus a notice stating
in substance that by purchasing such shares of common stock such dealer
represents and agrees that:
o it has not offered or sold and will not offer or sell, directly or
indirectly, any of those shares of 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 under 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
o 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 Y&R, the
selling stockholders or the Underwriters that would permit a public offering of
the shares of common stock offered by this prospectus in any jurisdiction where
action for that purpose is required. The shares of common stock offered by this
prospectus 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 that jurisdiction.
Persons into whose possession this prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the common stock
offerings and the distribution of this prospectus. This prospectus
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does not constitute an offer to sell or a solicitation of an offer to buy any
shares of common stock offered by this prospectus in any jurisdiction in which
such an offer or a solicitation is unlawful.
In order to facilitate the common stock offerings, the Underwriters
participating in the common stock offerings may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during
and after the common stock offerings. Specifically, the Underwriters may
over-allot or otherwise create a short position in the common stock for their
own account by selling more shares of common stock than have been sold to them
by Y&R. The Underwriters may elect to cover this short position by purchasing
shares of common stock in the open market or by exercising the over-allotment
options granted to the Underwriters. In addition, the Underwriters may
stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the common stock offerings are reclaimed if
shares previously distributed in the common stock offerings are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize the market price of the common stock at a
level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the common stock to
the extent that it discourages resales of the common stock. No representation
is made as to the magnitude or effect of any stabilization or other
transactions. These transactions, if commenced, may be discontinued at any
time.
Bear Stearns and DLJ from time to time perform investment banking and
other financial services for Y&R and its affiliates for which Bear Stearns and
DLJ may receive advisory or transaction fees, as applicable, plus out-of-pocket
expenses, of the nature and in amounts customary in the industry for these
financial services. Alan D. Schwartz, an Executive Vice President and Head of
the Investment Banking Department of Bear Stearns, is a member of the board of
directors. BearTel Corp., a wholly owned subsidiary of The Bear Stearns
Companies Inc., the parent company of Bear Stearns, is a selling stockholder in
the common stock offerings. See "Selling Stockholders."
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus
will be passed upon for Y&R by Cleary, Gottlieb, Steen & Hamilton, New York,
New York. Certain legal matters in connection with the common stock 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, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 included
in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1. This prospectus is a part of the registration statement
and does not contain all of the information set forth in the registration
statement. For further information with respect to Y&R and the common stock,
you should refer to the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document referred to in
this prospectus are not necessarily complete. Where a contract or other
document is an exhibit to the registration statement, each of those statements
is qualified in all respects by the provisions of the exhibit, to which
reference is hereby made.
We are required to file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may review the registration statement, as well as reports and other
information we have filed, without charge at the Commission's public reference
room at 450 Fifth
85
<PAGE>
Street, N.W., Washington, D.C. 20549. Copies may also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates or at the Commission's web site at
http://www.sec.gov. These materials may also be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005. For further
information on the operation of the public reference rooms, please call
1-800-SEC-0330. You may also review these statements 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.
86
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants ........................................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 ............................. F-3
Consolidated Statements of Operations for the three years ended December 31, 1998 ........ F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1998 ........ F-5
Consolidated Statements of Changes in Equity (Deficit) for the three years ended
December 31, 1998 ...................................................................... F-6
Notes to Consolidated Financial Statements ............................................... F-7
Quarterly Financial Information .......................................................... F-26
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 ....... F-27
Unaudited Consolidated Statements of Operations for the three months ended March 31, 1999
and 1998 ................................................................................ F-28
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 1999
and 1998 ................................................................................ F-29
Notes to Unaudited Consolidated Financial Statements ..................................... F-30
Financial Statement Schedule II--Valuation and Qualifying Accounts ....................... S-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Young & Rubicam Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
equity (deficit) present fairly, in all material respects, the financial
position of Young & Rubicam Inc. (the "Company") and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, 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.
PricewaterhouseCoopers LLP
New York, New York
February 16, 1999
F-2
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................................... $ 122,138 $ 160,263
Accounts receivable, net of allowance for doubtful accounts of $17,938 and $14,125 at
December 31, 1998 and 1997, respectively ............................................... 835,284 790,342
Costs billable to clients ............................................................... 55,187 60,267
Other receivables ....................................................................... 37,177 35,218
Deferred income taxes ................................................................... 46,803 32,832
Prepaid expenses and other assets ....................................................... 25,979 17,989
----------- -----------
Total Current Assets ................................................................... 1,122,568 1,096,911
----------- -----------
NONCURRENT ASSETS
Property and equipment, net ............................................................. 150,413 125,014
Deferred income taxes ................................................................... 158,646 124,192
Goodwill, less accumulated amortization of $84,292 and $80,166 at December 31, 1998
and 1997, respectively ................................................................. 120,075 116,637
Equity in net assets of and advances to unconsolidated companies ........................ 38,397 26,393
Other assets ............................................................................ 45,156 48,660
----------- -----------
Total Noncurrent Assets ................................................................ 512,687 440,896
----------- -----------
Total Assets ........................................................................... $ 1,635,255 $ 1,537,807
=========== ===========
CURRENT LIABILITIES
Loans payable ........................................................................... $ 31,365 $ 10,765
Accounts payable ........................................................................ 1,008,624 861,939
Accrued expenses and other liabilities .................................................. 203,099 235,253
Accrued payroll and bonuses ............................................................. 77,078 65,458
Income taxes payable .................................................................... 19,290 29,665
----------- -----------
Total Current Liabilities .............................................................. 1,339,456 1,203,080
----------- -----------
NONCURRENT LIABILITIES
Loans payable ........................................................................... 31,494 330,552
Deferred compensation ................................................................... 30,635 31,077
Other liabilities ....................................................................... 114,128 119,354
----------- -----------
Total Noncurrent Liabilities ........................................................... 176,257 480,983
----------- -----------
Commitments and Contingencies (Note 19) ..................................................
Minority Interest ........................................................................ 4,573 6,987
----------- -----------
MANDATORILY REDEEMABLE EQUITY SECURITIES
Common stock, par value $.01 per share; authorized--250,000,000 shares; issued and
outstanding--0 shares and 50,658,180 shares at December 31, 1998 and 1997,
respectively ........................................................................... -- 508,471
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Money Market Preferred Stock--cumulative variable dividend; liquidating value of
$115 per share; one-tenth of one vote per share; authorized--50,000 shares; issued
and outstanding--87 shares at December 31, 1998 and 1997 ............................... -- --
Cumulative Participating Junior Preferred Stock--minimum $1.00 dividend;
liquidating value of $1.00 per share; 100 votes per share; authorized--2,500,000
shares; issued and outstanding--0 shares at December 31, 1998 and 1997 ................. -- --
Common stock, par value $.01 per share; authorized--250,000,000 shares; issued and
outstanding--66,374,569 shares and 11,086,950 shares at December 31, 1998 and
1997, respectively (excluding 3,976,941 shares and 1,115,160 shares in treasury) ....... 704 111
Capital surplus ......................................................................... 934,676 23,613
Accumulated deficit ..................................................................... (758,292) (522,866)
Cumulative translation adjustment ....................................................... (10,810) (16,577)
Pension liability adjustment ............................................................ (1,738) (706)
----------- -----------
164,540 (516,425)
Common stock in treasury, at cost ....................................................... (49,571) (8,550)
Unearned compensation--Restricted Stock ................................................. -- (136,739)
----------- -----------
Total Stockholders' Equity (Deficit) ................................................... 114,969 (661,714)
----------- -----------
Total Liabilities, Mandatorily Redeemable Equity Securities and Stockholders'
Equity (Deficit) .................................................................... $ 1,635,255 $ 1,537,807
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues .................................................... $ 1,522,464 $ 1,382,740 $1,222,139
Compensation expense, including employee benefits ........... 903,948 836,150 730,261
General and administrative expenses ......................... 455,578 463,936 391,617
Other operating charges ..................................... 234,449 11,925 17,166
Recapitalization-related charges ............................ -- -- 315,397
----------- ----------- ----------
Operating expenses .......................................... 1,593,975 1,312,011 1,454,441
----------- ----------- ----------
(Loss) income from operations ............................... (71,511) 70,729 (232,302)
Interest income ............................................. 8,315 8,454 10,269
Interest expense ............................................ (26,001) (42,879) (28,584)
Other income ................................................ 2,200 -- --
----------- ----------- ----------
(Loss) income before income taxes ........................... (86,997) 36,304 (250,617)
Income tax (benefit) provision .............................. (2,644) 58,290 (20,611)
----------- ----------- ----------
(84,353) (21,986) (230,006)
Equity in net income (loss) of unconsolidated companies 4,707 342 (9,837)
Minority interest in net (income) loss of consolidated
subsidiaries ............................................... (1,989) (2,294) 1,532
----------- ----------- ----------
Loss before extraordinary charge ............................ (81,635) (23,938) (238,311)
Extraordinary charge for early retirement of debt, net of
tax benefit of $2,834 ...................................... (4,433) -- --
----------- ----------- ----------
Net loss .................................................... $ (86,068) $ (23,938) $ (238,311)
=========== =========== ==========
Loss per share (basic and diluted):
Loss before extraordinary charge ........................... $ (1.34) $ (0.51)
Extraordinary charge ....................................... (0.08) --
----------- -----------
Net loss ................................................... $ (1.42) $ (0.51)
=========== ===========
Weighted average shares outstanding (Note 3) ................ 60,673,994 46,949,355
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
---------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................................... $ (86,068) $ (23,938) $ (238,311)
Adjustments to reconcile net loss to net cash provided by operating activities:
Recapitalization-related charges ................................................ -- -- 315,397
Depreciation and amortization ................................................... 60,610 56,721 53,030
Extraordinary charge, net ....................................................... 4,433 -- --
Other operating charges ......................................................... 234,449 11,925 11,096
Deferred income tax benefit ..................................................... (38,664) (384) (59,671)
Equity in net (income) loss of unconsolidated companies ......................... (4,707) (342) 9,837
Dividends from unconsolidated companies ......................................... 3,467 2,728 2,691
Minority interest in net income (loss) of consolidated subsidiaries ............. 1,989 2,294 (1,532)
Change in assets and liabilities, excluding effects from acquisitions,
dispositions, recapitalization and foreign exchange:
Accounts receivable ............................................................. (29,398) 42,144 (209,518)
Costs billable to clients ....................................................... 5,418 15,834 7,784
Other receivables ............................................................... (2,346) 13,930 (2,883)
Prepaid expenses and other assets ............................................... (6,702) 269 8,776
Accounts payable ................................................................ 87,290 69,324 256,460
Accrued expenses and other liabilities .......................................... (29,374) (15,368) (7,565)
Accrued payroll and bonuses ..................................................... 8,869 2,179 3,192
Income taxes payable ............................................................ (10,652) 19,352 4,263
Deferred compensation ........................................................... 3,234 13,052 4,950
Other ........................................................................... (6,233) 14,791 20,068
----------- ---------- -----------
Net cash provided by operating activities ........................................ $ 195,615 $ 224,511 $ 178,064
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............................................. $ (76,378) $ (51,899) $ (51,792)
Acquisitions, net of cash acquired .............................................. (17,423) (11,281) (23,887)
Investment in net assets of and advances to unconsolidated companies ............ (7,072) (5,640) (775)
Proceeds from notes receivable .................................................. 1,190 1,678 360
----------- ---------- -----------
Net cash used in investing activities ............................................ $ (99,683) $ (67,142) $ (76,094)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable, long-term .......................................... 225,834 226,770 319,282
Repayment of loans payable, long-term ........................................... (524,883) (105,870) (252,496)
Proceeds from loans payable, short-term, net .................................... 71,997 20,103 27,849
Proceeds from issuance of common stock in initial public offering, net .......... 158,637 -- --
Deferred financing costs ........................................................ (667) -- (9,157)
Recapitalization cash contributions ............................................. -- -- 242,007
Recapitalization payments ....................................................... -- (247,789) (323,920)
Payments of non-recapitalization deferred compensation .......................... (3,535) (1,118) (11,624)
Common stock/LPUs issued ........................................................ 7,995 10,390 4,163
Common stock/LPUs repurchased ................................................... (60,956) (1,500) (8,971)
Payment of installment notes, net ............................................... (8,883) -- --
Other financing activities ...................................................... (1,781) 347 253
----------- ---------- -----------
Net cash used in financing activities ............................................ $ (136,242) $ (98,667) $ (12,614)
----------- ---------- -----------
Effect of exchange rate changes on cash and cash equivalents ..................... 2,185 (8,619) (822)
Net (decrease) increase in cash and cash equivalents ............................. (38,125) 50,083 88,534
Cash and cash equivalents, beginning of period ................................... 160,263 110,180 21,646
----------- ---------- -----------
Cash and cash equivalents, end of period ......................................... $ 122,138 $ 160,263 $ 110,180
=========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................................................... $ 29,439 $ 39,986 $ 28,612
=========== ========== ===========
Income taxes paid ............................................................... $ 36,288 $ 25,020 $ 20,732
=========== ========== ===========
NONCASH INVESTING ACTIVITY:
Common stock issued in acquisition .............................................. $ -- $ 1,126 $ --
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
<TABLE>
<CAPTION>
LIMITED
NON-VOTING VOTING PARTNERS'
PREFERRED COMMON COMMON CONTRIBUTED CAPITAL
STOCK STOCK STOCK EQUITY SURPLUS
----------- ------------ ----------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 .............. $ 66 $ 4,000 $ -- $ 2,536 $ 57,103
==== ======== ===== ======== ==========
Net loss .................................. -- -- -- -- --
Foreign currency translation
adjustments .............................. -- -- -- -- --
Minimum pension liability adjustments...... -- -- -- -- --
---- -------- ----- -------- ----------
Comprehensive income (loss) .............. -- -- -- -- --
Dividends paid ............................ -- -- -- -- --
Common stock/Limited Partnership
Units issued ............................. 3 -- -- 4,067 13,269
Limited Partnership Units
repurchased/capital distributions ........ -- -- -- (2,370) --
Common stock repurchased .................. (2) -- -- -- (14,699)
Recapitalization redemptions .............. (67) (3,900) -- (1,534) (36,435)
Recapitalization issuances ................ -- -- 427 -- 326,590
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
====== ======== ===== ======== ==========
Net loss .................................. -- -- -- -- --
Foreign currency translation
adjustments .............................. -- -- -- -- --
Minimum pension liability adjustments...... -- -- -- -- --
------ -------- ----- -------- ----------
Comprehensive income (loss) .............. -- -- -- -- --
Common stock issued ....................... -- -- -- -- 1,501
Common stock repurchased .................. -- -- -- -- --
Unearned compensation -- Restricted
Stock .................................... -- -- -- -- 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
====== ======== ===== ======== ==========
Net loss .................................. -- -- -- -- --
Foreign currency translation
adjustments .............................. -- -- -- -- --
Minimum pension liability adjustments...... -- -- -- -- --
------ -------- ----- -------- ----------
Comprehensive income (loss) .............. -- -- -- -- --
Issuance of Restricted Stock .............. -- -- -- -- 94,039
Common stock options exercised and
other .................................... -- -- 17 -- 1,134
Common stock repurchased .................. -- -- -- -- --
Issuance of common stock in initial
public offering, net of expenses ......... -- -- 69 -- 158,568
Accretion of Mandatorily Redeemable
Equity Securities ........................ -- -- (3) -- (137,942)
Conversion of Mandatorily
Redeemable Equity Securities ............. -- -- 510 -- 795,264
------ -------- ------- -------- ----------
BALANCE AT DECEMBER 31, 1998 .............. $ -- $ -- $ 704 $ -- $ 934,676
====== ======== ======= ======== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RETAINED AND
UNDISTRIBUTED ACCUMULATED
EARNINGS COMMON OTHER
(ACCUMULATED STOCK IN RESTRICTED COMPREHENSIVE
DEFICIT) TREASURY STOCK INCOME TOTAL
--------------- ------------- -------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 .............. $ 17,636 $ (3,317) $ -- $ (22,539) $ 55,485
=========== ========= =========== ========== ===========
Net loss .................................. (238,311) -- -- -- (238,311)
Foreign currency translation
adjustments .............................. -- -- -- (3,565) (3,565)
Minimum pension liability adjustments...... -- -- -- 23,063 23,063
----------- --------- ----------- ---------- -----------
Comprehensive income (loss) .............. (238,311) -- -- 19,498 (218,813)
Dividends paid ............................ (696) -- -- -- (696)
Common stock/Limited Partnership
Units issued ............................. -- 61 -- -- 17,400
Limited Partnership Units
repurchased/capital distributions ........ (3,329) -- -- -- (5,699)
Common stock repurchased .................. (8,863) (123) -- -- (23,687)
Recapitalization redemptions .............. (265,365) 3,379 -- -- (303,922)
Recapitalization issuances ................ -- -- (85,000) -- 242,017
Recapitalization exchanges ................ -- -- -- -- 119,876
Mandatorily Redeemable Equity
Securities ............................... -- -- -- -- (363,264)
Equityholder loans ........................ -- -- -- -- 1,270
----------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1996 .............. $ (498,928) $ -- $ (85,000) $ (3,041) $ (480,033)
=========== ========= =========== ========== ===========
Net loss .................................. (23,938) -- -- -- (23,938)
Foreign currency translation
adjustments .............................. -- -- -- (14,255) (14,255)
Minimum pension liability adjustments...... -- -- -- 13 13
----------- --------- ----------- ---------- -----------
Comprehensive income (loss) .............. (23,938) -- -- (14,242) (38,180)
Common stock issued ....................... -- -- -- -- 1,501
Common stock repurchased .................. -- (8,550) -- -- (8,550)
Unearned compensation -- Restricted
Stock .................................... -- -- (51,739) -- --
Common stock options exercised ............ -- -- -- -- 8,755
Accretion of Mandatorily Redeemable
Equity Securities ........................ -- -- -- -- (145,207)
----------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1997 .............. $ (522,866) $ (8,550) $ (136,739) $ (17,283) $ (661,714)
=========== ========= =========== ========== ===========
Net loss .................................. (86,068) -- -- -- (86,068)
Foreign currency translation
adjustments .............................. -- -- -- 5,767 5,767
Minimum pension liability adjustments...... -- -- -- (1,032) (1,032)
----------- --------- ----------- ---------- -----------
Comprehensive income (loss) .............. (86,068) -- -- 4,735 (81,333)
Issuance of Restricted Stock .............. -- -- 136,739 -- 230,778
Common stock options exercised and
other .................................... -- 19,935 -- -- 21,086
Common stock repurchased .................. -- (60,956) -- -- (60,956)
Issuance of common stock in initial
public offering, net of expenses ......... -- -- -- -- 158,637
Accretion of Mandatorily Redeemable
Equity Securities ........................ (149,358) -- -- -- (287,303)
Conversion of Mandatorily
Redeemable Equity Securities ............. -- -- -- -- 795,774
----------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1998 .............. $ (758,292) $ (49,571) $ -- $ (12,548) $ 114,969
=========== ========= =========== ========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (1)--OPERATIONS AND BASIC 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, branding consultation
and design, sales promotion, direct marketing and healthcare communications.
The Company operates in the United States, Canada, Europe, Latin America and
Asia/Pacific as well as through certain affiliations in other parts of the
world.
BASIC OF PRESENTATION: On December 12, 1996, the Company effected a
recapitalization (the "Recapitalization") of Young & Rubicam Inc., a New York
corporation (the "Predecessor Company"). 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 6). References herein to
the "Company" refer to the Predecessor Company prior to December 12, 1996 and
Young & Rubicam Inc. thereafter unless the context indicates otherwise. Certain
reclassifications have been made to the prior years' financial statements to
conform to the 1998 presentation.
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. Investments in affiliates in which the
Company has significant influence, but not a controlling interest, are
accounted for under the equity method. All significant intercompany
transactions are eliminated.
CASH EQUIVALENTS: The Company considers all highly liquid instruments with
an initial maturity of three months or less to be cash equivalents at the time
of purchase. The Company records book overdrafts in accounts payable. Accounts
payable included $51.8 million and $41.0 million of book overdrafts as of
December 31, 1998 and 1997, respectively.
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 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.
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 over a period not exceeding 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
reinvested indefinitely.
STOCK-BASED COMPENSATION: SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), encourages entities to account for employee stock
options or similar equity instruments using a fair value approach. However, it
also allows an entity to continue to measure compensation costs 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
F-7
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
account for such plans under the provisions of APB Opinion No. 25 and has
included, in Note 18, 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: 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 separate component of stockholders'
equity. 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 recorded in general and administrative expenses.
Net remeasurement losses resulting from operations in highly inflationary
economies were $1.4 million, $2.6 million and $1.7 million in 1998, 1997 and
1996, respectively. Foreign currency transaction gains and losses are also
recorded in general and administrative expenses. The Company recorded net
foreign currency transaction losses of $12 thousand, $1.3 million and $0.9
million in 1998, 1997 and 1996, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS: 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,"
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. Allowances 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 are highly rated instruments. Additionally, 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 10%, 10% and 9% of consolidated revenues for the years ended
December 31, 1998, 1997 and 1996, 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 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS
F-8
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
133"), which is required to be adopted in years beginning after June 15, 1999.
The Company anticipates that the adoption of SFAS 133 will not have a
significant effect on the financial condition of the Company.
NOTE (3)--NET LOSS PER COMMON SHARE
Basic net loss per share is calculated by dividing net loss by the
weighted average shares of common stock outstanding during the years ended
December 31, 1998 and 1997. Diluted earnings per share would reflect the
dilutive effect of stock options and other stock awards granted to employees
under stock-based compensation plans in periods where the effect would not be
antidilutive.
As of December 31, 1998, there were approximately 30.1 million common
stock options outstanding that could potentially dilute basic earnings per
share in the future that were excluded from the computation of diluted net loss
per share because the effect would be antidilutive.
In computing basic net loss per share for the year ended December 31,
1997, the Company's 11.1 million shares of restricted stock were excluded from
the weighted average number of common shares outstanding. Such shares vested
upon the consummation of the Company's initial public offering of common stock
on May 15, 1998, a condition which was not satisfied at December 31, 1997 (see
Note 4).
Earnings per share for the year ended December 31, 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 6).
NOTE (4)--INITIAL PUBLIC OFFERING
On May 15, 1998, the Company closed an initial public offering of its
common stock (the "Offering"). An aggregate of 19,090,000 shares (including
2,490,000 shares subject to the underwriters' overallotment option) of the
Company's common stock was offered to the public, of which 6,912,730 shares
were sold by the Company and 12,177,270 shares were sold by certain selling
stockholders. Net proceeds to the Company were $158.6 million, after deducting
underwriting discounts and commissions and expenses paid by the Company in
connection with the Offering. The Company did not receive any proceeds from the
sale of common stock by the selling stockholders. The Company used the net
proceeds from the Offering together with $155 million of borrowings under a new
credit facility to repay all of the outstanding borrowings under its then
existing $700 million senior secured credit facility.
Upon the consummation of the Offering, 9,231,105 shares of common stock
("Restricted Stock") held in a restricted stock trust vested and resulted in
non-recurring, non-cash, pre-tax compensation charges of $234.4 million which
have been reflected as other operating charges in the Company's consolidated
statement of operations for the year ended December 31, 1998. The Company
redeemed the remaining 1,855,845 shares of Restricted Stock held in the
restricted stock trust upon the consummation of the Offering. At December 31,
1997, the Company had recorded unearned compensation of $136.7 million,
representing the fair value of the Restricted Stock.
NOTE (5)--COMMON STOCK DIVIDEND
On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares (the "Stock Dividend") of common stock payable for each share of common
stock outstanding, which dividend became effective and was paid on May 11,
1998, the effective date of the Registration Statement filed on Form S-1 for
the Offering. The Company's historical financial statements have been presented
to give retroactive effect to the Stock Dividend. In addition, the number of
shares of common stock the Company is authorized to issue was increased from
10,000,000 to 250,000,000 and the number of
F-9
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
authorized preferred shares was increased from 50,000 to 10,000,000. Of the
authorized preferred shares, 50,000 shares have been designated as Money Market
Preferred Stock and 2,500,000 shares have been designated as Cumulative
Participating Junior Preferred Stock.
NOTE (6)--RECAPITALIZATION
On December 12, 1996, the Recapitalization of Young & Rubicam Inc., a New
York corporation (the "Predecessor Company") was effected, whereby (a) the
Predecessor Company, Young & Rubicam Holdings Inc. ("Holdings"), or
subsidiaries of the Predecessor Company (i) acquired 2,058,678 of the 2,458,102
outstanding shares of Predecessor Company common stock for an amount equal to
$115 per share less the principal and accrued interest of any outstanding loans
relating to such shares (which loans were thereby repaid), (ii) acquired
760,232 of the 1,869,682 outstanding Limited Partnership Units of the LP
("LPUs") together with any related subordinated promissory notes of the
Predecessor Company for an amount equal to $115 per LPU less the principal and
accrued interest of any outstanding loans relating to such LPUs (which loans
were thereby repaid); (iii) canceled 332,636 of the 690,249 common stock
options and 596,448 of the 1,600,414 LPU options (collectively, the
"Nonrollover Options") and all outstanding Growth Participation Units ("GPUs")
for cash consideration of $115 per unit less the aggregate option exercise
price and (iv) exchanged for, or canceled in consideration of, the remaining
outstanding common stock, LPUs and options on common stock and LPUs held by
certain members of the management of the Predecessor Company (the "Management
Investors") for 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) 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) (the "HFCP Options"), and (c) senior secured credit facilities of
$700 million were arranged.
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 held by U.S.-based equity holders occurred in March 1997.
Under a stockholders' agreement entered into in connection with the
Recapitalization (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.
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.
F-10
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As a result of the Recapitalization, the Company recorded charges of
$315.4 million, primarily related to compensation. A summary of the significant
Recapitalization-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 per share ($28.75 per share prior to the Stock
Dividend), with certain limited exceptions outside of the United States. As
a result of the change in the terms of the former stock option plan, which
resulted in a new measurement date, the Company recognized compensation
expense of $96.7 million representing the difference between the
transaction price per Rollover Option of $7.67 per share ($115 per share
prior to the Stock Dividend) and the aggregate exercise price of the
Rollover Options.
(4) Professional fees and other charges amounted to approximately $69.0
million.
NOTE (7)--EQUITY IN NET ASSETS OF UNCONSOLIDATED COMPANIES
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- -------------------------
EQUITY EQUITY EQUITY
EQUITY IN IN NET EQUITY IN IN NET EQUITY IN IN NET
OWNERSHIP NET INCOME NET INCOME NET INCOME
AFFILIATE INTEREST ASSETS (LOSS) ASSETS (LOSS) ASSETS (LOSS)
- ---------------------------------- --------------- ----------- ---------- ----------- ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Dentsu, Y&R Partnerships ......... Generally 50% $ 27,790 $ 2,389 $ 17,510 $ 2,587 $12,954 $ (9,181)
J.M.C. Creatividad Orientada
(Venezuela) ..................... 49% 1,474 412 953 (1,515) 2,471 (2,038)
Prolam (Chile) ................... 30% 3,075 950 2,851 825 2,656 262
Eco S.A. (Guatemala) ............. 40% 2,085 (75) 2,206 96 2,134 26
Cresswell, Munsell, Fultz &
Zirbel (United States) .......... 33% 2,183 500 1,922 508 1,635 624
National Public Relations
(Canada) ........................ 22% 527 (19) 647 98 607 204
Other ............................ 50% or less 1,263 550 304 (2,257) 2,762 266
-------- ------- -------- -------- ------- ---------
$ 38,397 $ 4,707 $ 26,393 $ 342 $25,219 $ (9,837)
======== ======= ======== ======== ======= =========
</TABLE>
F-11
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The summarized financial information below represents an aggregation of
the Company's unconsolidated companies.
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS DATA
Revenues ....................... $ 218,973 $ 207,668 $ 238,810
Income from operations ......... 22,320 13,768 22,132
Net income (loss) .............. 15,424 4,347 (16,097)
BALANCE SHEET DATA
Current assets ................. $ 317,916 $ 321,372 $ 348,325
Noncurrent assets .............. 60,624 40,147 33,996
Current liabilities ............ 266,090 287,101 323,406
Noncurrent liabilities ......... 17,023 13,215 11,683
Equity ......................... 95,427 61,203 47,232
</TABLE>
NOTE (8)--ACQUISITIONS AND INVESTMENTS
The Company acquires and makes investments in certain entities related to
its business if it believes it is strategically beneficial to do so. The
Company acquired, both domestically and internationally, full or partial
interests in certain entities and obtained additional interests in certain
partially owned entities for an aggregate purchase price of $17.6 million,
$14.7 million and $26.8 million during 1998, 1997 and 1996, respectively. In
1998, acquisitions included the Company's purchase of a multi-cultural
advertising agency and certain other assets located in the United States.
In addition, effective January 1, 1997, the Company acquired an additional
37.5% equity interest in the 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.
NOTE (9)--OTHER OPERATING CHARGES
During 1998, the Company recorded $234.4 million in other operating
charges incurred in connection with the Offering. During 1997 and 1996, the
Company recorded $11.9 million and $17.2 million, respectively, in other
operating charges for certain asset impairment writedowns.
F-12
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE (10)--PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are comprised of the
following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
USEFUL LIVES 1998 1997
--------------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings ........................ 20-40 years $ 29,706 $ 29,716
Furniture, fixtures and equipment ......... 3-10 years 252,673 235,836
Leasehold improvements .................... Shorter of 10 years 93,797 77,804
or life of lease
Automobiles ............................... 3-5 years 5,892 6,609
--------- ---------
382,068 349,965
--------- ---------
Less--Accumulated depreciation and
amortization ............................ 231,655 224,951
--------- ---------
$ 150,413 $ 125,014
========= =========
</TABLE>
During 1998, 1997 and 1996, depreciation expense amounted to $49.2
million, $47.6 million, and $42.0 million, respectively.
NOTE (11)--INCOME TAXES
The components of (loss) income before income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
--------------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic .............. $ (127,325) $12,304 $ (242,578)
Foreign ............... 40,328 24,000 (8,039)
----------- ------- -----------
Total ................. $ (86,997) $36,304 $ (250,617)
=========== ======= ===========
</TABLE>
The following summarizes the (benefit) provision for income taxes:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal .................................. $ 3,938 $ 18,195 $ 16,993
State and local .......................... 3,512 4,220 3,921
Foreign .................................. 28,570 36,259 18,146
--------- --------- ----------
36,020 58,674 39,060
========= ========= ==========
DEFERRED:
Federal .................................. (28,126) 7,547 (51,363)
State and local .......................... (6,415) 2,472 (22,111)
Foreign .................................. (4,123) (10,403) 13,803
--------- --------- ----------
(38,664) (384) (59,671)
--------- --------- ----------
(Benefit) provision for income taxes ..... $ (2,644) $ 58,290 $ (20,611)
========= ========= ==========
</TABLE>
F-13
<PAGE>
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,
------------------------------------------
1998 1997 1996
------------- ---------- -------------
<S> <C> <C> <C>
PERCENT OF (LOSS) INCOME BEFORE INCOME TAXES
United States statutory rate ................................ (35.0)% 35.0% (35.0)%
Effect of Offering* ......................................... 32.1 -- --
State and local income taxes, net of federal tax effect ..... ( 6.3) 17.1 ( 4.5)
Foreign income taxed greater than the United States
statutory rate ............................................ 7.2 107.2 15.2
Change in valuation allowance and related components ........ ( 2.8) (13.1) 5.9
Amortization of goodwill .................................... 0.7 8.5 2.1
Travel, entertainment and other non-deductible expenses . 1.2 6.2 8.4
Other, net .................................................. ( 0.1) ( 0.3) ( 0.3)
----- ----- -----
Consolidated effective tax rate ............................. ( 3.0)% 160.6% ( 8.2)%
===== ===== =====
</TABLE>
- ----------
* Represents charges related to the Offering for which the Company has
determined it will receive little or no tax benefit.
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 $59.1 million
at December 31, 1998. No provision has been recorded for the United States in
respect of foreign taxes that could result from the remittance of such
undistributed earnings since the earnings are permanently reinvested outside
the United States and it is not practicable to estimate the amount of such
taxes. Withholding taxes of approximately $8.1 million would be payable upon
remittance of all previously unremitted earnings at December 31, 1998.
The components of the Company's net deferred income tax assets are:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Allowance for doubtful accounts ............ $ 4,274 $ 3,118
Net operating loss carryforwards ........... 45,126 32,797
Deferred compensation ...................... 2,424 1,172
--------- ---------
51,824 37,087
Valuation allowance ........................ (5,021) (4,255)
--------- ---------
Current portion ............................ 46,803 32,832
Deferred compensation ...................... 53,501 40,650
Depreciable and amortizable assets ......... 30,417 30,561
Long-term leases ........................... 7,377 7,436
Postretirement benefits .................... 3,570 3,654
Other non-current items .................... 11,801 11,989
Net operating loss carryforwards ........... 65,300 42,338
Tax credit carryforwards ................... 3,658 3,658
--------- ---------
175,624 140,286
Valuation allowance ........................ (16,978) (16,094)
--------- ---------
Non-current portion ........................ 158,646 124,192
Net deferred income tax assets ............. $ 205,449 $ 157,024
========= =========
</TABLE>
F-14
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company's net deferred income tax assets arise from temporary
differences which represent the cumulative deductible or taxable amounts
recorded in the financial statements in different years than recognized in the
tax returns. The majority of the temporary differences result from expenses
accrued for financial reporting purposes which are not deductible for tax
purposes until actually paid and net operating losses.
The net operating loss ("NOL") carryforwards represent the benefit
recorded for U.S., state and local, and foreign NOLs. At December 31, 1998, the
Company had approximately $258.3 million of NOL carryforwards for U.S. tax
purposes which expire in the year 2018 and approximately $91.4 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. Valuation allowances of $22.0 million
and $20.4 million were recorded at December 31, 1998 and 1997, respectively.
The valuation allowances represent a provision for uncertainty as to the
realization of certain deferred tax assets, including NOL 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 (12)--WORLDWIDE OPERATIONS
The Company conducts and manages its business using an integrated,
multi-disciplinary approach. It operates as a single agency network, allowing
the Company to centrally manage and utilize its resources. The Company operates
in one business segment: global marketing and communications. Amounts related
to specified geographic areas are as follows:
<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER TOTAL
--------------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
Revenues ............. $775,700 $532,404 $214,360 $1,522,464
Total assets ......... 844,070 589,128 202,057 1,635,255
1997
Revenues ............. $661,367 $472,225 $249,148 $1,382,740
Total assets ......... 697,250 582,424 258,133 1,537,807
1996
Revenues ............. $571,155 $444,644 $206,340 $1,222,139
Total assets ......... 819,828 533,318 245,666 1,598,812
</TABLE>
NOTE (13)--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 based on 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
F-15
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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").
Total contributions to the Plan made in 1998 and 1997 were $10.0 million
and $6.6 million, respectively. Pursuant to an agreement with the PBGC, the
Company has also agreed to make 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 $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.
Plans are funded in accordance with the laws of the countries where the plans
are in effect and, in accordance with such local statutory requirements, may
have no plan assets.
A summary of the components of net periodic pension costs for the defined
benefit plans is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1998 1997
------------------------------------ --------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
------------ ---------- ------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service costs for benefits
earned during the period $ 3,801 $ 543 $ 4,344 $ 2,671 $ 550 $ 3,221
Interest costs on projected
benefit obligation ........... 9,151 722 9,873 8,804 789 9,593
Expected return on plan
assets ....................... (10,263) -- (10,263) (9,281) -- (9,281)
Amortization of prior
service benefit .............. (411) -- (411) (411) -- (411)
Amortization of transition
(asset)/obligation ........... (61) 80 19 (61) 82 21
Recognized actuarial loss ..... 1,910 69 1,979 1,057 68 1,125
---------- ------- ---------- -------- ------- --------
Net periodic pension cost
of the plans ................. $ 4,127 $ 1,414 $ 5,541 $ 2,779 $ 1,489 $ 4,268
========== ======= ========== ======== ======= ========
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1996
--------------------------------
U.S. NON-U.S. TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs for benefits
earned during the period $ 2,834 $ 674 $ 3,508
Interest costs on projected
benefit obligation ........... 8,488 893 9,381
Expected return on plan
assets ....................... (7,561) -- (7,561)
Amortization of prior
service benefit .............. (107) -- (107)
Amortization of transition
(asset)/obligation ........... (61) 96 35
Recognized actuarial loss ..... 2,327 92 2,419
-------- ------- --------
Net periodic pension cost
of the plans ................. $ 5,920 $ 1,755 $ 7,675
======== ======= ========
</TABLE>
F-16
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Changes in the benefit obligation and plan assets are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------------
U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL
------------ -------------- ----------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year .......... $ 130,036 $ 10,753 $ 140,789 $ 114,710 $ 12,198 $ 126,908
Service costs ................................... 3,801 543 4,344 2,671 550 3,221
Interest costs .................................. 9,151 722 9,873 8,804 789 9,593
Foreign currency exchange rate loss/(gain) ...... -- 888 888 -- (1,770) (1,770)
Actuarial loss/(gain) ........................... 6,958 716 7,674 10,874 (241) 10,633
Benefits paid ................................... (11,530) (717) (12,247) (7,023) (773) (7,796)
--------- ---------- --------- --------- --------- ---------
Benefit obligation at end of year ................ 138,416 12,905 151,321 130,036 10,753 140,789
--------- ---------- --------- --------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year,
primarily fixed income and equity securities .... 129,421 -- 129,421 114,264 -- 114,264
Actual return on plan assets .................... 11,309 -- 11,309 15,558 -- 15,558
Company contributions ........................... 10,000 717 10,717 6,622 773 7,395
Benefits paid ................................... (11,530) (717) (12,247) (7,023) (773) (7,796)
--------- ---------- --------- --------- --------- ---------
Fair value of plan assets at end of year ......... 139,200 -- 139,200 129,421 -- 129,421
--------- ---------- --------- --------- --------- ---------
Funded status .................................... 784 (12,905) (12,121) (615) (10,753) (11,368)
Unrecognized net transition (asset) obligation ... (103) 425 322 (164) 471 307
Unrecognized prior service benefit ............... (2,131) -- (2,131) (2,542) -- (2,542)
Unrecognized net loss ............................ 20,354 2,029 22,383 16,352 1,260 17,612
Additional liability ............................. -- (1,738) (1,738) -- (706) (706)
--------- ---------- --------- --------- --------- ---------
Prepaid (accrued) pension costs for defined bene-
fit plans ....................................... $ 18,904 $ (12,189) $ 6,715 $ 13,031 $ (9,728) $ 3,303
========= ========== ========= ========= ========= =========
</TABLE>
Assumptions used were:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996
-------------------------- --------------------------- --------------------------
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 ......... 7.0% 5.5%-6.0% 7.25% 6.5%-7.0% 8.0% 7.0%-8.0%
Rate of increase in compensation
levels .............................. 5.0% 2.5%-4.0% 5.0% 3.5%-5.0% 5.5% 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>
The Company recorded liabilities of $1.7 million and $0.7 million at
December 31, 1998 and 1997, respectively, for the portion of its unfunded
pension liabilities that had not been recognized as expense with corresponding
adjustments to equity.
Contributions to foreign defined contribution plans were $7.2 million,
$7.5 million and $6.2 million in 1998, 1997 and 1996, 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 $8.4 million, $7.8 million and
$7.0 million in 1998, 1997 and 1996, respectively.
F-17
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At December 31, 1998 and 1997, other non-current liabilities include $8.6
million and $7.9 million relating to postretirement and postemployment benefits
other than pensions.
The Company maintains certain deferred cash incentive plans which are
either tied to operating performance or contractual deferred compensation
agreements. The costs of these compensation plans were expensed over the
applicable service period. At December 31, 1998 and 1997, included in
non-current liabilities were deferred compensation liabilities of $30.6 million
and $31.1 million, respectively.
NOTE (14)--INSTALLMENT PAYMENT OBLIGATIONS
Effective through the closing of the Offering, pursuant to the
Stockholders' Agreement, the Company was able, at its election, to pay for
shares purchased from Management Investors pursuant to a call or put at the
applicable call price or applicable put price in up to four equal installments.
Pursuant to the Stockholders' Agreement, effective at the time of the Offering,
the Company no longer had the right or obligation to pay for shares purchased
from Management Investors pursuant to a call or put. The Company also
accelerated the payment of substantially all of the outstanding installment
notes to June 30, 1998. At December 31, 1998, other current and non-current
liabilities include installment notes payable of $0.7 million and $0.4 million,
respectively. At December 31, 1997, other current and non-current liabilities
include installment notes payable of $3.2 million and $6.5 million,
respectively.
NOTE (15)--LOANS PAYABLE
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 $31.4 million and $10.8 million include
short-term portions of long-term loans payable of $0.5 million and $1.2 million
at December 31, 1998 and 1997, respectively.
Long-term loans payable are comprised of the following at December 31:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1997
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Unsecured revolving credit facility ......... $ 31,460 $ --
Senior secured credit facility .............. -- 330,552
Capital lease obligations ................... 34 404
Other borrowings ............................ 462 818
-------- ---------
31,956 331,774
Less -- Current portion ..................... 462 1,222
-------- ---------
$ 31,494 $ 330,552
======== =========
</TABLE>
On May 15, 1998, the Company entered into a $400 million, five-year
unsecured multicurrency revolving credit facility (the "Credit Facility") and
used the net proceeds from the Offering together with $155 million of
borrowings under the Credit Facility to repay all outstanding borrowings
outstanding under its then existing $700 million senior secured credit
facility. Approximately $7.3 million of unamortized deferred financing costs
related to the replaced credit facility were charged to expense and have been
reflected as an extraordinary charge, net of an applicable tax benefit of
approximately $2.8 million, in the Company's consolidated statement of
operations for the year ended December 31, 1998.
The Credit Facility permits borrowings of up to $400 million. Amounts due
under the Credit Facility are required to be repaid on May 15, 2003. The
Company is required to pay varying rates of interest, generally based on LIBOR
plus an applicable margin ranging from 0.275% to 0.3%
F-18
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
depending on its leverage ratio, or the Federal Funds Rate plus 0.5%. The
Company is also required to pay a facility fee depending on its leverage ratio
ranging from 0.125% and 0.2% per annum. In 1998, the total facility fee under
the Credit Facility was $0.4 million.
Under the Credit Facility, the Company is subject to certain financial and
operating restrictions and covenant requirements, including a maximum leverage
ratio and a minimum interest coverage requirement.
At December 31, 1998 and 1997, the Company had entered into interest rate
protection agreements with respect to $31.5 million and $275 million of its
indebtedness, respectively, which expire at various times through 2001 and
result in the Company paying, on a quarterly basis, fixed interest amounts from
6.0% to 6.5%. The weighted average interest rate on outstanding debt, including
the effect of interest rate swap contracts, was 6.27% and 6.875% for the years
ended December 31, 1998 and 1997, respectively.
The interest expense amount for the year ended December 31, 1996 includes
prepayment penalties of $2.9 million related to certain prior outstanding
indebtedness.
At December 31, 1998, the Company had $543 million in availability under
its commercial lines of credit ($435 million in the United States and $108
million outside the United States). Unused commercial lines of credit at
December 31, 1998 were $480 million. The Company has no obligation to pay
commitment fees on the Credit Facility. During 1998, the Company paid
commitment fees of approximately $0.1 million on the unused portion of the
replaced credit facility. At December 31, 1997, the Company had $690 million in
availability under its commercial lines of credit ($449 million in the United
States and $241 million outside the United States). Unused commercial lines of
credit at December 31, 1997 were $349 million. The Company paid commitment fees
of approximately $0.9 million in 1997.
NOTE (16)--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 NON-VOTING LIMITED
PREFERRED COMMON COMMON PARTNERSHIPS COMMON STOCK
STOCK STOCK STOCK UNITS IN TREASURY
----------- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1996 .......... 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 DECEMBER 31, 1996 ........ -- 58,469,280 -- -- --
------ ---------- ----------- ---------- -----------
Issued ........................... -- 4,391,010 -- -- --
Repurchased ...................... -- (1,115,160) -- -- 1,115,160
------ ---------- ----------- ---------- -----------
BALANCE DECEMBER 31, 1997 ........ -- 61,745,130 -- -- 1,115,160
------ ---------- ----------- ---------- -----------
Issued -- Offering ............... -- 6,912,730 -- -- --
Issued -- Option Exercises ....... -- 2,178,436 -- -- (1,599,946)
Restricted Stock Redeemed ........ -- (1,855,845) -- -- 1,855,845
Repurchased ...................... -- (2,605,882) -- -- 2,605,882
------ ---------- ----------- ---------- -----------
BALANCE DECEMBER 31, 1998 ........ -- 66,374,569 -- -- 3,976,941
====== ========== =========== ========== ===========
</TABLE>
The preferred stock of the Predecessor Company was owned by members of the
Predecessor Company's 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.
F-19
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 6). 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 $115.00 per share following the fifth anniversary of the issuance thereof.
At December 31, 1998 and 1997, 50,000 shares of Money Market Preferred were
authorized and 87 shares were issued and outstanding.
NOTE (17)--MANDATORILY REDEEMABLE EQUITY SECURITIES
Concurrent with the Recapitalization, the Company entered into a
stockholders' agreement which included both put rights and calls on the
Company's common stock. Effective at the time of the Offering, such call and
put provisions were terminated and, accordingly, the carrying value of such
mandatorily redeemable equity securities was reclassified to stockholders'
equity. The carrying value of the mandatorily redeemable equity securities held
by the Management Investors was equivalent to the redemption value of $12.33
per share at December 31, 1997. The carrying value of the mandatorily
redeemable equity securities for common shares held by HFCP was 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 $8.47 per share at December 31, 1997.
NOTE (18)--OPTIONS
The Company has adopted the Young & Rubicam Inc. 1997 Incentive
Compensation Plan (the "ICP"). The ICP superseded the pre-existing stock option
plan maintained by the Company (the "Stock Option Plan"); however, all awards
granted under the Stock Option Plan will remain outstanding in accordance with
their terms and will be subject to the Stock Option Plan.
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 pre-existing 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 may be granted shall not exceed 1,000,000. Any
shares of Company common stock delivered under the ICP may consist of
authorized and unissued shares or treasury shares.
The Board of Directors is authorized to grant stock options, including
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.
Generally, options granted under the ICP become exercisable over a
three-year vesting period beginning on the three-year anniversary of the date
of grant and expire ten years from the date of grant. However, the Board of
Directors may, at its discretion, accelerate the exercisability, the lapsing
F-20
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
At the closing of the Recapitalization, 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 United States. 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.
At the closing of the Recapitalization, the Board of Directors granted to
employees options to purchase 5,200,590 shares of Company common stock at $7.67
per share. In addition, from the closing of the Recapitalization through
December 31, 1997, the Board of Directors granted additional options to
purchase 1,891,200 shares of Company common stock at $7.67 per share (the
"Additional Options"). As a result of the granting of the Additional Options,
during 1997 the Company recognized a compensation charge of $1.3 million
reflecting the difference between the estimated fair market value of Company
common stock on the date of grant and the exercise price of the Additional
Options. All options granted to employees in connection with the
Recapitalization were pursuant to and are governed by the Stock Option Plan.
Additionally, at the closing of the Recapitalization, the Company granted
to HFCP options 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 by the Stock
Option Plan.
The Company has adopted SFAS 123 (see Note 2). 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 net loss would be increased by $7.8 million, $6.3 million and
$9.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively, and the net loss per common share would be increased by $0.13 for
each of the years ended December 31, 1998 and 1997.
F-21
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 years ended December 31, 1998, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Expected term ................ 6 years 10 years 5-10 years
Risk-free rate ............... 4.26%-5.84% 5.59%-7.12% 5.92%-6.61%
Dividend yield ............... 0% 0% 0%
Expected volatility .......... 24.90% 0% 0%
</TABLE>
Since the Company's common stock was publicly traded for the first time in
1998 as a result of the Offering, it does not yet have sufficient historical
information to make a reasonable assumption as to the expected volatility of
its common stock price in the future. As a result, the assumption in the table
above reflects the expected volatility of stock prices of entities similar to
the Company. In addition, the decrease in the expected term of options for 1998
as compared to 1997 is due to the creation of an active, liquid market for the
Company's common stock resulting from the Company's initial public offering in
1998.
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 $5.25 and $22.59 in 1998, respectively, $5.28 and $12.33 in 1997,
respectively, and $3.69 and $7.67 in 1996, respectively. 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 $13.28 and $47.14 in 1996, respectively.
In 1997 and 1996, the Company granted options to certain executives at
exercise prices below the fair value of Company common stock on the date of
grant. The weighted-average fair value and weighted-average exercise price of
these options was $6.76 and $7.67 in 1997, respectively, and $6.30 and $1.97 in
1996, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the weighted-average fair value of traded options which have no
vesting restrictions and are fully transferable. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
F-22
<PAGE>
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, 1996 ......................... 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
---------- ---------
Granted ................................ 2,472,933 22.59
Exercised .............................. (2,178,436) 3.10
Cancelled .............................. (1,230,060) 10.81
---------- ---------
DECEMBER 31, 1998 ....................... 30,077,642 $ 8.23
========== =========
</TABLE>
- ----------
* Options outstanding and related weighted-average exercise prices prior to
the Recapitalization have not been retroactively adjusted for the Stock
Dividend.
At December 31, 1998, 1997 and 1996, the Company had exercisable options
of 14,963,354, 17,242,995, and 21,501,900, respectively.
The following information is as of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ---------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES AT 12/31/98 LIFE PRICE AT 12/31/98 PRICE
- --------------------------- ------------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$ 1.92 .................... 10,563,983 4.11 $ 1.92 10,563,983 $ 1.92
$ 7.67 .................... 8,297,586 7.24 7.67 4,369,371 7.67
$ 12.00 -- $15.00 ......... 9,734,850 9.11 12.46 30,000 12.33
$ 25.00 -- $31.00 ......... 1,481,223 9.95 28.55 -- --
---------- ---- -------- ---------- --------
Total ..................... 30,077,642 6.88 $ 8.23 14,963,354 $ 3.62
========== ==== ======== ========== ========
</TABLE>
NOTE (19)--LITIGATION, COMMITMENTS AND CONTINGENT LIABILITIES
The Company has performed, and continues to perform, services for clients
in a wide range of businesses, including tobacco products manufacturers. As a
result, the Company may from time to time be joined as a defendant in
litigation brought against its clients and others by third parties, including
its competitors, governmental and regulatory bodies, or consumers, alleging
that advertising claims made through the Company with respect to such clients'
products are false, deceptive or misleading; that such clients' products are
defective, injurious or pose some manner of threat to the public generally; or
that marketing or communications materials created for such clients infringe
upon the proprietary rights of third parties. The Company's practice is to
attempt to minimize such potential liabilities through insurance coverage
and/or indemnification provisions in its agreements with clients and others.
F-23
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company is also named as party in litigation matters which arise from
time to time in the ordinary course of its business, including without
limitation 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 current matters to have a material adverse effect on its
consolidated financial position, results of operations or cash flows.
Net rental expense was $75.5 million, $74.4 million, and $62.9 million in
1998, 1997 and 1996, respectively. Future minimum rental commitments as of
December 31, 1998 are as follows:
(IN THOUSANDS)
1999 ................ $ 68,060
2000 ................ 54,613
2001 ................ 50,137
2002 ................ 47,056
2003 ................ 41,114
Thereafter .......... 131,018
Certain leases contain renewal options calling for increased rentals.
Others contain certain escalation clauses relating to taxes and other operating
expenses.
The Company had outstanding guarantees of $8.6 million and $7.6 million at
December 31, 1998 and 1997, respectively, primarily 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 (20)--FAIR VALUE OF FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY
At December 31, 1998 and 1997, the carrying value of the Company's
financial instruments approximated fair value in all material respects.
The Company enters into interest rate protection 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 protection
agreements included interest rate swaps, interest rate floors and interest rate
caps. At December 31, 1998 and 1997, the Company had entered into interest rate
protection agreements with respect to $31.5 million and $275 million of its
indebtedness.
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. These contracts are generally entered into in order
to hedge intercompany transactions. Gains and losses on these contracts
generally offset losses and gains on the related 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. At December 31, 1998, the
Company had contracts for the sale of $19.4 million and the purchase of $6.1
million of foreign currencies at fixed rates, compared to contracts for the
sale of $18.5 million and the purchase of $12.8 million of foreign currencies
at December 31, 1997.
F-24
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Management believes that any losses resulting from market risk would not
have a material adverse impact on the consolidated financial position, results
of operations or cash flows of the Company.
F-25
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY
INCOME (LOSS) BEFORE CHARGE COMMON STOCK
FROM EXTRAORDINARY ----------------------- NET INCOME -------------------
QUARTER REVENUES OPERATIONS CHARGE BASIC DILUTED (LOSS) HIGH LOW
- ------------------- ------------ --------------- --------------- ----------- ----------- ------------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
1st ............... $ 348,173 $ 25,333 $ 12,190 $ 0.24 $ 0.19 $ 12,190 $ -- $ --
2nd(1)(2) ......... 372,128 (190,472) (145,391) (2.45) (2.45) (149,824) 33 1/16 26 1/2
3rd ............... 375,419 42,178 24,306 0.36 0.29 24,306 35 7/8 28 3/8
4th ............... 426,744 51,450 27,260 0.41 0.34 27,260 33 5/8 19 3/4
---------- ---------- ---------- ----------
Year .............. 1,522,464 (71,511) (81,635) (1.34) (1.34) (86,068) 35 7/8 19 3/4
========== ========== ========== ==========
1997
1st ............... $ 298,206 $ 14,093 $ 4,089 $ 0.09 $ 0.07 $ 4,089
2nd ............... 345,474 35,156 13,516 0.29 0.22 13,516
3rd ............... 333,387 (4,302) (5,700) (0.12) (0.12) (5,700)
4th ............... 405,673 25,782 (35,843) (0.77) (0.77) (35,843)
---------- ---------- ---------- ----------
Year .............. 1,382,740 70,729 (23,938) (0.51) (0.51) (23,938)
========== ========== ========== ==========
</TABLE>
- ----------
(1) Income from operations for the second quarter of 1998 includes $234.4
million of non-recurring, non-cash, pre-tax compensation charges
recognized upon the consummation of the Offering resulting from the
vesting of shares of restricted stock allocated to employees. Net income
for the second quarter of 1998 also includes an extraordinary charge of
$4.4 million, which is net of a tax benefit of $2.8 million, due to the
write-off of unamortized deferred financing costs related to the Company's
replaced credit facility.
(2) The high and low prices of common stock reflect amounts from the period
commencing upon the consummation of the Offering on May 12, 1998, the
first day of public trading, through June 30, 1998.
F-26
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------------- ---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................................... $ 63,209 $ 122,138
Accounts receivable, net of allowance for doubtful accounts of $18,485
and $17,938 at March 31, 1999 and December 31, 1998, respectively. 866,609 835,284
Costs billable to clients ................................................... 63,874 55,187
Other receivables ........................................................... 46,693 37,177
Deferred income taxes ....................................................... 46,831 46,803
Prepaid expenses and other assets ........................................... 34,839 25,979
----------- -----------
Total Current Assets ..................................................... 1,122,055 1,122,568
----------- -----------
NONCURRENT ASSETS
Property and equipment, net ................................................. 148,488 150,413
Deferred income taxes ....................................................... 150,231 158,646
Goodwill, less accumulated amortization of $76,959 and $84,292 at
March 31, 1999 and December 31, 1998, respectively ........................ 123,302 120,075
Equity in net assets of and advances to unconsolidated companies ............ 36,630 38,397
Other assets ................................................................ 41,919 45,156
----------- -----------
Total Noncurrent Assets .................................................. 500,570 512,687
----------- -----------
Total Assets ............................................................. $ 1,622,625 $ 1,635,255
=========== ===========
CURRENT LIABILITIES
Loans payable ............................................................... $ 52,699 $ 31,365
Accounts payable ............................................................ 931,378 1,008,624
Accrued expenses and other liabilities ...................................... 184,487 203,099
Accrued payroll and bonuses ................................................. 50,370 77,078
Income taxes payable ........................................................ 19,783 19,290
----------- -----------
Total Current Liabilities ................................................. 1,238,717 1,339,456
----------- -----------
NONCURRENT LIABILITIES
Loans payable ............................................................... 151,338 31,494
Deferred compensation ....................................................... 31,353 30,635
Other liabilities ........................................................... 110,838 114,128
----------- -----------
Total Noncurrent Liabilities .............................................. 293,529 176,257
----------- -----------
Commitments and Contingencies ................................................
Minority Interest ............................................................ 4,028 4,573
----------- -----------
Stockholders' Equity .........................................................
Money Market Preferred Stock - cumulative variable dividend;
liquidating value of $115 per share; one - tenth of one vote per share;
authorized - 50,000 shares; issued and outstanding - 87 shares ............ - -
Cumulative Participating Junior Preferred Stock - minimum $1.00
dividend; liquidating value of $1.00 per share; 100 votes per share;
authorized - 2,500,000 shares; issued and outstanding - 0 shares .......... - -
Common stock, par value $.01 per share; authorized - 250,000,000
shares; issued and outstanding - 65,886,003 shares and 66,374,569
shares at March 31, 1999 and December 31, 1998, respectively
(excluding 4,322,392 shares and 3,976,941 shares in treasury) ............. 702 704
Capital surplus ............................................................. 926,840 934,676
Accumulated deficit ......................................................... (738,592) (758,292)
Cumulative translation adjustment ........................................... (18,024) (10,810)
Pension liability adjustment ................................................ (1,738) (1,738)
----------- -----------
169,188 164,540
Common stock in treasury, at cost ............................................ (82,837) (49,571)
----------- -----------
Total Stockholders' Equity ................................................ 86,351 114,969
----------- -----------
Total Liabilities and Stockholders' Equity ................................ $ 1,622,625 $ 1,635,255
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 1998
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues ........................................................... $ 383,873 $ 348,173
Compensation expense, including employee benefits .................. 235,018 213,598
General and administrative expenses ................................ 114,297 109,242
----------- -----------
Operating expenses ................................................. 349,315 322,840
----------- -----------
Income from operations ............................................. 34,558 25,333
Interest expense, net .............................................. (1,646) (5,575)
Other income ....................................................... - 827
----------- -----------
Income before income taxes ......................................... 32,912 20,585
Income tax provision ............................................... 13,494 8,852
----------- -----------
19,418 11,733
Equity in net (loss) income of unconsolidated companies ............ (16) 115
Minority interest in net loss of consolidated subsidiaries ......... 299 342
----------- -----------
Net income ......................................................... $ 19,701 $ 12,190
----------- -----------
Earnings per share:
Basic ............................................................. $ 0.30 $ 0.24
=========== ===========
Diluted ........................................................... $ 0.24 $ 0.19
=========== ===========
Weighted average shares outstanding (Note 3):
Basic ............................................................. 66,324,420 50,762,144
=========== ===========
Diluted ........................................................... 81,892,192 64,453,134
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 1998
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 19,701 $ 12,190
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ....................................... 15,769 14,180
Deferred income tax expense ......................................... 8,280 3,777
Equity in net loss (income)of unconsolidated companies .............. 16 (115)
Dividends from unconsolidated companies ............................. 905 252
Minority interest in net loss of consolidated subsidiaries .......... (299) (342)
Change in assets and liabilities, excluding effects from
acquisitions, dispositions and foreign exchange:
Accounts receivable ................................................. (29,034) (22,261)
Costs billable to clients ........................................... (9,306) (21,508)
Other receivables ................................................... (9,527) (5,031)
Prepaid expenses and other assets ................................... (5,895) (1,163)
Accounts payable .................................................... (69,759) (43,672)
Accrued expenses and other liabilities .............................. (18,868) (34,377)
Accrued payroll and bonuses ......................................... (26,616) (16,556)
Income taxes payable ................................................ 1,167 (5,007)
Deferred compensation ............................................... 355 1,478
Other ............................................................... (1,359) (4,021)
---------- ----------
Net cash used in operating activities ................................ $ (124,470) $ (122,176)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................................. $ (14,788) $ (7,889)
Acquisitions, net of cash acquired .................................. (8,669) -
Investment in net assets of and advances to unconsolidated
companies ......................................................... (1,912) (1,030)
Proceeds from notes receivable ...................................... 322 339
---------- ----------
Net cash used in investing activities ................................ $ (25,047) $ (8,580)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES: ................................
Proceeds from loans payable, net .................................... 131,772 24,972
Common stock issued ................................................. 1,134 1,287
Common stock repurchased ............................................ (42,403) -
Payments of deferred compensation ................................... - (1,190)
Payment of installment notes, net ................................... - (2,100)
Other financing activities .......................................... (59) (277)
---------- ----------
Net cash provided by financing activities ............................ $ 90,444 $ 22,692
---------- ----------
Effect of exchange rate changes on cash and cash equivalents ......... 144 (1,234)
Net decrease in cash and cash equivalents ............................ (58,929) (109,298)
Cash and cash equivalents, beginning of period ....................... 122,138 160,263
---------- ----------
Cash and cash equivalents, end of period ............................. $ 63,209 $ 50,965
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ....................................................... $ 2,939 $ 9,157
========== ==========
Income taxes paid ................................................... $ 4,960 $ 9,237
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION:
NATURE OF OPERATIONS: Young & Rubicam Inc. (the "Company") is a global
marketing and communications enterprise with integrated services in
advertising, perception management and public relations, branding consultation
and design, sales promotion, direct marketing and healthcare communications.
The Company operates in the United States, Canada, Europe, Latin America and
the Asia/Pacific region as well as through certain affiliations in other parts
of the world.
BASIS OF PRESENTATIONS: The accompanying unaudited consolidated financial
statements of the Company have been prepared pursuant to the rules of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. In the opinion of management, the
accompanying financial statements reflect all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of the results for
the periods presented. Certain reclassifications have been made to the prior
years' financial statements to conform to the 1999 presentation.
The results of operations for the interim periods presented are not
necessarily indicative of the results expected for the full year.
NOTE 2 - USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 - EARNINGS PER COMMON SHARE:
Basic net earnings per share is calculated by dividing net income by the
weighted average shares of common stock outstanding during the three months
ended March 31, 1999 and 1998. Diluted earnings per share reflects the dilutive
effect of stock options, primarily stock options granted to employees under
stock-based compensation plans. Shares used in computing basic and diluted
earnings per share were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
Basic - weighted average shares ........... 66,324,420 50,762,144
Dilutive effect of stock options .......... 15,567,772 13,690,990
---------- ----------
Diluted - weighted average shares ......... 81,892,192 64,453,134
========== ==========
</TABLE>
F-30
<PAGE>
NOTE 4 - COMPREHENSIVE INCOME
The following table sets forth total comprehensive income and its
components:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Net income ....................................... $ 19,701 $ 12,190
Foreign currency translation adjustments ......... (7,214) (2,054)
-------- --------
Total comprehensive income ....................... $ 12,487 $ 10,136
======== ========
</TABLE>
NOTE 5 - SUBSEQUENT EVENTS
ACQUISITION: On May 21, 1999, the Company acquired KnowledgeBase
Marketing, Inc., a leading customer relationship marketing service that
specializes in gathering and analyzing marketing data, in a stock and cash
transaction valued at approximately $175 million. In connection with this
acquisition, the Company issued an aggregate of 2.1 million shares of common
stock and agreed to grant options to purchase up to an aggregate of 275,000
additional shares of common stock.
CASH DIVIDEND: On April 29, 1999, the Company announced that the Board of
Directors declared a cash dividend of $0.025 per common share, payable on June
15, 1999 to all stockholders of record as of June 1, 1999.
F-31
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------- ------------ ------------ ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for Doubtful Accounts ......... $14,125 $ 9,404 -- $ 5,591 $17,938
======= ======= == ======= =======
YEAR ENDED DECEMBER 31, 1997
Allowance for Doubtful Accounts ......... $ 9,849 $14,269 -- $ 9,993 $14,125
======= ======= == ======= =======
YEAR ENDED DECEMBER 31, 1996
Allowance for Doubtful Accounts ......... $11,526 $11,411 -- $13,088 $ 9,849
======= ======= == ======= =======
</TABLE>
S-1
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ONLY THE SHARES OFFERED
BY THIS PROSPECTUS, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT
IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT
ONLY AS OF ITS DATE.
------------------------------------------------
TABLE OF CONTENTS
------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Prospectus Summary ............................ 1
Risk Factors .................................. 7
Recent Developments ........................... 14
Use of Proceeds ............................... 14
Price Range of Common Stock and
Dividend Policy ............................ 14
Capitalization ................................ 15
Selected Consolidated Financial Data .......... 16
Management's Discussion and
Analysis of Financial Condition and
Results of Operations ...................... 18
Business ...................................... 27
Management .................................... 38
Certain Transactions .......................... 54
Principal Stockholders ........................ 55
Selling Stockholders .......................... 57
Description of Capital Stock .................. 63
Shares Eligible for Future Sale ............... 77
Certain U.S. Tax Consequences to
Non-United States Holders .................. 79
Underwriting .................................. 81
Legal Matters ................................. 85
Experts ....................................... 85
Available Information ......................... 85
Index to Consolidated Financial
Statements ................................. F-1
</TABLE>
================================================================================
[GRAPHIC OMITTED]
15,000,000 SHARES
COMMON STOCK
--------------------------------
PROSPECTUS
--------------------------------
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
---------------
GOLDMAN, SACHS & CO.
ING BARING FURMAN SELZ LLC
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
, 1999
================================================================================
<PAGE>
[INTERNATIONAL COVER PAGE]
SUBJECT TO COMPLETION, DATED MAY 24, 1999
PROSPECTUS
15,000,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
-------------------
This is an offering of 15,000,000 shares of common stock of Young &
Rubicam Inc. This prospectus relates to an international offering of 3,000,000
shares outside the United States and Canada. In addition, 12,000,000 shares are
being offered in a concurrent offering in the United States and Canada.
All of the 15,000,000 shares of common stock offered by this prospectus
are being sold by the selling stockholders named in this prospectus. Young &
Rubicam will not receive any of the proceeds from the sale of shares of common
stock by the selling stockholders.
The last reported sale price of the common stock, which is listed on the
New York Stock Exchange under the symbol "YNR", on May 21, 1999, was $40.62 per
share.
INVESTING IN COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7 TO READ ABOUT RISKS THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE
COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
Per
Share Total
----------- ----------
<S> <C> <C>
Public offering price ........................ $ $
Underwriting discount ........................ $ $
Proceeds to the selling stockholders ......... $ $
</TABLE>
-------------------
The U.S. underwriters may purchase up to an additional 2,250,000 shares
from selling stockholders to cover over-allotments. Young & Rubicam Inc. has
agreed to pay expenses incurred by the selling stockholders in connection with
the offerings, other than the underwriting discount.
The underwriters expect to deliver the shares in New York, New York on
, 1999.
-------------------
BEAR, STEARNS INTERNATIONAL LIMITED
CAZENOVE & CO.
DONALDSON, LUFKIN & JENRETTE
-------------------
GOLDMAN SACHS INTERNATIONAL
ING BARINGS
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY INTERNATIONAL
The date of this prospectus is , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS BE ACCEPTED PRIOR TO THE TIME THIS
PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[INTERNATIONAL BACK COVER PAGE]
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ONLY THE SHARES OFFERED
BY THIS PROSPECTUS, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT
IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT
ONLY AS OF ITS DATE.
--------------------------------------------
TABLE OF CONTENTS
--------------------------------------------
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Prospectus Summary ....................... 1
Risk Factors ............................. 7
Recent Developments ...................... 14
Use of Proceeds .......................... 14
Price Range of Common Stock and
Dividend Policy ....................... 14
Capitalization ........................... 15
Selected Consolidated Financial Data. 16
Management's Discussion and
Analysis of Financial Condition and
Results of Operations ................. 18
Business ................................. 27
Management ............................... 38
Certain Transactions ..................... 54
Principal Stockholders ................... 55
Selling Stockholders ..................... 57
Description of Capital Stock ............. 63
Shares Eligible for Future Sale .......... 77
Certain U.S. Tax Consequences to
Non-United States Holders ............. 79
Underwriting ............................. 81
Legal Matters ............................ 85
Experts .................................. 85
Available Information .................... 85
Index to Consolidated Financial
Statements ............................ F-1
</TABLE>
================================================================================
================================================================================
[GRAPHIC OMITTED]
15,000,000 SHARES
COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
BEAR, STEARNS INTERNATIONAL LIMITED
CAZENOVE & CO.
DONALDSON, LUFKIN & JENRETTE
-----------------------
GOLDMAN SACHS INTERNATIONAL
ING BARINGS
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY INTERNATIONAL
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the common stock being registered, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ................. $ 203,378
National Association of Securities Dealers, Inc. filing fee ......... 30,500
Legal fees and expenses ............................................. 250,000
Accounting fees and expenses ........................................ 125,000
Printing and engraving expenses ..................................... 350,000
Registrar and transfer agent's fee .................................. 25,000
Miscellaneous ....................................................... 41,122
---------
Total .............................................................. $ 900,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of Young & Rubicam Inc.'s Amended and Restated Certificate of
Incorporation provides substantially as follows:
Section 1. Elimination of Certain Liability of Directors. A director of
the Company shall not be personally liable to Y&R or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv)
for any transaction from which the director derived an improper personal
benefit.
Section 2. Indemnification and Insurance.
(a) Right to indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Company to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended but, in the case of any such
amendment, to the fullest extent permitted by law, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said law permitted the Company to provide prior to such amendment), against all
expense, liability and loss (including, without limitation, attorneys' fees,
judgments, fines, amounts paid or to be paid in settlement, and excise taxes or
penalties arising under the Employee Retirement Income Security Act of 1974)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Company shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Company. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid
by the Company the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the
II-1
<PAGE>
General Corporation Law of the State of Delaware requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered
by such person while a director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Company of an undertaking,
by or on behalf of such director or officer, to repay all amounts so advanced
if it shall ultimately be determined that such director or officer is not
entitled to be indemnified under this Section or otherwise. The Company may, by
action of the Board of Directors, provide indemnification to employees and
agents of the Company with the same scope and effect as the foregoing
indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Company within thirty days after a
written claim has been received by the Company, the claimant may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim and, if successful in whole or in part, the claimant shall be entitled to
be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the Company)
that the claimant has not met the standards of conduct which make it
permissible under the General Corporation Law of the State of Delaware for the
Company to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Company. Neither the failure of the
Company (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination
by the Company (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware
provides as follows:
(a) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause
to believe the person's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
II-2
<PAGE>
(b) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only
to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem
proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted under, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in such person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against such person and incurred by such person in any
such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent)
II-3
<PAGE>
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "servicing at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this section.
(j) The indemnification and advancement of expense proved by, or granted
pursuant to, this section shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court
of Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
Section 5 of the Management Voting Trust Agreement provides substantially
as follows:
The Company hereby agrees to assume liability for and does hereby
indemnify, protect, save and hold harmless the Voting Trustees and their
successors, assigns, agents and servants to the full extent lawful from and
against any and all liabilities, obligations, losses, damages, penalties,
taxes, claims, actions, suits, costs, expenses or disbursements (including
legal fees and expenses) of any kind and nature whatsoever ("Losses") that may
be imposed, incurred by or asserted against the Voting Trustees or any of them
individually in any way relating to or arising under the Management Voting
Trust Agreement or the enforcement of any of the terms thereof or in any way
relating to or arising out of the administration of the trusts created thereby
or the action or inaction of the Management Voting Trust thereunder, unless the
Company shall sustain the burden of proving by clear and convincing evidence
that such Losses were proximately caused by an act or omission on the part of
such Voting Trustee or Voting Trustees that was not taken in good faith or that
was not reasonably believed to be in or not opposed to the best interests of
the Company and the Management Investors as a group. The Company shall advance
to any Voting Trustee all reasonable expenses in connection with litigation
arising under the Management Voting Trust Agreement or the enforcement of any
of the terms thereof or in any way relating to or arising out of the
administration of the trusts created thereby or the action or inaction of the
Management Voting Trust thereunder, including, but not limited to, expenses in
connection with litigation in which such Voting Trustee purports to seek to
enforce any portion of the Management Voting Trust Agreement. A Voting Trustee
shall be required to execute an undertaking agreeing to repay the Company the
amount so advanced in the event it is 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.
II-4
<PAGE>
The Restricted Stock Plan and the Management Stock Option Plan each
provide that no member of the Compensation Committee of the board of directors
or of the board of directors shall be liable for any action or determination
made in good faith with respect to such plan or any grant under such plan. The
Restricted Stock Plan and the Management Stock Plan each provide that to the
fullest extent permitted by law, the Company shall indemnify and save harmless
each person made or threatened to be made a party to any civil or criminal
action or proceeding by reason of the fact that such person, or such person's
testator or intestate, is or was a member of the Compensation Committee of the
board of directors. The 1997 ICP provides that no member of the Compensation
Committee or any officer or employee of the Registrant or an affiliate acting
at the direction or on behalf of the Compensation Committee shall be personally
liable for any action or determination taken or made in good faith with respect
to the 1997 ICP, and shall, to the extent permitted by law, be fully
indemnified and protected by the Registrant with respect to any such action or
determination.
Young & Rubicam Inc. also carries liability insurance covering officers
and directors.
Pursuant to the proposed form of Underwriting Agreement, the Underwriters
have agreed to indemnify the directors and officers of Young & Rubicam Inc. in
certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1996, in connection with its recapitalization, Y&R (1) issued
and sold 30,228,195 shares of common stock to the H&F investors, other investors
not affiliated with Y&R and one entity affiliated with an independent member of
the board of directors for cash consideration of $231,749,495, (2) 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, (3) 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 (4) 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 Y&R 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 Y&R purchased an aggregate of
36,000 shares of common stock for an aggregate purchase price of $276,000. In
November 1997, Y&R 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.
During 1997, management investors whose employment with Y&R 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 these shares of
common stock were repurchased by Y&R pursuant to the call provisions of the
stockholders' agreement at a price equal to $7.67 per share.
In December 1997, Y&R issued and sold 4,250,790 shares of common stock to
its employees for an aggregate amount of $9,314,483 pursuant to the exercise of
rollover options and executive options. In March 1998, Y&R 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.
In March 1999, Y&R purchased additional equity interests in a Dutch
subsidiary using an aggregate of 27,465 shares of common stock as part of the
consideration.
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, or in reliance on Rule 701 promulgated under Section 3(b) thereof
or Regulation D or 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 of the securities and appropriate legends were affixed to
the share certificates issued in such transactions.
On May 21, 1999, Y&R issued 2,100,980 shares of common stock to
stockholders of KnowledgeBase Marketing in reliance on Section 3(a)(10) of the
Securities Act.
II-5
<PAGE>
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference from Exhibit 4.4 to the Registration
Statement on Form S-8 (File No. 333-57605) filed by the Company).
3.2 Amended and Restated Bylaws of Registrant (incorporated by reference
from Exhibit 4.5 to the Registration Statement on Form S-8 (File No.
333-57605) filed by the Company).
4.1 Specimen Certificate of Common Stock of Registrant (incorporated by
reference from Exhibit 4.1 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
4.2 Rights Agreement, dated as of May 1, 1998 (incorporated by reference
from Exhibit 4.9 to the Registration Statement on Form S-8 (File No.
333-57605) filed by the Company).
4.3 Certificate of Designation for Registrant's Cumulative Participating
Junior Preferred Stock (incorporated by reference from Exhibit 4.3 to
the Registration Statement on Form S-1 (File No. 333-66883) filed by the
Company).
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
(incorporated by reference from Exhibit 9.1 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
9.2 Young & Rubicam Inc. Restricted Stock Trust Agreement, dated as of
December 12, 1996 (incorporated by reference from Exhibit 9.2 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.1 Stockholders' Agreement, dated as of May 8, 1998 (incorporated by
reference from Exhibit 4.8 to the Registration Statement on Form S-8
(File No. 333-57605) filed by the Company).
10.2 Contribution Agreement dated October 30, 1996 (incorporated by reference
from Exhibit 10.3 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.3 Young & Rubicam Holdings Inc. Restricted Stock Plan (incorporated by
reference from Exhibit 10.4 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.4 Young & Rubicam Holdings Inc. Management Stock Option Plan (incorporated
by reference from Exhibit 10.5 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.5 Young & Rubicam Inc. 1997 Incentive Compensation Plan (incorporated by
reference from Exhibit 10.6 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.6 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 19, 1997, with Peter Georgescu (incorporated by reference
from Exhibit 10.7 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.7 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1995, with Peter Georgescu (incorporated by reference from
Exhibit 10.8 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
10.8 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1986, with Peter Georgescu (incorporated by reference from
Exhibit 10.9 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.9 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 19, 1997, with John P. McGarry, Jr. (incorporated by
reference from Exhibit 10.10 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.10 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1986, with John P. McGarry, Jr. (incorporated by reference
from Exhibit 10.11 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.11 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 31, 1994, with John P. McGarry, Jr. (incorporated by
reference from Exhibit 10.12 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.12 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 19, 1997, with Edward Vick (incorporated by reference from
Exhibit 10.13 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.13 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1995, with Edward Vick (incorporated by reference from
Exhibit 10.14 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.14 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 19, 1997, with Alan J. Sheldon (incorporated by reference
from Exhibit 10.15 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.15 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1995, with Alan J. Sheldon (incorporated by reference from
Exhibit 10.16 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.16 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1988, with Alan J. Sheldon (incorporated by reference from
Exhibit 10.17 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.17 Registration Rights Agreement, dated as of December 12, 1996
(incorporated by reference from Exhibit 10.18 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.18 Letter Agreement dated as of October 16, 1997 by and between Young &
Rubicam Inc. and Michael J. Dolan (incorporated by reference from
Exhibit 10.19 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.19 Letter Agreement dated June 28, 1996 by and between Young & Rubicam Inc.
and Michael J. Dolan (incorporated by reference from Exhibit 10.20 to
the Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.20 Lease agreement for 230 Park Avenue South (incorporated by reference
from Exhibit 10.21 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.21 H&F Option Agreement, dated as of December 12, 1996, among Young &
Rubicam Holdings Inc., a New York corporation ("Holdings"), Young &
Rubicam Inc., a New York corporation, Young & Rubicam Inc., a Delaware
corporation and a wholly-owned subsidiary of Holdings, and Hellman &
Friedman Capital Partners III, L.P. (incorporated by reference from
Exhibit 10.22 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C>
10.22 H&F Option Agreement, dated as of December 12, 1996, among Young &
Rubicam Holdings Inc., a New York corporation ("Holdings"), Young &
Rubicam Inc., a New York corporation, Young & Rubicam Inc., a Delaware
corporation and a wholly-owned subsidiary of Holdings, and H&F Orchard
Partners III, L.P. (incorporated by reference from Exhibit 10.23 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.23 Form of Young & Rubicam Inc. Key Corporation Managers Bonus Plan
(incorporated by reference from Exhibit 10.24 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.24 Amendment No. 1 to Restricted Stock Trust Agreement dated as of March
13, 1998 (incorporated by reference from Exhibit 10.25 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.25 Young & Rubicam Inc. Deferred Compensation Plan (incorporated by
reference from Exhibit 10.26 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.26 Amendment No. 1 to Young & Rubicam Inc. Deferred Compensation Plan
effective as of November 19, 1997 (incorporated by reference from
Exhibit 10.26 to the Annual Report on Form 10-K (File No. 001--14093)
filed by the Company).
10.27 Amendment No. 2 to Young & Rubicam Inc. Deferred Compensation Plan
effective as of January 1, 1999 (incorporated by reference from Exhibit
10.27 to the Annual Report on Form 10-K (File No. 001--14093) filed by
the Company).
10.28 Young & Rubicam Inc. Grantor Trust Agreement (incorporated by reference
from Exhibit 10.27 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.29 Amendment to Young & Rubicam Inc. 1997 Incentive Compensation Plan
(incorporated by reference from Exhibit 10.28 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.30 Credit Agreement (incorporated by reference from Exhibit 10.28 to the
Registration Statement on Form S-1 (File No. 333-66883) filed by the
Company).
10.31 Young & Rubicam Inc. Director Deferred Fee Plan.
10.32 Amendment No. 1 to the Young & Rubicam Inc. Grantor Trust Agreement.
21.1 List of Subsidiaries (incorporated by reference from Exhibit 10.28 to
the Registration Statement on Form S-1 (File No. 333-66883) filed by the
Company).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in opinion filed
as Exhibit 5.1).
24.1 Powers of Attorney (included on signature pages).*
- ---------------
* Previously filed.
</TABLE>
(b) Financial Statement Schedules
All required financial statement schedules are included in the
consolidated financial statements included in the prospectus.
II-8
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Securities Act 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, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 2 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on May
24, 1999.
YOUNG & RUBICAM INC.
By: /s/ STEPHANIE W. ABRAMSON
------------------------------------
Name: Stephanie W. Abramson
Title: Executive Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
II-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ---------------------------------------- -------------
<S> <C> <C>
* Chairman of the Board and Chief May 24, 1999
- --------------------------- Executive Officer
Peter A. Georgescu (principal executive officer)
* Vice Chairman, Chief Financial Officer May 24, 1999
- --------------------------- and Director
Michael J. Dolan (principal financial officer)
* Senior Vice President, Finance May 24, 1999
- --------------------------- (principal accounting officer)
John A. Wozniak
* Chief Operating Officer May 24, 1999
- --------------------------- and Director
Edward H. Vick
* Executive Vice President May 24, 1999
- --------------------------- and Director
Thomas D. Bell, Jr.
* Director May 24, 1999
- ---------------------------
F. Warren Hellman
* Director May 24, 1999
- ---------------------------
Richard S. Bodman
* Director May 24, 1999
- ---------------------------
Philip U. Hammarskjold
* Director May 24, 1999
- ---------------------------
John F. McGillicuddy
* Director May 24, 1999
- ---------------------------
Alan D. Schwartz
</TABLE>
*By: /s/ STEPHANIE W. ABRAMSON
-------------------------
Name: Stephanie W. Abramson
Title: Attorney-in-Fact
II-11
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of Registrant
(incorporated by reference from Exhibit 4.4 to the Registration
Statement on Form S-8 (File No. 333-57605) filed by the Company).
3.2 Amended and Restated Bylaws of Registrant (incorporated by reference
from Exhibit 4.5 to the Registration Statement on Form S-8 (File No.
333-57605) filed by the Company).
4.1 Specimen Certificate of Common Stock of Registrant (incorporated by
reference from Exhibit 4.1 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
4.2 Rights Agreement, dated as of May 1, 1998 (incorporated by reference
from Exhibit 4.9 to the Registration Statement on Form S-8 (File No.
333-57605) filed by the Company).
4.3 Certificate of Designation for Registrant's Cumulative Participating
Junior Preferred Stock (incorporated by reference from Exhibit 4.3 to
the Registration Statement on Form S-1 (File No. 333-66883) filed by the
Company).
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
(incorporated by reference from Exhibit 9.1 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
9.2 Young & Rubicam Inc. Restricted Stock Trust Agreement, dated as of
December 12, 1996 (incorporated by reference from Exhibit 9.2 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.1 Stockholders' Agreement, dated as of May 8, 1998 (incorporated by
reference from Exhibit 4.8 to the Registration Statement on Form S-8
(File No. 333-57605) filed by the Company).
10.2 Contribution Agreement dated October 30, 1996 (incorporated by reference
from Exhibit 10.3 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.3 Young & Rubicam Holdings Inc. Restricted Stock Plan (incorporated by
reference from Exhibit 10.4 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.4 Young & Rubicam Holdings Inc. Management Stock Option Plan (incorporated
by reference from Exhibit 10.5 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.5 Young & Rubicam Inc. 1997 Incentive Compensation Plan (incorporated by
reference from Exhibit 10.6 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.6 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 19, 1997, with Peter Georgescu (incorporated by reference
from Exhibit 10.7 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.7 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1995, with Peter Georgescu (incorporated by reference from
Exhibit 10.8 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
<PAGE>
10.8 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1986, with Peter Georgescu (incorporated by reference from
Exhibit 10.9 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.9 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 19, 1997, with John P. McGarry, Jr. (incorporated by
reference from Exhibit 10.10 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.10 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1986, with John P. McGarry, Jr. (incorporated by reference
from Exhibit 10.11 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.11 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 31, 1994, with John P. McGarry, Jr. (incorporated by
reference from Exhibit 10.12 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.12 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 19, 1997, with Edward Vick (incorporated by reference from
Exhibit 10.13 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.13 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1995, with Edward Vick (incorporated by reference from
Exhibit 10.14 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.14 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of December 19, 1997, with Alan J. Sheldon (incorporated by reference
from Exhibit 10.15 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.15 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1995, with Alan J. Sheldon (incorporated by reference from
Exhibit 10.16 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.16 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as
of January 1, 1988, with Alan J. Sheldon (incorporated by reference from
Exhibit 10.17 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.17 Registration Rights Agreement, dated as of December 12, 1996
(incorporated by reference from Exhibit 10.18 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.18 Letter Agreement dated as of October 16, 1997 by and between Young &
Rubicam Inc. and Michael J. Dolan (incorporated by reference from
Exhibit 10.19 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.19 Letter Agreement dated June 28, 1996 by and between Young & Rubicam Inc.
and Michael J. Dolan (incorporated by reference from Exhibit 10.20 to
the Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.20 Lease agreement for 230 Park Avenue South (incorporated by reference
from Exhibit 10.21 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.21 H&F Option Agreement, dated as of December 12, 1996, among Young &
Rubicam Holdings Inc., a New York corporation ("Holdings"), Young &
Rubicam Inc., a New York corporation, Young & Rubicam Inc., a Delaware
corporation and a wholly-owned subsidiary of Holdings, and Hellman &
Friedman Capital Partners III, L.P. (incorporated by reference from
Exhibit 10.22 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
<PAGE>
10.22 H&F Option Agreement, dated as of December 12, 1996, among Young &
Rubicam Holdings Inc., a New York corporation ("Holdings"), Young &
Rubicam Inc., a New York corporation, Young & Rubicam Inc., a Delaware
corporation and a wholly-owned subsidiary of Holdings, and H&F Orchard
Partners III, L.P. (incorporated by reference from Exhibit 10.23 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.23 Form of Young & Rubicam Inc. Key Corporation Managers Bonus Plan
(incorporated by reference from Exhibit 10.24 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.24 Amendment No. 1 to Restricted Stock Trust Agreement dated as of March
13, 1998 (incorporated by reference from Exhibit 10.25 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the
Company).
10.25 Young & Rubicam Inc. Deferred Compensation Plan (incorporated by
reference from Exhibit 10.26 to the Registration Statement on Form S-1
(File No. 333-46929) filed by the Company).
10.26 Amendment No. 1 to Young & Rubicam Inc. Deferred Compensation Plan
effective as of November 19, 1997 (incorporated by reference from
Exhibit 10.26 to the Annual Report on Form 10-K (File No. 001--14093)
filed by the Company).
10.27 Amendment No. 2 to Young & Rubicam Inc. Deferred Compensation Plan
effective as of January 1, 1999 (incorporated by reference from Exhibit
10.27 to the Annual Report on Form 10-K (File No. 001--14093) filed by
the Company).
10.28 Young & Rubicam Inc. Grantor Trust Agreement (incorporated by reference
from Exhibit 10.27 to the Registration Statement on Form S-1 (File No.
333-46929) filed by the Company).
10.29 Amendment to Young & Rubicam Inc. 1997 Incentive Compensation Plan
(incorporated by reference from Exhibit 10.28 to the Registration
Statement on Form S-1 (File No. 333-46929) filed by the Company).
10.30 Credit Agreement (incorporated by reference from Exhibit 10.28 to the
Registration Statement on Form S-1 (File No. 333-66883) filed by the
Company).
10.31 Young & Rubicam Inc. Director Deferred Fee Plan.
10.32 Amendment No. 1 to the Young & Rubicam Inc. Grantor Trust Agreement.
21.1 List of Subsidiaries (incorporated by reference from Exhibit 10.28 to
the Registration Statement on Form S-1 (File No. 333-66883) filed by the
Company).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in opinion filed
as Exhibit 5.1).
24.1 Powers of Attorney (included on signature pages).*
- ---------------
* Previously filed.
15,000,000 Shares
Young & Rubicam Inc.
Common Stock
UNDERWRITING AGREEMENT
----------------------
May 24, 1999
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
ING BARING FURMAN SELZ LLC
MORGAN STANLEY & CO. INCORPORATED
SALOMON SMITH BARNEY INC.
As representatives of the
several U.S. Underwriters
named in Schedule I hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
BEAR, STEARNS INTERNATIONAL LIMITED
CAZENOVE & CO.
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
ING BARINGS LTD. AS AGENT FOR ING
BANK N.V., LONDON BRANCH
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
As representatives of the
several International
Managers named in Schedule
II hereto
c/o Bear, Stearns International Limited
One Canada Square
<PAGE>
London, E14 5AD England
Ladies and Gentlemen:
Certain stockholders of Young & Rubicam Inc., a Delaware corporation
(the "COMPANY"), named in Schedule III(a) hereto (the "Y&R SELLING
STOCKHOLDERS") severally propose to sell to the several Underwriters (as defined
below) an aggregate of o shares of the Company's Common Stock, par value $.01
per share ("COMMON STOCK"), certain stockholders of the Company named in
Schedule III(b) hereto (the KBM SELLING STOCKHOLDERS") severally propose to sell
to the several Underwriters an aggregate of o shares of Common Stock, certain
stockholders of the Company named in Schedule IV (a) hereto (the "H&F SELLING
STOCKHOLDERS") severally propose to sell to the several Underwriters an
aggregate of o shares of Common Stock and BearTel Corp. ("BEARTEL" and together
with the Y&R Selling Stockholders, the KBM Selling Stockholders and the H&F
Selling Stockholders, the "SELLING STOCKHOLDERS") proposes to sell to the
several Underwriters an aggregate of o shares of Common Stock. The shares of
Common Stock to be sold by the Y&R Selling Stockholders are hereinafter called
the "Y&R SELLING STOCKHOLDER SHARES," the shares of Common Stock to be sold by
the KBM Selling Stockholders are hereinafter called the "KBM Selling Stockholder
Shares" and, together with the Y&R Selling Stockholder Shares and the shares of
Common Stock to be sold by BearTel and the H&F Selling Stockholders, the "FIRM
SHARES."
It is understood that, subject to the conditions hereinafter stated,
12,000,000 Firm Shares (the "U.S. FIRM SHARES") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. UNDERWRITERS") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. Underwriters and International Managers of even date
herewith), and 3,000,000 Firm Shares (the "INTERNATIONAL SHARES") will be sold
to the several International Managers named in Schedule II hereto (the
"INTERNATIONAL MANAGERS") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Bear, Stearns & Co. Inc. ("Bear Stearns"),
Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., ING
Baring Furman Selz LLC, Morgan Stanley & Co. Incorporated and Salomon Smith
Barney Inc. shall act as representatives (the "U.S. REPRESENTATIVES") of the
several U.S. Underwriters, and Bear, Stearns International Limited, Cazenove &
Co., Donaldson, Lufkin & Jenrette International, Goldman Sachs International,
ING Barings Ltd. as agent for ING Bank N.V., London Branch, Morgan Stanley & Co.
International Limited and Salomon Brothers
2
<PAGE>
International Limited shall act as representatives (the "INTERNATIONAL
REPRESENTATIVES") of the several International Managers. The U.S. Underwriters
and the International Managers are hereinafter collectively referred to as the
"UNDERWRITERS."
The individuals or entities listed on Schedule V hereto (the "OPTION
SELLING STOCKHOLDERS") also severally propose to issue and sell to the several
U.S. Underwriters not more than an additional 2,250,000 shares of Common Stock
(the "ADDITIONAL SHARES"), if requested by the U.S. Underwriters as provided in
Section 2 hereof. The Firm Shares and the Additional Shares are herein
collectively called the "SHARES."
SECTION 1. Registration Statement and Prospectus. The Company has
filed with the Securities and Exchange Commission (the "COMMISSION") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"ACT"), a registration statement on Form S-1, including a form of prospectus,
relating to the Shares. The registration statement contains two forms of
prospectuses to be used in connection with the offering and sale of the Shares:
the form of U.S. prospectus, to be used in connection with the offering and sale
of Shares in the United States and Canada to United States and Canadian Persons,
and the form of international prospectus, to be used in connection with the
offering and sale of Shares outside the United States and Canada to persons
other than United States and Canadian Persons. The international prospectus is
identical to the U.S. prospectus except for the outside front and back cover
pages. The registration statement, as amended at the time it became effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the Act, is
hereinafter referred to as the "REGISTRATION STATEMENT;" and the U.S. prospectus
and the international prospectus in the respective forms first filed pursuant to
Rule 424(b) under the Act are hereinafter collectively referred to as the
"PROSPECTUS." If the Company has filed or is required pursuant to the terms
hereof to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "RULE 462(B) REGISTRATION
STATEMENT"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements.
On the basis of the representations and warranties contained in this Agreement
(the "Agreement"), and subject to its terms and conditions, (i) each Selling
Stockholder agrees, severally and not jointly, to sell the number of Firm
3
<PAGE>
Shares set forth opposite such Selling Stockholder's name in Schedule III or
Schedule IV hereto, as the case may be, and (ii) each Underwriter agrees,
severally and not jointly, to purchase from each Selling Stockholder at a price
per Share of $o (the "PURCHASE PRICE") the number of Firm Shares (subject to
such adjustments to eliminate fractional shares as you may determine) that bears
the same proportion to the total number of Firm Shares to be sold by such
Selling Stockholder as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedules I and II hereto bears to the total number of Firm
Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Option Selling
Stockholders severally agree to sell the Additional Shares and the U.S.
Underwriters shall have the right to purchase, severally and not jointly, up to
2,250,000 Additional Shares from the Option Selling Stockholders at the Purchase
Price. Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
U.S. Underwriters may exercise their right to purchase Additional Shares in
whole or in part from time to time by giving written notice thereof to the
Option Selling Stockholders and the Company within 30 days after the date of
this Agreement. The U.S. Representatives shall give any such notice on behalf of
the U.S. Underwriters and such notice shall specify the aggregate number of
Additional Shares to be purchased pursuant to such exercise and the date for
payment and delivery thereof, which date shall be a business day (i) no earlier
than two business days after such notice has been given (and, in any event, no
earlier than the Closing Date (as hereinafter defined)) and (ii) no later than
ten business days after such notice has been given. If any Additional Shares are
to be purchased, (i) each Option Selling Stockholder agrees to sell to the U.S.
Underwriters the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as the U.S. Representatives may determine) specified
in such notice multiplied by a fraction the numerator of which is the number of
Additional Shares set forth opposite each such Option Selling Stockholder's name
on Schedule V hereto and the denominator of which is the total number of
Additional Shares and (ii) each U.S. Underwriter, severally and not jointly,
agrees to purchase from the Option Selling Stockholders, the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
the U.S. Representatives may determine) which bears the same proportion to the
total number of Additional Shares to be purchased from the Option Selling
Stockholders, as the number of U.S. Firm Shares set forth opposite the name of
such U.S. Underwriter in Schedule I bears to the total number of U.S. Firm
Shares.
The Company and each Selling Stockholder hereby agree not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase
4
<PAGE>
any option or contract to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that transfers
all or a portion of the economic consequences associated with the ownership of
any Common Stock (regardless of whether any of the transactions described in
clause (i) or (ii) is to be settled by the delivery of Common Stock, or such
other securities, in cash or otherwise), except to the Underwriters pursuant to
this Agreement, for a period of 120 days after the date of the Prospectus
without the prior written consent of Bear, Stearns & Co. Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation (and in the case of any Management
Investor (as defined in the Prospectus), the Company). Notwithstanding the
foregoing, during such period (i) the Company may grant stock options or stock
awards pursuant to any of the Company's existing stock option plans, (ii) the
Company may issue shares of Common Stock upon the exercise of an option, a
warrant or the Rights (as defined in the Prospectus) or the conversion of a
security outstanding on the date hereof, (iii) each H&F Selling Stockholder may
transfer shares of Common Stock to a partner or an affiliate of such H&F Selling
Stockholder in a transaction not involving a public sale, distribution or other
disposition of such Common Stock provided that the transferee agrees in writing
to be bound by the same restrictions, (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 and (v) the Company and any Y&R
Selling Stockholder may enter into any transaction or arrangement pursuant to
which the Company withholds delivery of shares of Common Stock (including shares
of Common Stock (a) held in the restricted stock trust under the Young & Rubicam
Holdings Inc. Restricted Stock Plan, as amended, (b) held in the deferral trust
under the Young & Rubicam Inc. Deferred Compensation Plan or (c) deliverable
pursuant to the exercise of options) to any Y&R Selling Stockholder or accepts
delivery of shares of Common Stock or options to purchase shares of Common Stock
from any Y&R Selling Stockholder to fund taxes due as a result of the exercise
of options by such Y&R Selling Stockholder or as result of the receipt of shares
from such trusts or to pay the exercise price in respect of options exercised by
such Y&R Selling Stockholder. The Company also agrees not to file any
registration statement with respect to any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock for
a period of 120 days after the date of the Prospectus without the prior written
consent of Bear, Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, each Selling Stockholder agrees that, for
5
<PAGE>
a period of 120 days after the date of the Prospectus without the prior written
consent of Bear, Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation, it will not make any demand for, or exercise any right with respect
to, the registration of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock. The Company shall, prior
to or concurrently with the execution of this Agreement, deliver an agreement
executed by the trustees of the Management Voting Trust (as defined in the
Prospectus) to the effect that such trustees will not permit the Management
Voting Trust to, during the period commencing on the date the trustees of the
Management Voting Trust sign such agreement and ending 120 days after the date
of the Prospectus, without the prior written consent of Bear, Stearns & Co. Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation, (A) engage in any of
the transactions described in the first sentence of this paragraph or (B) make
any demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock. Each entity listed on Schedule VI hereto shall,
prior to or concurrently with the execution of this Agreement, execute and
deliver an agreement to the effect that such entity shall not, during the period
commencing on the date such entity signs such agreement and ending 120 days
after the date of the Prospectus, without the prior written consent of Bear,
Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation, (A)
engage in any of the transactions described in the first sentence of this
paragraph or (B) make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock.
SECTION 3. Terms of Public Offering. The Company and the Selling
Stockholders are advised by you that the Underwriters propose (i) to make a
public offering of their respective portions of the Shares as soon after the
execution and delivery of this Agreement as in your judgment is advisable and
(ii) initially to offer the Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Bear, Stearns & Co. Inc. shall request no later than
two business days prior to the Closing Date or the applicable Option Closing
Date (as defined below), as the case may be. The Shares shall be delivered by or
on behalf of the Selling Stockholders, with any transfer taxes thereon duly paid
by the respective Selling Stockholders, to Bear, Stearns & Co. Inc. through the
facilities of The Depository Trust Company ("DTC"), for the respective accounts
of the several Underwriters, against payment to the Selling Stockholders of the
Purchase Price
6
<PAGE>
therefor by wire transfer of Federal or other funds immediately available in New
York City. The certificates representing the Shares shall be made available for
inspection not later than 9:30 A.M., New York City time, on the business day
prior to the Closing Date or the applicable Option Closing Date, as the case may
be, at the office of DTC or its designated custodian (the "DESIGNATED OFFICE").
The time and date of delivery and payment for the Firm Shares shall be 10:00
A.M., New York City time, on May 28, 1999 or such other time on the same or such
other date as Bear, Stearns & Co. Inc. and the Company shall agree in writing.
The time and date of delivery and payment for the Firm Shares are hereinafter
referred to as the "CLOSING DATE." The time and date of delivery and payment for
any Additional Shares to be purchased by the Underwriters shall be 10:00 A.M.,
New York City time, on the date specified in the applicable exercise notice
given by the Representatives pursuant to Section 2 or such other time on the
same or such other date as Bear, Stearns & Co. Inc. and the Company shall agree
in writing. The time and date of delivery and payment for any Additional Shares
are hereinafter referred to as an "OPTION CLOSING DATE."
The documents to be delivered on the Closing Date or an Option
Closing Date on behalf of the parties hereto pursuant to Section 9 of this
Agreement shall be delivered at the offices of Cleary, Gottlieb, Steen &
Hamilton, One Liberty Plaza, New York, New York 10006, and the Shares shall be
delivered at the Designated Office, all on the Closing Date or such Option
Closing Date, as the case may be.
SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, when any amendment to the
Registration Statement becomes effective, if the Company is required to file a
Rule 462(b) Registration Statement after the effectiveness of this Agreement,
when the Rule 462(b) Registration Statement has become effective and of the
happening of any event during the period referred to in Section 5(d) below, as a
result of which it is necessary to amend the Registration Statement or amend or
supplement the Prospectus in order that the Prospectus will not include any
untrue statement of a
7
<PAGE>
material fact or omit to state a material fact necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will use its best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time.
(b) To furnish to you three signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each other Underwriter such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall
be reasonably satisfactory to you, and to file the Prospectus in such form with
the Commission within the applicable period specified in Rule 424(b) under the
Act; during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been advised
and as to which you shall not have had an opportunity to comment; and, during
such period, to prepare and file with the Commission, promptly upon your
reasonable request, any amendment to the Registration Statement or amendment or
supplement to the Prospectus which may be necessary or advisable in connection
with the distribution of the Shares by you, and to use its best efforts to cause
any such amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business
day after the date of this Agreement and from time to time thereafter for such
period as in the reasonable opinion of counsel for the Underwriters a prospectus
is required by law to be delivered in connection with sales by an Underwriter or
a dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the reasonable opinion
of counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order that the Prospectus will not include any untrue statement of
a material fact or omit to state a material fact, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the reasonable opinion of counsel for the Underwriters, it is
necessary to amend or supplement the
8
<PAGE>
Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, include any untrue statement
of a material fact or omit to state a material fact, or so that the Prospectus
will comply with applicable law, and to furnish to each Underwriter and to any
dealer as many copies thereof as such Underwriter or dealer may reasonably
request.
(f) To make generally available to you and to its stockholders as
soon as practicable an earnings statement covering the twelve-month period
ending June 30, 2000 that shall satisfy the provisions of Section 11(a) of the
Act.
(g) During the period ending three years after the date of this
Agreement, to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock (for so long as
the Common Stock is registered under Section 12 of the Exchange Act (as defined
herein)) or furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed and such
other publicly available information concerning the Company and its subsidiaries
as you may reasonably request.
(h) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
reasonable expenses incident to the performance of the Company's obligations
under this Agreement, including: (i) the reasonable fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Act and all other
reasonable fees and expenses in connection with the preparation, printing,
filing and distribution of the Registration Statement (including financial
statements and exhibits), any preliminary prospectus, the Prospectus and all
amendments and supplements to any of the foregoing, including the mailing and
delivering of copies thereof to the Underwriters and dealers in the quantities
specified herein, (ii) all costs of printing or producing this Agreement and any
other agreements or documents in connection with the offering, purchase, sale or
delivery of the Shares, (iii) all expenses in connection with the preparation of
the Preliminary and Supplemental Blue Sky Memoranda (including the filing fees
and the fees and disbursements of counsel for the Underwriters in connection
with such memoranda), (iv) the filing fees in connection with the review and
clearance of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) the cost of printing certificates representing the
Shares, (vi) the costs and charges of any transfer agent, registrar
9
<PAGE>
and/or depositary, and (vii) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision is
not otherwise made in this Section, but in each of cases (i) through (vii)
excluding all underwriting discounts and commissions and all stock transfer
taxes applicable to the sale of any Shares. The provisions of this Section shall
not supersede or otherwise affect any separate agreement that the Company and
any Selling Stockholders may have for allocation of such expenses among
themselves.
(i) To use its best efforts to list, subject to notice of issuance,
the Shares on the NYSE.
(j) If the Registration Statement at the time of the effectiveness
of this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b), such that the Rule 462(b) Registration Statement
will be effective by 10:00 P.M., New York City time, on the date of this
Agreement (or by 9:30 A.M., New York City time on the day following the date of
this Agreement) and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
(l) For a period of 120 days after the date of the Prospectus, the
Company agrees to enforce all of the Company's rights under the Standstill and
Lock-up Agreements, the Selling Stockholders' Irrevocable Powers of Attorney,
the Management Lock-up and Voting Agreement with certain KBM stockholders and
the Nonmanagement Lock-up and Voting Agreement with certain KBM stockholders,
and will not give to any party to any such agreement, a waiver of any of his,
her or its obligations under such agreements, or excuse any breach of any such
obligations, except with respect to the Standstill and Lock-up Agreements, as
permitted by clause (v) of the second sentence of the third paragraph of Section
2 hereof, or as would be permitted by clause (v) of the second sentence of the
third paragraph of Section 2 hereof if any such party were a Selling
Stockholder, or, except in each case, with the prior written consent of Bear,
Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation.
SECTION 6. Representations and Warranties of the Company. The
Company represents and warrants to each Underwriter and the H&F Selling
Stockholders that:
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(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); and no stop order suspending the effectiveness
of the Registration Statement is in effect, and no proceedings for such purpose
are pending before or, to the knowledge of the Company, threatened by the
Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended by
any post-effective amendment, if applicable, will not, as of the applicable
effective date, contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply, and any amendments
to the Registration Statement when they become effective and any amendments or
supplements to the Prospectus as of the applicable filing date will comply in
all material respects with the Act; (iii) if the Company is required to file a
Rule 462(b) Registration Statement after the effectiveness of this Agreement,
such Rule 462(b) Registration Statement and any post-effective amendments
thereto, when they become effective (A) will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (B) will comply
in all material respects with the Act; and (iv) the Prospectus does not contain
and, as amended or supplemented, if applicable, as of the Closing Date will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or omissions
in the Registration Statement or the Prospectus based upon information relating
to any Underwriter furnished to the Company in writing through you expressly for
use therein.
(c) Each preliminary prospectus filed as part of Amendment No. 1 or
Amendment No. 2 to the registration statement as originally filed, or filed
pursuant to Rule 424 under the Act, when so filed, complied in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus filed as part of the registration statement as originally
filed, or filed pursuant to Rule 424 under the
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Act, based upon information relating to any Underwriter furnished to the Company
in writing through you expressly for use therein. The Company acknowledges for
all purposes under this Agreement that the statements set forth in the last
paragraph of the U.S. and international prospectus front cover pages and under
the caption "Underwriting" (other than in the fifth, sixth, seventh and
seventeenth paragraphs of such section) constitute the only written information
furnished to the Company by any Underwriter expressly for use in the
Registration Statement, any preliminary prospectus and the Prospectus.
(d) Each of the Company and each subsidiary of the Company has been
duly incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties, and each of the Company and its subsidiaries
is duly qualified and is in good standing as a foreign corporation authorized to
do business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except in each
case where the failure to be in good standing or to be so qualified would not
have a Material Adverse Effect (as defined herein). As used herein, the term
"SUBSIDIARY" has the meaning set forth in Rule 1-02(x) of Regulation S-X. Young
& Rubicam L.P. ("YRLP") has been duly organized, is validly existing and in good
standing as a limited partnership under the laws of the State of Delaware and
has the partnership power and authority to carry on its business as it is
currently conducted and to own, lease and operate its properties, and YRLP is
duly qualified and is in good standing as a foreign partnership authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be in good standing or to be so qualified would not have a Material
Adverse Effect. For United States federal income tax purposes, YRLP has been and
is currently classified as a partnership, and not as an association taxable as a
corporation.
(e) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens granted or
issued by the Company or YRLP relating to or entitling any person to purchase or
otherwise to acquire any shares of the capital stock of the Company or any
partnership interest in YRLP, except as otherwise disclosed in the Registration
Statement.
(f) (i) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders, other than the
Option Shares (as defined below)) have been duly authorized and validly issued
and are fully paid, non-assessable and not subject to any preemptive or similar
rights; and (ii) the
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Option Shares have been duly authorized and on the Closing Date will be validly
issued, fully paid and nonassessable and not subject to any preemptive or
similar rights.
(g) All of the outstanding partnership interests in YRLP have been
duly authorized and validly issued and are fully paid and non-assessable, and
are owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature (each, a "Lien") other than Liens securing
indebtedness incurred pursuant to the New Credit Facility (as defined in the
Prospectus).
(h) The authorized capital stock of the Company conforms as to legal
matters in all material respects to the description thereof contained in the
Prospectus.
(i) Neither the Company nor any of its subsidiaries is (i) in
violation of its respective charter, by-laws or partnership agreement, as the
case may be, or (ii) in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective property is bound, which default in clause (ii) would have a
material adverse effect on the business, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole (a "MATERIAL
ADVERSE EFFECT").
(j) The execution and delivery of this Agreement by the Company, the
compliance by the Company with all the provisions hereof and the performance by
the Company of its obligations hereunder will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as have been obtained or may be
required under the Act or the securities or Blue Sky laws of the various
states), (ii) (x) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company, (y)
conflict with or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of YRLP or (z) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
any indenture, loan agreement, mortgage, lease or other agreement or instrument
to which the Company or YRLP is a party or by which the Company or YRLP or their
respective property is bound, which conflict, breach or default would have a
Material Adverse Effect, (iii) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, YRLP or their respective
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property, which violation or conflict would have a Material Adverse Effect or
(iv) result in the suspension, termination or revocation of any Authorization
(as defined below) of the Company or YRLP or any other impairment of the rights
of the holder of any such Authorization, which suspension, termination,
revocation or impairment would have a Material Adverse Effect.
(k) There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened to which the Company or YRLP is a party
or to which any of their respective property is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
applicable foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any
provisions of the Employee Retirement Income Security Act of 1974, as amended,
or any provisions of the Foreign Corrupt Practices Act or the rules and
regulations promulgated thereunder, except for such violations which, singly or
in the aggregate, would not have a Material Adverse Effect.
(m) Each of the Company and YRLP has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
YRLP is in compliance with all the terms and conditions thereof and with the
rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are
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burdensome to the Company or any of its subsidiaries; in each case except as
would not have a Material Adverse Effect.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a Material Adverse Effect.
(o) This Agreement has been duly authorized, executed and delivered
by the Company.
(p) PricewaterhouseCoopers LLP are independent public accountants
with respect to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with the related schedule and notes, present fairly in all
material respects the consolidated financial position, results of operations and
cash flows of the Company and its subsidiaries on the basis stated therein at
the respective dates or for the respective periods to which they apply; such
statements and the related schedule and notes have been prepared in accordance
with United States generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; the supporting
schedules, if any, included in the Registration Statement present fairly in
accordance with United States generally accepted accounting principles the
information required to be stated therein; and the other financial and
statistical information and data set forth under the captions "Prospectus
Summary - Summary Consolidated Financial Data," "Capitalization" and "Selected
Consolidated Financial Data" in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) have been accurately derived from such
financial statements and the books and records of the Company.
(r) The Company is not and, after giving effect to the offering and
sale of the Shares as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(s) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
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person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company or to require the Company
to include such securities with the Shares registered pursuant to the
Registration Statement.
(t) Since the respective dates as of which information is given in
the Prospectus, other than as set forth in the Prospectus, (i) there has not
occurred any material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change in the capital stock or in the long-term debt of the Company or any of
its subsidiaries and (iii) neither the Company nor any of its subsidiaries has
incurred any material liability or obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters hereunder shall be
deemed to be a representation and warranty by the Company to the Underwriters as
to the matters covered thereby.
(v) The Company and YRLP own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("INTELLECTUAL PROPERTY") referenced or described
in the Prospectus as being owned by or licensed to them (it being understood
that the Company and its subsidiaries do not own or possess, and do not have the
right to acquire, any intellectual property of clients, customers or other third
parties that is employed by the Company and its subsidiaries in connection with
the business now operated by them) except where the failure to own or possess or
otherwise be able to acquire such intellectual property would not, singly or in
the aggregate, have a Material Adverse Effect; and neither the Company nor YRLP
has received any written notice of infringement of or conflict with asserted
rights of others with respect to any of such intellectual property which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect.
(w) The Company and YRLP are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged; and
neither the Company nor YRLP (i) has received written notice from any insurer or
agent of such insurer that substantial capital improvements or other material
expenditures will have
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to be made in order to continue such insurance or (ii) has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers at a
cost that would not have a Material Adverse Effect.
(x) The Company and YRLP have good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and
YRLP, in each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as would not result in a
Material Adverse Effect; and any real property and buildings held under lease by
the Company and YRLP are held by them under valid, subsisting and enforceable
leases with such exceptions as would not result in a Material Adverse Effect.
(y) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or threatened against the Company or
YRLP before the National Labor Relations Board or any state or local labor
relations board, (ii) strike, labor dispute, slowdown or stoppage pending or, to
the knowledge of the Company, threatened against the Company or YRLP or (iii)
union representation question existing with respect to the employees of the
Company and YRLP, except for such actions specified in clause (i), (ii) or (iii)
above, which, singly or in the aggregate, would not have a Material Adverse
Effect. To the Company's knowledge, no collective bargaining organizing
activities are taking place with respect to the Company or YRLP, which would,
singly or in the aggregate, have a Material Adverse Effect.
(z) The Company and YRLP maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with United States generally accepted accounting
principles and to maintain asset accountability; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(aa) All material tax returns required to be filed by the Company
and each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such
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returns or pursuant to any assessment received by the Company or any of its
subsidiaries have been paid, other than those being contested in good faith and
for which adequate reserves have been provided, if required by United States
generally accepted accounting principles.
(bb) No subsidiary of the Company (excluding YRLP), is a
"significant subsidiary" within the meaning of Rule 1-02(w) of Regulation S-X.
SECTION 7. Representations and Warranties of the Selling
Stockholders. Each Selling Stockholder, severally and not jointly, represents
and warrants to each Underwriter, solely in such Selling Stockholder's capacity
as a Selling Stockholder, that:
(a) Such Selling Stockholder (i) is, and on the Closing Date will
be, the lawful owner of the Shares (other than that number of Shares, if any,
listed opposite the name of such Selling Stockholder under the heading "Option
Shares" in Schedule III hereto (with respect to each Selling Stockholder, such
number of Shares is hereinafter referred to as the "Option Shares")) to be sold
by such Selling Stockholder pursuant to this Agreement and (ii) owns, and on the
Closing Date will own such Shares (other than the Option Shares), free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever, other than pursuant to the Custody Agreement (as defined
below), if any, the Power of Attorney (as defined below), this Agreement and the
restrictions on transfer set forth in the Management Voting Trust Agreement and
the Stockholders' Agreement, with which such Selling Stockholder is, and on the
Closing Date will be, in compliance, and other than any such restriction on
transfer, lien, encumbrance, security interest, equity or claim created by an
Underwriter or resulting from any actions taken by an Underwriter. If any Shares
are listed opposite the name of a Selling Stockholder under the heading "Option
Shares" in Schedule III hereto, such Selling Stockholder (i) is the holder of an
Award Granted to such Selling Stockholder under the Young & Rubicam Holdings
Inc. Management Stock Option Plan, as amended (the "PLAN") (as such terms are
defined therein), with respect to the Option Shares and (ii) pursuant to the
Plan and such Selling Stockholder's Stock Option Agreement (as defined in the
Plan), on the Closing Date such Selling Stockholder (A) will be the lawful owner
of the Option Shares to be sold by such Selling Stockholder pursuant to this
Agreement and (B) will own such Option Shares, in each case subject to the terms
of this Agreement, the Custody Agreement and the Power of Attorney, free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever, other than the restrictions on transfer set forth in the
Management Voting Trust Agreement and the Stockholders' Agreement, with which
such Selling
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Stockholder is, and on the Closing Date will be, in compliance, and other than
any such restriction on transfer, lien, encumbrance, security interest, equity
or claim created by an Underwriter or resulting from any actions taken by an
Underwriter.
(b) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority, and all authorization and approval
required by law, (i) to enter into this Agreement, the Letter of Transmittal and
Custody Agreement, if any, signed by or on behalf of such Selling Stockholder
and The Bank of New York, as Custodian (the "CUSTODY AGREEMENT"), relating to
the deposit of the Shares (other than the Option Shares) to be sold by such
Selling Stockholder and the Power of Attorney of such Selling Stockholder (the
"POWER OF ATTORNEY") appointing certain individuals as such Selling
Stockholder's attorneys-in-fact (with respect to the Y&R Selling Stockholders
and the KBM Selling Stockholders, the "Y&R ATTORNEYS," with respect to the H&F
Selling Stockholders, the "H&F ATTORNEYS," with respect to BearTel, the "BEARTEL
ATTORNEYS" and collectively the "ATTORNEYS") to the extent set forth therein,
relating to the transactions contemplated hereby and by the Registration
Statement and the Custody Agreement, if any, and (ii) to sell, assign, transfer
and deliver on the Closing Date the Shares to be sold by such Selling
Stockholder in the manner provided herein and therein.
(c) This Agreement has been duly authorized, executed, and delivered
by or on behalf of such Selling Stockholder.
(d) The Custody Agreement, if any, of such Selling Stockholder has
been duly authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms.
(e) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and pursuant to the applicable Power of Attorney, such Selling
Stockholder has, among other things, authorized the applicable Attorneys, or any
one of them, to execute and deliver on such Selling Stockholder's behalf this
Agreement, in the case of both the Y&R Selling Stockholders and the KBM Selling
Stockholders, the Custody Agreement, and, in the case of all Selling
Stockholders, any other document that they, or any one of them, may deem
necessary or desirable in connection with the transactions contemplated hereby
and thereby and to deliver the Shares to be sold by such Selling Stockholder
pursuant to this Agreement.
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(f) Upon sale and delivery of and payment for the Shares to be sold
by such Selling Stockholder pursuant to this Agreement, the Underwriters will
own such Shares, free and clear of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever, other than any
such restriction on transfer, lien, encumbrance, security interest, equity or
claim created by an Underwriter or resulting from any actions taken by an
Underwriter.
(g) Assuming that the representations and warranties of the Company
in Section 6 hereof are true and accurate in all material respects, the
execution and delivery of this Agreement and the Custody Agreement, if any, and
Power of Attorney of such Selling Stockholder by or on behalf of such Selling
Stockholder, the compliance by such Selling Stockholder with all the provisions
hereof and thereof and the performance by such Selling Stockholder of its
obligations hereunder and thereunder will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental agency or body (except such as have been obtained or may be
required under the Act or the securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the organizational documents of such Selling
Stockholder, if such Selling Stockholder is not an individual, or any indenture,
loan agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder or any spouse of such Selling Stockholder is a party or by
which such Selling Stockholder or any spouse or property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Stockholder or any spouse
or property of such Selling Stockholder.
(h) The information in the Prospectus under the caption "Selling
Stockholders" which specifically relates to such Selling Stockholder (consisting
of such Selling Stockholder's name and number of shares of Common Stock
beneficially owned by such Selling Stockholder both before and after the
offering contemplated hereby) will not on the date of the execution of this
Agreement or on the Closing Date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(i) At any time during the period commencing on the first business
day after the date of this Agreement and from time to time thereafter for such
period as in the reasonable opinion of counsel for the Underwriters a prospectus
is required by law to be delivered in connection with sales by an Underwriter or
dealer, if there
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is any change in the information referred to in Section 7(h) above, such Selling
Stockholder will promptly notify you and the Company of such change.
(j) Each certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or counsel for the Underwriters
pursuant to Section 9(e) shall be deemed to be a representation and warranty by
such Selling Stockholder, in its capacity as such, to the Underwriters as to the
matters covered thereby.
SECTION 8. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Underwriter, its directors, its officers and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any reasonable legal or other expenses
incurred in connection with investigating or defending any matter, including any
action, that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus filed as part of the registration statement as originally
filed or as part of any amendment thereto or filed pursuant to Rule 424 under
the Act ("PRELIMINARY PROSPECTUS"), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or judgments are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished in writing to the Company
through you expressly for use therein, provided, however, that the foregoing
indemnity agreement with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter, any director or officer of any Underwriter or
any person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act to the extent such Underwriter
failed to deliver a Prospectus (as then amended or supplemented, provided by the
Company to the several Underwriters in the requisite quantity and on a timely
basis to permit proper delivery on or prior to the Closing Date) to the person
asserting any losses, claims, damages, liabilities and judgments caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if
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such material misstatement or omission or alleged material misstatement or
omission was cured in such Prospectus.
(b) The Company agrees to indemnify and hold harmless each Selling
Stockholder, its directors, its officers and each person, if any, who controls
any Selling Stockholder within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any reasonable legal
or other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), the Prospectus (or any amendment or supplement thereto)
or any Preliminary Prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Selling Stockholder furnished in writing to the Company by such Selling
Stockholder expressly for use therein.
(c) Each of the Selling Stockholders, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any reasonable legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
Preliminary Prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with respect to losses, claims,
damages, liabilities and judgments caused by an untrue statement or omission or
alleged untrue statement or omission based on information relating to such
Selling Stockholder furnished in writing by or on behalf of such Selling
Stockholder expressly for use in the Prospectus.
(d) Each of the Selling Stockholders, severally and not jointly,
agrees to indemnify and hold harmless the Company, its directors, its officers
and each
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person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement thereto) or any Preliminary Prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only with
respect to losses, claims, damages, liabilities and judgments caused by an
untrue statement or omission or alleged untrue statement or omission based on
information relating to such Selling Stockholder furnished in writing by or on
behalf of such Selling Stockholder expressly for use in the Prospectus.
(e) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers, each person, if any,
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, each Selling Stockholder and each person, if any, who
controls such Selling Stockholder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to such Underwriter but only with reference to information
relating to such Underwriter furnished in writing to the Company through you
expressly for use in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any Preliminary
Prospectus.
(f) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Sections 8(a), 8(b), 8(c),
8(d) or 8(e) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly
notify the person against whom such indemnity may be sought (the "INDEMNIFYING
PARTY") in writing and the indemnifying party shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all reasonable fees and expenses of such
counsel, as incurred (except that in the case of any action in respect of which
indemnity may be sought pursuant to Sections 8(a), 8(b), 8(c), 8(d) and 8(e),
the Underwriter shall not be required to assume the defense of such action
pursuant to this Section 8(f), but may employ separate counsel and participate
in the defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of such Underwriter). Any indemnified
party shall have the right to employ separate counsel
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in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the indemnified party unless
(i) the employment of such counsel shall have been specifically authorized in
writing by the indemnifying party, (ii) the indemnifying party shall have failed
to assume the defense of such action or employ counsel reasonably satisfactory
to the indemnified party or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for (i) the reasonable
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all Underwriters, their officers and directors and all
persons, if any, who control any Underwriter within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, (ii) the reasonable
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for (x) the Company, its directors, its officers and all
persons, if any, who control the Company within the meaning of either such
Section and (y) the Y&R Selling Stockholders and the KBM Selling Stockholders,
(iii) the reasonable fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) for BearTel and all persons, if
any, who control BearTel within the meaning of either such Section, and (iv) the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for any H&F Selling Stockholders and all persons,
if any, who control any H&F Selling Stockholder within the meaning of either
such Section, and all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such firm
shall be designated in writing by Bear, Stearns & Co. Inc. In the case of any
such separate firm for the Company and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the Company.
In the case of any such separate firm for the H&F Selling Stockholders and such
control persons of any H&F Selling Stockholders, such firm shall be designated
in writing by the Attorneys. The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a written request from
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the indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(g) To the extent the indemnification provided for in this Section 8
is unavailable (other than in accordance with the terms hereof) to an
indemnified party or insufficient in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party or parties on
the one hand and the indemnified party or parties on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause 8(g)(i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(g)(i) above
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
respective proportion as the total net proceeds from the offering (after
deducting underwriting discounts and commissions, but before deducting expenses)
received by all Selling Stockholders and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the public
of the Shares, in each case as set forth on the cover page of the Prospectus.
The relative benefits received by each Selling Stockholder on the one hand and
the Underwriters on the other hand shall be deemed to be in the same respective
proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by such Selling Stockholder, and the total underwriting discounts
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<PAGE>
and commissions received by the Underwriters, bear to the total price to the
public of the Shares, in each case as set forth on the cover page of the
Prospectus. The relative fault of the Company, the Selling Stockholders and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the respective Selling Stockholders on the one hand or the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
8(g) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 8(g) are
several in proportion to the respective number of Shares purchased by each of
the Underwriters hereunder and not joint. The respective obligations of the
Selling Stockholders to contribute pursuant to this Section 8(g) are several in
proportion to the respective number of Shares sold by each Selling Stockholder
hereunder and not joint.
(h) Notwithstanding anything in this Agreement to the
contrary, the maximum aggregate liability of any Selling Stockholder pursuant to
this Section 8 shall be limited to an amount equal to the gross proceeds (after
deducting underwriting discounts and commissions but before deducting expenses)
received by such Selling Stockholder from the Underwriters for the sale of the
Shares sold by
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such Selling Stockholder hereunder (with respect to each Selling Stockholder,
such amount is referred to as the "SELLING STOCKHOLDER PROCEEDS").
(i) The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity. The provisions of this Section 8
shall supersede the provisions of Article 5 of the Registration Rights Agreement
(as defined in the Prospectus) with respect to the offer and sale of the Shares
by the Selling Stockholders provided that the remaining provisions of the
Registration Rights Agreement shall remain in full force and effect.
(j) Each Y&R Selling Stockholder and each KBM Selling Stockholder
hereby designates Young & Rubicam Inc., 285 Madison Avenue, New York, New York
10017, as its authorized agent, upon which process may be served in any action
which may be instituted in any state or federal court in the State of New York
by any Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each Y&R Selling
Stockholder and each KBM Selling Stockholder will accept the jurisdiction of
such court in such action, and waives, to the fullest extent permitted by
applicable law, any defense based upon lack of personal jurisdiction or venue. A
copy of any such process shall be sent or given to such Y&R Selling Stockholder
and such KBM Selling Stockholder, at the address for notices specified in
Section 13 hereof. Each H&F Selling Stockholder hereby designates H&F Investors
III, Inc., One Maritime Plaza, San Francisco, California 94111 , as its
authorized agent, upon which process may be served in any action which may be
instituted in any state or federal court in the State of New York by any
Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each H&F Selling
Stockholder will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense based
upon lack of personal jurisdiction or venue. A copy of any such process shall be
sent or given to such H&F Selling Stockholder, at the address for notices
specified in Section 13 hereof. BearTel hereby designates Bear, Stearns & Co.
Inc., 245 Park Ave., New York, New York 10167, as its authorized agent, upon
which process may be served in any action which may be instituted in any state
or federal court in the State of New York by any Underwriter, any director or
officer of any Underwriter or any person controlling any Underwriter asserting a
claim for indemnification or contribution under or pursuant to this Section 8,
and BearTel will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense
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based upon lack of personal jurisdiction or venue. A copy of any such process
shall be sent or given to BearTel, at the address for notices specified in
Section 13 hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement (or by 9:30 A.M., New York City time on the
day following the date of this Agreement); and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before the Commission.
(c) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by Peter A. Georgescu and Michael J. Dolan, in their
capacities as the Chairman of the Board and Chief Executive Officer and Vice
Chairman and Chief Financial Officer of the Company, respectively, confirming
the matters set forth in Sections 6(t) and 9(a) and that the Company has
complied with all of the agreements and satisfied all of the conditions herein
contained and required to be complied with or satisfied by the Company on or
prior to the Closing Date.
(d) Since the respective dates as of which information is given in
the Prospectus, other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, and (ii) there shall not have been any
change in the capital stock or in the long-term debt of the Company and its
subsidiaries, taken as a whole, and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
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(e) All the representations and warranties of each Selling
Stockholder contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing Date and
you shall have received on the Closing Date a certificate dated the Closing Date
executed by an Attorney pursuant to the Power of Attorney on behalf of each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date (i) an opinion,
dated the Closing Date, of Cleary, Gottlieb, Steen & Hamilton, counsel for the
Company, to the effect set forth in Appendix A hereto and (ii) an opinion, dated
the Closing Date, of the General Counsel or Senior Vice President, Legal
Counsel, for the Company, to the effect set forth in Appendix B hereto.
(g) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Wachtell, Lipton, Rosen & Katz, counsel for the H&F Selling
Stockholders, to the effect set forth in Appendix C hereto.
(h) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Mark E. Lehman, counsel for BearTel, to the effect set
forth in Appendix D hereto.
(i) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for
Wand/CMS Investments I L.P., Wand/CMS Investments II L.P., Wand/CMS Investments
III L.P., Wand CMS Investments IV L.P., Wand Equity Portfolio II L.P. and Wand
Affiliates Fund L.P. (collectively, the "Wand Partnerships"), to the effect set
forth in Appendix E hereto.
(j) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Nelson Mullins Riley & Scarborough L.L.P., counsel for
certain KBM Selling Stockholders, to the effect set forth in Appendix F hereto.
(k) You shall have received on the Closing Date an opinion, dated
the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, substantially to the effect set forth in Sections 6(b)(i),
6(b)(ii), 6(b)(iii), 6(b)(iv), and 6(o) herein.
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(l) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from PricewaterhouseCoopers
LLP, independent public accountants, containing the information and statements
of the type ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(m) The Company and each entity listed on Schedule VI hereto shall
have delivered to you the agreements of the trustees of the Management Voting
Trust and such entities, respectively, specified in Section 2 hereof which
agreements shall be in full force and effect on the Closing Date.
(n) The Shares shall have been duly listed, subject to official
notice of issuance, on the NYSE.
(o) You shall have received on the Closing Date, a certificate of
each Selling Stockholder who is not a U.S. Person (as defined under applicable
U.S. federal tax legislation) to the effect that such Selling Stockholder is not
a U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any
Additional Shares hereunder are subject to the delivery to the Representatives
on the applicable Option Closing Date of such documents as they may reasonably
request with respect to the good standing of the Company, a certificate to the
effect set forth in Section 9(c) dated the applicable Option Closing Date, an
opinion of Cleary, Gottlieb, Steen & Hamilton to the effect set forth in
paragraph 3 of Appendix A, an opinion of Wachtell, Lipton, Rosen & Katz to the
effect set forth in paragraph 5 of Appendix C and an opinion of BearTel counsel
to the effect set forth in paragraph 5 of Appendix D.
SECTION 10. Effectiveness of Agreement and Termination. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
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<PAGE>
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or (v) the declaration of a banking moratorium
by either federal or New York State authorities or the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I and Schedule
II bears to the total number of Firm Shares which all the non-defaulting
Underwriters have agreed to purchase, or in such other proportion as you may
specify, to purchase the Firm Shares or Additional Shares, as the case may be,
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase on such date; provided that in no event shall the number of Shares
which any Underwriter has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If on the
Closing Date any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm
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Shares to be purchased by all Underwriters and arrangements satisfactory to you,
the Company and the H&F Selling Stockholders for purchase of such Firm Shares
are not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case which does not result in termination
of this Agreement, either you or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
such Additional Shares or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to
purchase on such date in the absence of such default. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
SECTION 11. Agreements of the Selling Stockholders. Each Selling
Stockholder, severally and not jointly, agrees with you and the Company, whether
or not the transactions contemplated in this Agreement are consummated or this
Agreement is terminated, to pay or cause to be paid all reasonable expenses
incident to the performance of the Selling Stockholders' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of any Selling
Stockholder's counsel in connection with the registration and delivery of the
Shares under the Act, (ii) all costs and expenses related to the transfer and
delivery of the Firm Shares to the Underwriters, including any transfer or other
taxes payable thereon, and (iii) all other costs and expenses incident to the
performance of the obligations of the Selling Stockholders hereunder for which
provision is not otherwise made in this Section. The provisions of this Section
shall not supersede or otherwise affect any separate agreement that the Company
and any Selling Stockholders may have for allocation of such expenses among
themselves.
SECTION 12. Miscellaneous. Notices given pursuant to any provision
of this Agreement shall be addressed as follows: (i) if to the Company, to Young
& Rubicam Inc., 285 Madison Avenue, New York, New York 10017, Attention: General
Counsel, (ii) if to the Y&R Selling Stockholders or to the KBM Selling
Stockholders, to Michael J. Dolan, Stephanie W. Abramson or Mark T. McEnroe, as
Y&R Attorneys, c/o Young & Rubicam Inc., 285 Madison Avenue,
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<PAGE>
New York, New York 10017, (iii) if to the H&F Selling Stockholders, to Philip U.
Hammarskjold and Matthew R. Barger, as H&F Attorneys, c/o H&F Investors III,
Inc., One Maritime Plaza, San Francisco, California 94111, (iv) if to BearTel,
to Stephen M. Parish, Scott P. Scharfman, and Davies B. Beller, as BearTel
Attorneys, c/o Bear, Stearns & Co. Inc., 245 Park Ave., New York, New York
10167, and (v) if to any Underwriter or to you, to you c/o Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the Selling
Stockholders and the several Underwriters set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will survive
delivery of and payment for the Shares, regardless of any investigation, or
statement as to the results thereof, made by or on behalf of any Underwriter,
the officers or directors of any Underwriter, any person controlling any
Underwriter, the Company, the officers or directors of the Company, any person
controlling the Company, any Selling Stockholder or any person controlling such
Selling Stockholder, acceptance of the Shares and payment for them hereunder and
termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of
any Selling Stockholders as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10 or breach of this Agreement
by any Underwriter), the Company, the H&F Selling Stockholders and BearTel agree
severally and not jointly, to reimburse the several Underwriters for all
out-of-pocket expenses (including the reasonable fees and disbursements of
counsel) incurred by them in proportion to the number of shares to be sold by
(i) the Y&R Selling Stockholders and the KBM Selling Stockholders, (ii) the H&F
Selling Stockholders and (iii) BearTel, respectively. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(h) hereof.
Each Y&R Selling Stockholder's liability and each KBM Selling
Stockholder's liability for the breach of the representations and warranties of
such Y&R Selling Stockholder and such KBM Selling Stockholder in or pursuant to
Section 7(a) is not limited under this Agreement. Notwithstanding the foregoing,
the aggregate liability of any Y&R Selling Stockholder and any KBM Selling
Stockholder for the breach of any representations and warranties of such Y&R
Selling Stockholder or such KBM Selling Stockholder in or pursuant to Sections
7(b), (c), (d), (e), (f), (g), (h), (i) and (j) shall be limited to such Y&R
Selling
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Stockholder's Selling Stockholder Proceeds or such KBM Selling Stockholder's
Selling Stockholder Proceeds. In the event that the losses, claims, damages,
liabilities or judgments relating to the breach by any Y&R Selling Stockholder
or any KBM Selling Stockholder of any representations and warranties of such Y&R
Selling Stockholder or such KBM Selling Stockholder in or pursuant to Sections
7(b), (c), (d), (e), (f), (g), (h), (i) and (j) exceeds the Selling Stockholder
Proceeds for such Y&R Selling Stockholder or such KBM Selling Stockholder, the
Company agrees that it shall be wholly liable for such excess amount. Solely
with respect to each Y&R Selling Stockholder and each KBM Selling Stockholder,
the Company hereby makes to each Underwriter the representations and warranties
made by each such Y&R Selling Stockholder and such KBM Selling Stockholder in
Sections 7(b), (c), (d), (e), (f), (g), (h), (i) and (j), inclusive.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
34
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among the
Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
YOUNG & RUBICAM INC.
By:
------------------------------
Name:
Title:
THE Y&R SELLING
STOCKHOLDERS NAMED IN
SCHEDULE III(a) HERETO,
ACTING SEVERALLY
By:
------------------------------
Attorney-in-fact
THE KBM SELLING
STOCKHOLDERS NAMED IN
SCHEDULE III(b) HERETO,
ACTING SEVERALLY
By:
------------------------------
Attorney-in-fact
<PAGE>
THE H&F SELLING
STOCKHOLDERS NAMED IN
SCHEDULE IV(a) HERETO,
ACTING SEVERALLY
By:
------------------------------
Attorney-in-fact
BEARTEL CORP
By:
------------------------------
Attorney-in-fact
<PAGE>
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
ING BARING FURMAN SELZ LLC
MORGAN STANLEY & CO. INCORPORATED
SALOMON SMITH BARNEY INC.
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto
By BEAR, STEARNS & CO. INC.
By:
---------------------
Name:
Title:
BEAR, STEARNS INTERNATIONAL LIMITED
CAZENOVE & CO.
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
ING BARINGS LTD. AS AGENT FOR ING
BANK N.V., LONDON BRANCH
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
Acting severally on behalf of
themselves and the several
International Managers named
in Schedule II hereto
By BEAR, STEARNS INTERNATIONAL LIMITED
By
--------------------
Name:
Title:
<PAGE>
SCHEDULE I
----------
Underwriters Number of Firm
Shares to be Purchased
- --------------------------------------------------------------------------------
Bear, Stearns & Co. Inc.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette Securities
Corporation
- --------------------------------------------------------------------------------
Goldman, Sachs & Co.
- --------------------------------------------------------------------------------
ING Baring Furman Selz LLC
- --------------------------------------------------------------------------------
Morgan Stanley & Co. Incorporated
- --------------------------------------------------------------------------------
Salomon Smith Barney Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total 12,000,000
- --------------------------------------------------------------------------------
1
<PAGE>
SCHEDULE II
-----------
Underwriters Number of Firm
Shares to be Purchased
- --------------------------------------------------------------------------------
Bear, Stearns International Limited
- --------------------------------------------------------------------------------
Cazenove & Co.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette International
- --------------------------------------------------------------------------------
Goldman Sachs International
- --------------------------------------------------------------------------------
ING Barings Ltd. as agent for ING Bank N.V.,
London Branch
- --------------------------------------------------------------------------------
Morgan Stanley & Co. International Limited
- --------------------------------------------------------------------------------
Salomon Brothers International Limited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total 3,000,000
- --------------------------------------------------------------------------------
2
<PAGE>
SCHEDULE III
------------
(a) Y&R SELLING STOCKHOLDERS
Number of
Firm Shares
Number of Being Sold
Firm Shares That Constitute
Name Being Sold Option Shares
- -------------------------------------- ------------------ --------------------
(b) KBM SELLING STOCKHOLDERS
Number of Firm Shares
Name Being Sold
- --------------------------------------------------------------------------------
3
<PAGE>
SCHEDULE IV
-----------
(a) H&F SELLING STOCKHOLDERS
Number of Firm
Name Shares Being Sold
- --------------------------------------------------------------------------------
Hellman & Friedman Capital Partners III, L.P.
H&F Orchard Partners III, L.P.
H&F International Partners III, L.P.
----------------------
Total
- --------------------------------------------------------------------------------
(b)
BearTel Corp.
4
<PAGE>
SCHEDULE V
----------
OPTION SELLING STOCKHOLDERS
Number of Additional
Shares Subject to
Name Additional Share Option
- --------------------------------------------------------------------------------
Total Shares Subject to Additional Share Option: 2,250,000
5
<PAGE>
SCHEDULE VI
------------
F. Warren Hellman
Philip U. Hammarskjold
Richard S. Bodman
John F. McGillicuddy
Sir Christopher Lewinton
6
<PAGE>
Appendix A
FORM OF OPINION OF CLEARY, GOTTLIEB, STEEN & HAMILTON:
1. The Company is validly existing as a corporation in good
standing under the laws of the State of Delaware.
2. The Company has corporate power to own its properties and
conduct its business as described in the Prospectus, and the Company has
corporate power to enter into the Underwriting Agreement and to perform its
obligations thereunder.
3. The Shares have been duly authorized by all necessary
corporate action of the Company, have been validly issued by the Company and are
fully paid and nonassessable; and the holders of outstanding shares of capital
stock of the Company are not entitled to any preemptive rights to subscribe for
the Shares under the Amended and Restated Certificate of Incorporation or the
Amended and Restated By-Laws of the Company, or the General Corporation Law of
the State of Delaware.
4. The statements set forth under the heading "Description of
Capital Stock -- Common Stock" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the Securities and the Amended and
Restated Certificate of Incorporation of the Company, provide a fair summary of
such provisions, and the statements made in the Prospectus under the heading
"Certain U.S. Tax Consequences to Non-United States Holders", insofar as such
statements purport to summarize certain federal income tax laws of the United
States, constitute a fair summary of the principal U.S. federal income tax
consequences of an investment in the Securities by a non-U.S. holder (as defined
in the Prospectus).
5. The execution and delivery of the Underwriting Agreement
have been duly authorized by all necessary corporate action of the Company, and
the Underwriting Agreement has been duly executed and delivered by the Company.
6. The execution and delivery of the Underwriting Agreement
and the performance by the Company of its obligations in the Underwriting
Agreement (a) do not require any consent, approval, authorization, registration
or qualification of or with any governmental authority of the United States of
America or the State of New York or pursuant to the Delaware General Corporation
Law, except such as have been obtained or effected under the Securities Act and
the Securities Exchange Act of 1934, as amended (but such counsel expresses no
opinion as to any consent, approval, authorization, registration or
qualification that may be required under state securities or Blue Sky laws), and
(b) do not result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any of the agreements of the Company filed
(including by incorporation by reference) as exhibits to the Registration
Statement, the Amended and Restated Certificate of Incorporation of the Company
or the Amended and Restated By-laws of the Company.
7
<PAGE>
7. The Company is not and, after giving effect to the offering
and sale of the Shares, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
8. The Registration Statement (except the financial statements
and schedules and other financial and statistical data included therein, as to
which such counsel expresses no view), at the time it became effective, and the
Prospectus (except as aforesaid), as of the date thereof, appeared on their face
to be appropriately responsive in all material respects to the requirements of
the Securities Act and the rules and regulations thereunder other than
Regulation S-T under the Securities Act. In addition, such counsel does not know
of any contracts or other documents of a character required to be filed as
exhibits to the Registration Statement or required to be described in the
Registration Statement or the Prospectus that are not filed or described as
required.
9. No information has come to such counsel's attention that
causes such counsel to believe that the Registration Statement (except the
financial statements and schedules and other financial and statistical data
included therein, as to which such counsel expresses no view), at the time it
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
10. No information has come to such counsel's attention that
causes such counsel to believe that the Prospectus (except the financial
statements and schedules and other financial and statistical data included
therein, as to which such counsel expresses no view), as of the date thereof or
as of the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
11. Such counsel shall confirm that (based solely upon a
telephonic confirmation from a representative of the Commission) the
Registration Statement is effective under the Securities Act and, to the best of
such counsel's knowledge, no stop order with respect thereto has been issued,
and no proceeding for that purpose has been instituted or threatened by the
Commission.
13. The Custody Agreement executed by or on behalf of each Y&R
Selling Stockholder is a valid, binding and enforceable agreement of such Y&R
Selling Stockholder.
14. The Power of Attorney executed by each Y&R Selling
Stockholder is a valid, binding and enforceable instrument of such Y&R Selling
Stockholder
15. Upon delivery to the Underwriters in the State of New York
of certificates evidencing the Y&R Selling Stockholder Shares indorsed to such
Underwriters or
8
<PAGE>
in blank and payment therefore by the Underwriters pursuant to the Underwriting
Agreement, the Underwriters will own the Y&R Selling Stockholder Shares free of
any adverse claim (within the meaning of the Uniform Commercial Code as in
effect in the State of New York (the "UCC")). In rendering the foregoing opinion
such counsel may assume that (i) each Underwriter takes delivery of the Y&R
Selling Stockholder Shares without notice of any adverse claim (within the
meaning of the UCC) and (ii) the signature on each indorsement is genuine.
9
<PAGE>
Appendix B
FORM OF OPINION OF GENERAL COUNSEL OR SENIOR VICE PRESIDENT, LEGAL COUNSEL FOR
THE COMPANY:
1. The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of Delaware and
has the corporate power and authority to carry on its business as described in
the Prospectus and to own, lease and operate its properties.
2. YRLP has been duly organized, is validly existing and in
good standing as a limited partnership under the laws of the State of Delaware
and has the partnership power and authority to carry on its business as it is
currently conducted and to own, lease and operate its properties.
3. The Company is duly qualified to transact business and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
4. YRLP is duly qualified and is in good standing as a foreign
partnership authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be in good standing or to be so
qualified would not have a Material Adverse Effect.
5. All of the issued and outstanding shares of Common Stock of
the Company, including the Shares, have been duly authorized by all necessary
corporate action of the Company, have been validly issued by the Company and are
fully paid and nonassessable; and the holders of outstanding shares of capital
stock of the Company are not entitled to any preemptive rights to subscribe for
the Shares under the Amended and Restated Certificate of Incorporation, the
Amended and Restated By-Laws of the Company, the General Corporation Law of the
State of Delaware or any contracts to which the Company is a party.
6. All of the outstanding partnership interests in YRLP have
been duly authorized and validly issued and are fully paid and non-assessable,
and are owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature.
7. The execution and delivery of the Underwriting Agreement
have been duly authorized by all necessary corporate action of the Company, and
the Underwriting Agreement has been duly executed and delivered by the Company.
10
<PAGE>
8. The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
9. The statements set forth under the heading "Description of
Capital Stock" and "Shares Eligible for Future Sale" and in the fifth, sixth,
seventh and eighth paragraphs under the heading "Underwriting" in the Prospectus
and Items 14 and 15 of Part II of the Registration Statement, insofar as such
statements constitute a summary of the legal matters, documents or proceedings
referred to therein, fairly summarize the matters, documents or proceedings
referred to therein.
10. The Company is not in violation of its Amended and
Restated Certificate of Incorporation or Amended and Restated By-laws, YRLP is
not in violation of its partnership agreement or other organizational documents,
and, to such counsel's knowledge, neither the Company nor YRLP is in default in
the performance of any obligation, agreement, covenant or condition contained in
any of the agreements of the Company or YRLP filed as exhibits to the
Registration Statement except for defaults which would not have a Material
Adverse Effect.
11. The execution and delivery by the Company of the
Underwriting Agreement and the performance by the Company of its obligations
therein (a) do not require any consent, approval, authorization, registration or
qualification of or with any governmental authority of the United States or the
State of New York, except such as have been obtained or effected under the
Securities Act and the Securities Exchange Act of 1934, as amended (but such
counsel expresses no opinion as to any consent, approval, authorization,
registration or qualification that may be required under state securities or
Blue Sky laws of the United States or the securities laws of any non-U.S.
jurisdiction), (b) do not result in a breach or violation of any of the terms or
provisions of, or a default under (i) any of the agreements of the Company or
YRLP filed (including by incorporation by reference) as exhibits to the
Registration Statement, (ii) the Amended and Restated Certificate of
Incorporation or the Amended and Restated By-laws of the Company, (iii) the
partnership agreement or other organizational documents of YRLP or (iv) any
judgment, decree or order applicable to the Company of any United States federal
or New York State court or other governmental authority, except (in the case of
(i) and (iv)) for such breaches or violations as would not result in a Material
Adverse Effect, and (c) do not result in the suspension, termination or
revocation of any Authorization of the Company or YRLP or any other impairment
of the rights of the holder of any such Authorization, except as would not
result in a Material Adverse Effect.
12. To such counsel's knowledge after due inquiry, there are
no legal or governmental proceedings pending or threatened to which the Company
or YRLP is a party or to which any of the properties of the Company or YRLP is
subject that are required to be described in the Registration Statement or the
Prospectus that are not so described, and there are no contracts or other
documents that are required to be described in the Registration
11
<PAGE>
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not so described or filed as required.
13. To such counsel's knowledge, neither the Company nor any
of its subsidiaries has violated any Environmental Law, any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect.
14. The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
15. To such counsel's knowledge, except as described in the
Prospectus, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such securities
with the Shares registered pursuant to the Registration Statement.
16. Each of the Company and YRLP has such Authorizations of,
and has made all filings with and notices to, all United States federal and New
York State govern mental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without limitation,
under any applicable Environmental Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its busi ness, except where
the failure to have any such Authorization or to make any such filing or notice
would not, in the aggregate, have a Material Adverse Effect; each such
Authorization is valid and in full force and effect and each of the Company and
YRLP is in compliance with all the terms and conditions thereof and with the
rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company; in each case except as would
not have a Material Adverse Effect.
17. The Registration Statement (except the financial
statements and schedules and other financial and statistical data included
therein, as to which such counsel expresses no view), at the time it became
effective, and the Prospectus (except as aforesaid), as of the date thereof,
appeared on their face to be appropriately responsive in all material respects
to the requirements of the Securities Act and the rules and regulations
thereunder other than Regulation S-T under the Securities Act. In addition, I do
not know of any statutes, regulations, contracts or other documents of a
character required to be filed as
12
<PAGE>
exhibits to the Registration Statement or required to be described in the
Registration Statement or the Prospectus that are not filed or described as
required.
18. No information has come to my attention that causes me to
believe that (i) the Registration Statement (except the financial statements and
schedules and other financial and statistical data included therein, as to which
I express no view) at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) the Prospectus (except the financial statements and schedules and other
financial and statistical data included therein, as to which I express no view),
as of the date thereof or as of the Closing Date, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
13
<PAGE>
Appendix C
FORM OF OPINION OF WACHTELL, LIPTON, ROSEN & KATZ:
1. Each of the H&F Selling Stockholders is the lawful owner of
the Shares to be sold by such Selling Stockholder pursuant to the Underwriting
Agreement and owns such Shares, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever other than
pursuant to the Custody Agreement, the Power of Attorney, the Underwriting
Agreement and other than any such restriction on transfer, lien, encumbrance,
equity or claim created by an Underwriter or resulting from any actions taken by
an Underwriter.
2. Each of the H&F Selling Stockholders has full legal right,
power and authority, and all authorization and approval required by law, to
enter into the Underwriting Agreement and the Custody Agreement and the Power of
Attorney of such Selling Stockholder and to sell, assign, transfer and deliver
the Shares to be sold by such Selling Stockholder in the manner provided herein
and therein.
3. The Custody Agreement of each of the H&F Selling
Stockholders been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms.
4. The Power of Attorney of each of the H&F Selling
Stockholders has been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding instrument of such Selling Stockholder,
enforceable in accordance with its terms, and, pursuant to such Power of
Attorney, such Selling Stockholder has, among other things, authorized the
Attorneys, or any one of them, to execute and deliver on such Selling
Stockholder's behalf this Agreement and any other document they, or any one of
them, may deem necessary or desirable in connection with the transactions
contemplated hereby and thereby and to deliver the Shares to be sold by such
Selling Stockholder pursuant to this Agreement.
5. Upon sale and delivery of and payment for the Shares to be
sold by each of the H&F Selling Stockholders pursuant to the Underwriting
Agreement, and assuming the Underwriters purchase such Shares for value and in
good faith without notice of any adverse claim, the Underwriters will own such
Shares, free and clear of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever other than any such
restriction on transfer, lien, encumbrance, equity or claim created by an
Underwriter or resulting from any actions taken by an Underwriter.
6. Assuming that the representations and warranties of the
Company in Section 6 of the Underwriting Agreement are true and accurate in all
material respects, the execution and delivery of the Underwriting Agreement and
the Custody Agreement and Power of Attorney of each of the H&F Selling
Stockholders by such Selling Stockholder, the
14
<PAGE>
compliance by such Selling Stockholder with all the provisions hereof and
thereof and the performance by such Selling Stockholder of its obligations
thereunder will not require any consent, approval, authorization or other order
of, or qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various states),
conflict with or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling Stockholder, if such
Selling Stockholder is not an individual, or any indenture, loan agreement,
mortgage, lease or other agreement or instrument to which such Selling
Stockholder is a party or by which any property of such Selling Stockholder is
bound or violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over such Selling Stockholder or any property of such Selling
Stockholder.
15
<PAGE>
Appendix D
FORM OF OPINION OF BEARTEL COUNSEL:
1. BearTel Corp. is the lawful owner of the Shares to be sold by such
Selling Stockholder pursuant to the Underwriting Agreement and owns such Shares,
free of all restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever other than pursuant to the Custody Agreement, the
Power of Attorney, the Underwriting Agreement and other than any such
restriction on transfer, lien, encumbrance, equity or claim created by an
Underwriter or resulting from any actions taken by an Underwriter.
2. BearTel Corp. has full corporate power and authority, and all
authorization and approval required by law, to enter into the Underwriting
Agreement and the Custody Agreement and the Power of Attorney of such Selling
Stockholder and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder in the manner provided herein and therein.
3. The Custody Agreement of BearTel Corp. has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms.
4. The Power of Attorney of BearTel Corp. has been duly authorized,
executed and delivered by such Selling Stockholder and is a valid and binding
instrument of such Selling Stockholder, enforceable in accordance with its
terms, and, pursuant to such Power of Attorney, such Selling Stockholder has,
among other things, authorized the Attorneys, or any one of them, to execute and
deliver on such Selling Stockholder's behalf this Agreement and any other
document they, or any one of them, may deem necessary or desirable in connection
with the transactions contemplated hereby and thereby and to deliver the Shares
to be sold by such Selling Stockholder pursuant to this Agreement.
5. Upon sale and delivery of and payment for the Shares to be sold by
BearTel Corp. pursuant to the Underwriting Agreement, in the manner contemplated
thereby and by the Power of Attorney and Custody Agreement of BearTel Corp., and
assuming the Underwriters purchase such Shares for value and in good faith
without notice of any adverse claim, the Underwriters will own such Shares, free
and clear of all restrictions on transfer, liens, encumbrances, security
interests, equities and claims whatsoever other than any such restriction on
transfer, lien, encumbrance, equity or claim created by an Underwriter or
resulting from any actions taken by an Underwriter.
6. Assuming that the representations and warranties of the Company in
Section 6 of the Underwriting Agreement are true and accurate in all material
respects, effectiveness of the Registration Statement and closing of the
Offering as contemplated by the
16
<PAGE>
Underwriting Agreement and the Prospectus, (a) no authorization, consent,
approval or other action by, and no notice to or filing with, any U.S. federal
or New York State court, governmental body or regulatory agency is required for
the due execution, delivery and performance by BearTel Corp. of the Underwriting
Agreement, the Power of Attorney and the Custody Agreement (except such as may
be required under the securities or Blue Sky laws of the State of New York), and
(b) the execution, delivery, and performance by BearTel Corp. of the
Underwriting Agreement, the Power of Attorney and the Custody Agreement do not
and will not (i) breach any of the terms and provisions of, or constitute a
default under, any agreement or instrument to which it is a party or by which
any of its properties is bound or (ii) violate or conflict with any provision of
any law or any rule, regulation, judgment, order or decree of any court or any
governmental body or regulatory agency having jurisdiction over BearTel Corp. or
any of its properties.
17
<PAGE>
Appendix E
FORM OF OPINION OF REBOUL, MacMURRAY, HEWITT, MAYNARD & KRISTOL
1. Each of the Wand Partnerships is the lawful owner of the Shares to
be sold by such Selling Stockholder pursuant to the Underwriting Agreement and
owns such Shares, free of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever, other than pursuant to the
Custody Agreements, the Power of Attorneys, the Underwriting Agreement and other
than any such restriction on transfer, lien, encumbrance, security interest,
equity or claim created by an Underwriter or resulting from any actions taken by
an Underwriter.
2. Each of the Wand Partnerships has full corporate power and
authority, and all authorization and approval required by law, to enter into the
Underwriting Agreement and the Custody Agreement and the Power of Attorney of
such Selling Stockholder and to sell, assign, transfer and deliver the Shares to
be sold by such Selling Stockholder in the manner provided herein and therein.
3. The Custody Agreement of each of the Wand Partnerships has been duly
authorized, executed and delivered on behalf of such Selling Stockholder and is
a valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms.
4. The Power of Attorney of each of the Wand Partnerships has been duly
authorized, executed and delivered on behalf of such Selling Stockholder and is
a valid and binding instrument of such Selling Stockholder, enforceable in
accordance with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys named therein, or
any one of them, to execute and deliver on such Selling Stockholder's behalf
this Agreement, the applicable Custody Agreement and any other document they, or
any one of them, may deem necessary or desirable in connection with the
transactions contemplated hereby and thereby and to deliver the Shares to be
sold by such Selling Stockholder pursuant to this Agreement.
5. Upon sale and delivery of and payment for the Shares to be sold by
each Wand Partnership pursuant to the Underwriting Agreement, in the manner
contemplated thereby and by the applicable Power of Attorney and Custody
Agreement, and assuming the Underwriters purchase such Shares for value and in
good faith without notice of any adverse claim, the Underwriters will own such
Shares, free and clear of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever other than any such
restriction on transfer, lien, encumbrance, security interest equity or claim
created by an Underwriter or resulting from any actions taken by an Underwriter.
6. Assuming that the representations and warranties of the Company in
Section 6 of the Underwriting Agreement are true and accurate in all material
respects, effectiveness
18
<PAGE>
of the Registration Statement and closing of the Offering as contemplated by the
Underwriting Agreement and the Prospectus, (a) no authorization, consent,
approval or other action by, and no notice to or filing with, any U.S. federal
or New York State court, governmental body or regulatory agency is required for
the due execution, delivery and performance by each of the Wand Partnerships of
the Underwriting Agreement, the Power of Attorney and the Custody Agreement
(except such as may be required under the securities or Blue Sky laws of the
State of New York), and (b) the execution, delivery, and performance by each of
the Wand Partnerships of the Underwriting Agreement, the Power of Attorney and
the Custody Agreement do not and will not (i) breach any of the terms and
provisions of, or constitute a default under, any agreement or instrument to
which it is a party or by which any of its properties is bound or (ii) violate
or conflict with any provision of any law or any rule, regulation, judgment,
order or decree of any court or any governmental body or regulatory agency
having jurisdiction over each of the Wand Partnerships or any of their
properties.
19
<PAGE>
Appendix F
FORM OF OPINION OF NELSON MULLINS RILEY & SCARBOROUGH L.L.P.
1. The Custody Agreement executed by or on behalf of each KBM Selling
Stockholder is a valid, binding and enforceable agreement of such KBM Selling
Stockholder.
2. The Power of Attorney executed by each KBM Selling Stockholder is a
valid, binding and enforceable instrument of such KBM Selling Stockholder.
3. Upon delivery to the Underwriters in the State of New York of
certificates evidencing the KBM Selling Stockholder Shares indorsed to such
Underwriters or in blank and payment therefore by the Underwriters pursuant to
the Underwriting Agreement, the Underwriters will own the KBM Selling
Stockholder Shares free of any adverse claim (within the meaning of the Uniform
Commercial Code as in effect in the State of New York (the "UCC")). In rendering
the foregoing opinion such counsel may assume that (i) each Underwriter takes
delivery of the KBM Selling Stockholder Shares without notice of any adverse
claim (within the meaning of the UCC) and (ii) the signature on each indorsement
is genuine.
20
[Letterhead of Cleary, Gottlieb,Steen & Hamilton]
Writer's Direct Dial: (212) 225-2420
May 24, 1999
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017-6486
Re: Young & Rubicam Inc.
Registration Statement on Form S-1 (No. 333-77235)
--------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Young & Rubicam Inc., a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-1 (No. 333-77235) (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act of 1933, as amended (the "Act"), for the registration of outstanding shares
(the "Issued Shares") of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company and shares (the "Option Shares") of Common Stock
issuable upon the exercise of options under the Young & Rubicam Holdings Inc.
Management Stock Option Plan (the "Plan"), and the related preferred share
purchase rights (the "Rights") issued pursuant to the Rights Agreement dated as
of May 1, 1998 (the "Rights Agreement"), between the Company and The Bank of New
York, as Rights Agent (the "Rights Agent").
We have participated in the preparation of the Registration Statement and
have reviewed the originals or copies certified or otherwise identified to our
satisfaction of all such corporate records of the Company and such other
instruments and other certificates of public officials, officers and
representatives of the Company and such other persons, and we have made such
investigations of law, as we have deemed appropriate as a basis for the opinions
expressed below.
In arriving at the opinions expressed below, we have assumed the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents
<PAGE>
submitted to us as copies. In addition, we have assumed and have not verified
the accuracy as to factual matters of each document we have reviewed.
Based on the foregoing, and subject to the further qualification set forth
below, it is our opinion that:
1. The Issued Shares have been duly authorized by all necessary corporate
action of the Company, have been validly issued by the Company and are fully
paid and nonassessable.
2. The Option Shares have been duly authorized by all necessary corporate
action of the Company and, when issued in accordance with the terms of the Plan,
at prices in excess of the par value thereof, will be validly issued, fully paid
and nonassessable.
3. Assuming the due authorization, execution and delivery of the Rights
Agreement by the Rights Agent, the Rights associated with the Issued Shares have
been validly issued and, upon issuance of the Option Shares in accordance with
the terms of the Plan, at prices in excess of the par value thereof, the Rights
associated with the Option Shares will be validly issued.
The foregoing opinions are limited to the General Corporation Law of the
State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the prospectus included in the Registration Statement. In
giving such consent, we do not thereby admit that we are "experts" within the
meaning of the Act or the rules and regulations of the Commission issued
thereunder with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ Stephen H. Shalen
-------------------------------
Stephen H. Shalen, a partner
YOUNG & RUBICAM INC.
DIRECTOR DEFERRED FEE PLAN
1. Purpose. The purpose of the Young & Rubicam Inc. Director Deferred
Fee Plan (the "Plan") is to provide non-employee directors of the Company with
the opportunity to defer taxation of such director's fees and to provide the
directors with an equity interest in the Company.
2. Definitions. The following terms when used herein with initial
capital letters shall have the following respective meanings unless the text
clearly indicates otherwise:
(a) Affiliate. "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) or
414(o) of the Internal Revenue Code of 1986, as amended, 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.
(b) Beneficial Owner. "Beneficial Owner" shall have the meaning
ascribed to such term in Rule 13d-3 under the Securities Exchange Act of
1934.
(c) Board of Directors. "Board of Directors" means the Board of
Directors of the Company.
(d) Board Retainer. "Board Retainer" means the compensation payable
periodically to Directors.
(e) Change of Control. "Change of Control" shall have the meaning
assigned in Section 8 hereof.
(f) Common Stock. "Common Stock" means the common stock of the Company
or any security or other property (including cash) into which such Common
Stock may be changed by reason of: (i) any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital
structure of the Company, (ii) any merger, consolidation, separation,
reorganization or partial or complete liquidation, or (iii) any other
corporate transaction or event having an effect similar to any of the
foregoing.
(g) Common Stock Account. "Common Stock Account" means the bookkeeping
account established and maintained under this Plan which is credited with
Common Stock in accordance with paragraph 5. Within each Common Stock
Account, the Company shall maintain a subaccount reflecting the Fees
deferred from a specific calendar year and the earnings thereon.
(h) Company. "Company" means Young & Rubicam Inc., a Delaware
corporation, and its successors.
(i) Director. "Director" means a member of the Board of Directors.
<PAGE>
(j) Eligible Director. "Eligible Director" means a Director who is not
an employee of the Company or any of its subsidiaries.
(k) Fair Market Value. "Fair Market Value" of Common Stock means the
closing price of Common Stock as reported on the New York Stock Exchange
Composite Tape on the applicable date, or, in the event that no sales take
place on such day, the closing price of Common Stock as reported on the New
York Stock Exchange (or any successor exchange) Composite Tape on the
nearest preceding day on which there were sales of Common Stock.
(l) Fees. "Fees" means the compensation payable to Directors for their
services as a director, including the Board Retainer and Meeting Fee.
(m) Meeting Fee. "Meeting Fee" means the compensation payable for each
meeting of the Board of Directors or committee of the Board of Directors
that such Director attends and/or chairs.
(n) Plan. "Plan" means the plan set forth in this instrument, and
known as the "Young & Rubicam Inc. Director Deferred Fee Plan," as adopted
at the meeting of the Board of Directors held March 23, 1999.
3. Eligibility. An Eligible Director shall become a participant upon
the later of the effective date of the Plan or the date such Director becomes an
Eligible Director.
4. Deferred Compensation. With respect to any Eligible Director, the
Company shall defer payment of all Fees payable by the Company to such Eligible
Director on or after the effective date of the Plan, unless, with respect to any
calendar year beginning after the effective date of the Plan, such Eligible
Director notifies the Company, in writing, not later than ten (10) days prior to
the beginning of such calendar year, that such Eligible Director elects not to
defer payment of such Fees. Notwithstanding the above, with respect to the Fees
payable at the May 14, 1999 meeting of the shareholders of the Company, such
Eligible Director shall have the option not to defer such Fees by notifying the
Company, in writing, not later than thirty (30) days after the effective date of
the Plan, of his election not to defer. If the Eligible Director elects not to
defer, the Company shall pay to him his Fees in cash at the date they would have
been paid absent any deferral.
5. Deferred Accounts.
(a) Amount of Deferrals. The amount of an Eligible Director's Fees
deferred pursuant to Section 4 above shall be automatically credited to the
Common Stock Account specified in paragraph 5(b) and shall not otherwise be paid
to such Eligible Director except as provided in Sections 6, 8 and 11 hereof.
Such deferral shall be irrevocable with respect to deferred Fees and deemed
earnings thereon, and deferred Fees and deemed earnings thereon cannot be
transferred except as otherwise provided herein.
(b) Common Stock Account. The Eligible Director's Common Stock Account
shall be credited with that quantity of Common Stock equal to the number of full
and fractional shares (to the nearest thousandths) which could have been
purchased by the Eligible
2
<PAGE>
Director with the applicable deferred Fees based on the Fair Market Value of
such Common Stock on the date immediately preceding the date such Fees would
have been paid absent the deferral. There will be credited to each Eligible
Director's Common Stock Account amounts equal to the cash dividends and other
distributions paid on shares of issued and outstanding Common Stock represented
by the Eligible Director's Common Stock Account which the Eligible Director
would have received had he been a record owner of shares of Common Stock equal
to the amount of Common Stock in his Common Stock Account at the time of payment
of such cash dividends or other distributions. The Eligible Director's Common
Stock Account shall be credited with a quantity of shares of Common Stock and
fractions thereof (to the nearest thousandths) that could have been purchased
with the dividends or other distributions based on the Fair Market Value of
Common Stock on the date of payment of such dividends or other distributions.
Notwithstanding any other provision of the Plan, solely with respect to the Fees
payable at the May 14, 1999 meeting of the shareholders of the Company as
compensation for membership on the Board of Directors for the fiscal year ending
December 31, 1999, (i) with respect to any Eligible Director electing not to
defer his Fees, such Fees shall be paid to him in cash on the date of pricing of
the secondary public offering authorized and approved by the Board of Directors
at its March 23, 1999 meeting (the "1999 Public Offering") and (ii) with respect
to any Eligible Director deferring his Fees pursuant to the Plan, shares of
Common Stock shall be credited to his Common Stock Account on the date of
pricing of the 1999 Public Offering equal to the number of shares of Common
Stock purchasable with such Fees at the offering price of the Common Stock in
the 1999 Public Offering.
6. Payment of Deferred Compensation. With respect to Fees deferred
from a calendar year, the Company shall pay to each Eligible Director in shares
of Common Stock the number of whole shares of Common Stock (with any fractional
shares to be paid in cash) in the subaccount of his Common Stock Account for
that calendar year as soon as practicable after the earlier of (a) May 15 of the
third calendar year commencing after the calendar year to which the subaccount
relates, or (b) the first business date on which such person ceases to be a
Director. If an Eligible Director dies before all amounts in his Common Stock
Account have been distributed to him, the Company shall pay to the Eligible
Director's beneficiary or beneficiaries in shares of Common Stock the number of
whole shares of Common Stock (with any fractional shares to be paid in cash) in
such Eligible Director's Common Stock Account as soon as practicable after the
Eligible Director's death.
7. Beneficiaries. An Eligible Director may, by executing and
delivering to the Secretary of the Company prior to the Eligible Director's
death a beneficiary election form, designate a beneficiary or beneficiaries to
whom distribution of his interest under this Plan shall be made in the event of
his death prior to the full receipt of his interest under this Plan, and he may
designate the portions to be distributed to each such designated beneficiary if
there is more than one. Any such designation may be revoked or changed by the
Eligible Director at any time and from time to time by filing, prior to the
Eligible Director's death, with the Secretary of the Company an executed
beneficiary election form. If the Eligible Director fails to designate a
beneficiary, the beneficiary will be the estate of the Eligible Director.
8. Change of Control. In the event of a Change of Control, the Company
shall pay to each Eligible Director in shares of Common Stock the number of
whole shares of Common Stock (with any fractional shares to be paid in cash) in
his Common Stock Account on
3
<PAGE>
the date of such Change of Control or as soon as practicable thereafter. For
purposes of this Section 8 the value of an Eligible Director's fractional shares
held in the Eligible Director's Common Stock Account shall be taken into account
as of the date of the Change in Control. For purposes of this Plan, "Change of
Control" shall mean:
(a) any person (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the Company
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 Company 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 Securities Exchange
Act of 1934), directly or indirectly, of securities of the Company (A)
representing 40% or more of the combined voting power of the Company's then
outstanding securities and (B) for so long as the Management Voting Trust (as
created by the Management Voting Trust Agreement entered into as of December 12,
1996, by and among the Company, Young & Rubicam Holdings Inc., Young & Rubicam
(Delaware), the "Management Investors" and the "Voting Trustees" (each as
defined therein), as it may be amended or supplemented from time to time) is
extant, representing a greater percentage of the combined voting power of the
Company's then outstanding securities than is represented by the securities of
the Company then held by the Management Voting Trust; provided, that for
purposes of this Section 8(a), all shares of stock subject to options granted
pursuant to the Young & Rubicam 1997 Incentive Compensation 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 Company;
(b) 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
Company to effect a transaction described in clause (a), (c), or (e) of this
section) whose election by the Board or nomination for election by the Company'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
Securities Exchange Act of 1934) 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;
(c) the consummation of a merger or consolidation of the Company with
any other entity, which merger or consolidation would result in either (A) the
voting securities of the Company outstanding immediately prior to such merger or
consolidation failing to represent
4
<PAGE>
(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 Company 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;
(d) 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 such 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 the common
stock of the Company 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
(e) any other event occurs which the Board determines, in its
discretion, would materially alter the structure of the Company or its
ownership.
(f) For purposes of Section 8 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 Company representing more than 50% of the combined
voting power of the Company'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 Company
representing any percentage of the combined voting power of the Company'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 Company intends by this paragraph to protect
Eligible Directors from being disadvantaged by being unable to participate in a
tender offer with respect to shares of stock and will take reasonably
appropriate steps to help Eligible Directors avoid being so disadvantaged by
establishing procedures to allow Eligible Directors to tender the shares of
stock in the tender offer, including, to the extent feasible in compliance with
applicable law.
9. Non-Assignability. Neither an Eligible Director nor any beneficiary
designated by him shall have any right to, directly or indirectly, alienate,
assign or encumber any amount that is or may be payable hereunder.
5
<PAGE>
10. Governing Law. To the extent not preempted by federal law, the
provisions of this Plan shall be interpreted and construed in accordance with
the laws of the State of New York.
11. Effective Date. This Plan shall become effective on March 23,
1999. The Board of Directors may amend, suspend or terminate the plan at any
time; provided that no such amendment, suspension or termination shall adversely
affect the amounts in any then-existing account. Upon termination of the Plan,
the Company shall pay to each Eligible Director in shares of Common Stock the
number of whole shares of Common Stock (with any fractional shares to be paid in
cash) in his Common Stock Account on the date of such termination or as soon as
practicable thereafter.
12. Unfunded Plan. This Plan shall be unfunded. Amounts payable
hereunder shall be paid from the general assets of the Company. The Company may
establish a trust pursuant to a trust agreement and make contributions thereto
for the purpose of assisting the Company in meeting its obligations in respect
of benefits payable under the Plan. Any such trust agreement shall contain
procedures to the following effect:
(a) In the event of the insolvency of the Company, the trust fund will
be available to pay the claims of any creditor of the Company to whom a
distribution may be made in accordance with state and federal bankruptcy laws.
The Company shall be deemed to be "insolvent" if the Company is subject to a
pending proceeding as a debtor under the federal Bankruptcy Code (or any
successor federal statute) or any state bankruptcy code. In the event the
Company becomes insolvent, the Board of Directors and chief executive officer of
the Company shall notify the trustee of that event as soon as practicable. Upon
receipt of such notice, or if the trustee receives other written allegation of
the Company's insolvency, the trustee shall cease making payments of benefits
from the trust fund, shall hold the trust fund for the benefit of the Company's
creditors, and shall take such steps as are necessary to determine within thirty
(30) days whether the Company is insolvent. In the case of the trustee's actual
knowledge of or other determination of the Company's insolvency, the trustee
will deliver assets of the trust fund to satisfy claims of the Company's
creditors as directed by a court of competent jurisdiction;
(b) The trustee shall resume payment of benefits under the trust
agreement only after the trustee has determined that the Company is not
insolvent (or is no longer insolvent, if the trustee had previously determined
the Company to be insolvent) or upon receipt of an order of a court of competent
jurisdiction requiring such payment. If the trustee discontinues payment of
benefits pursuant to paragraph (a) of this Section 12 and subsequently resumes
such payment, the first payment on account of a participant following such
discontinuance shall include an aggregate amount equal to the difference between
the payments which would have been made on account of such participant under the
trust agreement and the aggregate payments actually made on account of such
participant by the Company during any such period of discontinuance, plus
interest on such amount at a rate equivalent to the net rate of return earned by
the trust fund during the period of such discontinuance.
6
AMENDMENT NO. 1 TO THE
YOUNG & RUBICAM INC. GRANTOR TRUST AGREEMENT
WHEREAS, Young & Rubicam Inc., a corporation organized under the laws
of the State of Delaware, (hereinafter referred to as the "Company"), and The
Bank of New York, a bank organized under the laws of the State of New York
(hereinafter referred to as the "Trustee"), made and entered into the Young &
Rubicam Inc. Grantor Trust Agreement as of May 14, 1998 (the "Trust Agreement");
WHEREAS, Section 13 of the Trust Agreement provides for amendment of
the Trust Agreement by a written instrument executed by the Trustee and the
Company;
NOW, THEREFORE, the Trust Agreement is hereby amended, effective as of
May 15, 1998 as follows:
1. Section 2(c) is amended and restated in its entirety as follows:
The Administrator shall advise the Trustee of the amount of
withholding of any federal, state, local or foreign taxes that may be
required to be withheld, if any, and the manner of reporting with
respect to the payments of benefits pursuant to the terms of the Plan
or any other compensatory arrangement theretofore established with
respect to which the Trust is then holding assets. The Administrator
shall also advise the Trustee of any foreign taxes or withholding for
foreign taxes that may be due prior to the payment of benefits
pursuant to the terms of the Plan or any other compensatory
arrangement theretofore established with respect to which the Trust is
then holding assets. The Trustee may conclusively rely without further
inquiry upon such advice. Unless it has been advised by the Company
that such amounts have been reported, withheld and/or paid by the
Company, the Trustee, as directed by the Administrator, either shall
report, withhold and pay amounts withheld to the appropriate taxing
authorities or shall pay the amounts indicated to the Company, in cash
or stock, as directed by the Administrator, who shall report, withhold
and pay the amount of any applicable withholding or tax to the
appropriate taxing authorities. Notwithstanding anything to the
contrary in the preceding sentence, if any withholding or payment of
tax is required with respect to an in-kind distribution of assets to
the Participants or their Beneficiaries or in the absence of any
<PAGE>
distribution the Trustee shall be directed by the Administrator to
report, withhold and/or pay any tax to the appropriate taxing
authorities (rather than to pay the amounts indicated to the Company
so that the Company can report, withhold and/or pay any tax) only to
the extent that there is cash available to effect such withholding
and/or payment, and the Trustee shall not be obligated to sell assets
or otherwise take steps to raise sufficient cash to withhold and/or
pay any tax to the appropriate taxing authorities except pursuant to
the sale procedure specified in Section 2(d) hereof.
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.
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 1 to the Trust Agreement has
been duly executed by the parties hereto as of June 15, 1998.
Young & Rubicam Inc.
By /s/ Mark T. McEnroe
------------------------------
Attest
/s/ Debra Tinsley-Rogers
-----------------------
The Bank of New York, as Trustee
By /s/ Jonathan Spirgel
------------------------------
Attest
/s/ Lorenzo Rhames
------------------------
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 16, 1999,
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, 1998 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/ PricewaterhouseCoopers LLP
---------------------------
PricewaterhouseCoopers LLP
New York, New York
May 24, 1999
