- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
---------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1999 COMMISSION FILE NUMBER: 001-14093
YOUNG & RUBICAM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-1493710
- - ----------------------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
285 MADISON AVENUE,
NEW YORK, NY 10017
- - ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (212) 210-3000
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - ------------------------------------- ------------------------
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At March 24, 2000, there were 72,284,001 shares of Common Stock
outstanding; the aggregate market value of the voting and non-voting common
equity held by nonaffiliates at March 24, 2000 was approximately $2,996,917,906
(based upon the closing price of the Common Stock as quoted on the New York
Stock Exchange on such date).
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
CLASS OUTSTANDING AS OF MARCH 24, 2000
- - ------------------------------------- ---------------------------------
Common Stock, $.01 Par Value 72,284,001
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement relating to
its annual meeting of stockholders scheduled to be held on May 12, 2000 are
incorporated by reference in this Form 10-K in response to Part III, Items 10,
11, 12 and 13.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
YOUNG & RUBICAM INC.
---------------------------
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I
Item 1. Business ................................................................. 4
Item 2. Properties ............................................................... 10
Item 3. Legal Proceedings ........................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders ...................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .... 11
Item 6. Selected Financial Data .................................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............... 19
Item 8. Financial Statements and Supplementary Data .............................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant ....................... 20
Item 11. Executive Compensation ................................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and Management ........... 20
Item 13. Certain Relationships and Related Transactions ........................... 20
</TABLE>
The information called for by Items 10, 11, 12 and 13 is incorporated
herein by reference to the information to be included under the captions
"Election of Directors," "Executive Officers," "Executive Compensation,"
"Compensation of Directors" and "Security Ownership of Principal Stockholders,
Directors and Executive Officers" in the Company's definitive proxy statement
relating to its 2000 Annual Meeting of Stockholders which is expected to be
filed by April 14, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... 21
</TABLE>
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document may contain statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements include statements in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this document relating to the performance of Young & Rubicam Inc. It
is important to note that our actual results could differ materially from those
anticipated in these forward-looking statements depending on, among other
important factors, (i) revenues received from clients, including revenues
pursuant to incentive compensation arrangements entered into by us with certain
clients, (ii) gains or losses of clients and client business and projects, as
well as changes in the marketing and communications budgets of clients, (iii)
our ability to successfully integrate companies and businesses that we acquire,
(iv) 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, (v) the impact of competition in the marketing and communications
industry and (vi) our liquidity and financing plans. All forward-looking
statements in this document are based on information available to us on the date
hereof.
3
<PAGE>
ITEM 1. BUSINESS
Since our founding 75 years ago, Young & Rubicam Inc. ("Y&R" or the
"Company") has evolved from a single New York-based advertising agency to the
sixth largest consolidated marketing and communications organization in the
world based upon 1998 revenues. We currently operate through recognized market
leaders, including:
o Young & Rubicam Advertising (full-service advertising);
o Dentsu, Young & Rubicam (full-service advertising in the Asia/Pacific
region);
o Y&R 2.1 (full-service on-line and off-line advertising and marketing
services);
o The Bravo Group and Kang & Lee (multi-cultural marketing and
communications);
o impiric (customer relationship management, direct marketing and sales
promotion);
o KnowledgeBase Marketing (customer relationship marketing);
o Brand Dialogue (digital interactive branding and digital commerce);
o The Media Edge (media planning, buying and placement services);
o The Digital Edge (internet media planning, buying and placement
services);
o Burson-Marsteller (perception management and public relations);
o Cohn & Wolfe (full-service public relations);
o Robinson Lerer & Montgomery (strategic corporate public relations);
o Landor Associates (branding consultation and design services); and
o Sudler & Hennessey (healthcare communications).
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 ten largest KCAs, as a group, accounted for
approximately 37% of our consolidated revenues in 1999. As part of our client
focus, members of our senior management team retain ongoing responsibilities for
individual KCAs in addition to their managerial roles.
INDUSTRY OVERVIEW
The marketing and communications industry encompasses a wide range of
services used to develop and deliver messages to both broad and targeted
audiences through multiple communication channels. The industry includes
traditional advertising services as well as other marketing and communications
services such as direct marketing and sales promotion, public relations,
branding consultation and design services, new media marketing and other
specialized services.
Traditional advertising services include the development and planning of
marketing and branding campaigns; the creative design and production of
advertisements; the planning and buying of time and/or space in a variety of
media, including broadcast and cable television, radio, newspapers, general
interest/specialty magazines, billboards and the Internet; and the provision of
consumer, product and other market research to clients on an ongoing basis.
Customer relationship management, direct marketing and sales promotion
incorporate a broad range of services, including consulting, 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.
4
<PAGE>
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.
OPERATIONS
The following section contains a brief description of the Company's main
service offerings.
Young & Rubicam Advertising. Young & Rubicam Advertising is one of the
world's leading full-service consumer advertising agencies, offering expertise
in strategic and creative development, consumer research and marketing, and
media buying and planning. Young & Rubicam Advertising ranks as one of the ten
largest advertising agencies based in the United States.
Young & Rubicam Advertising operates in the Americas, Europe and Africa.
Young & Rubicam Advertising services clients through the Dentsu, Young & Rubicam
Partnerships across the Asia/Pacific region.
Dentsu, Young & Rubicam Partnerships. The Dentsu, Young & Rubicam
Partnerships ("DY&R") are a network of full-service advertising agencies that
provide Young & Rubicam Advertising with access to major markets across the
Asia/Pacific region. DY&R was created as a joint venture between Y&R and Dentsu,
Inc. ("Dentsu") in 1991. In 1998, Dentsu ranked as the fifth largest marketing
and communications organization in the world and the largest marketing and
communications organization based in the Asia/Pacific region. DY&R is a series
of local ventures in which Y&R typically has a majority interest in principal
markets, except in Japan in which Dentsu has a majority 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.
Y&R 2.1. Y&R 2.1 integrates on-line and off-line advertising and marketing
services in support of client brands around the world.
The Bravo Group and Kang & Lee. The Bravo Group ("Bravo") and Kang & Lee
create multi-cultural marketing and communications programs targeted to the
fast-growing U.S. Hispanic and Asian communities, respectively. Their
multi-disciplinary services include advertising, promotion and event marketing,
public relations, research and direct marketing.
impiric. impiric, formerly known as Wunderman Cato Johnson, is a leading
behavior-driven marketing and communications company. Behavior-driven marketing
and communications are designed to assist clients in producing immediate sales
and building brand and customer equity. impiric addresses its clients' marketing
objectives through customer relationship management, consulting, direct
marketing, sales promotion, television commercials and infomercials,
telemarketing, customer loyalty programs, relationship marketing programs,
database development and management, merchandising, entertainment and sports
marketing, lead generation and new product launches.
Headquartered in New York, impiric operates in North America, Latin
America, the Asia/Pacific region, Europe, the Middle East and Africa. impiric
also has significant database facilities in Europe and Latin America.
5
<PAGE>
KnowledgeBase Marketing. KnowledgeBase Marketing ("KBM") is a single source
provider of integrated information-based marketing solutions to businesses in
targeted high-growth industries. KBM delivers its integrated business solutions
services by creating consolidated databases, and then designing, implementing
and evaluating database marketing programs for clients. KBM's capabilities
include data warehousing, data mining, information services and data analysis.
Y&R acquired KBM in May 1999.
Brand Dialogue. Brand Dialogue specializes in digital interactive branding
and digital commerce. Brand Dialogue's primary offerings consist of web
advertising, including the design, creation and production of websites, banners,
home pages and comprehensive interactive campaigns; digital commerce
applications; the development of corporate intranets to improve communications
and productivity within and among a defined set of users; and interactive
marketing consulting services.
The Media Edge. The Media Edge provides integrated media planning, buying
and placement services for both Young & Rubicam Advertising and impiric. In
addition, The Media Edge provides planning and buying of both traditional and
direct response media, and offers a range of media-related services to clients
other than those of Young & Rubicam Advertising and impiric, as well as to
smaller independent advertising and communications agencies.
The Digital Edge. The Digital Edge provides internet media planning, buying
and placement services on behalf of clients of The Media Edge and its own
clients. It provides services for clients' digital convergence, e-commerce and
technology activities. In addition to internet opportunities, The Digital Edge
provides clients with resources in areas such as addressable advertising,
information-enhanced television programming and video-on-demand.
Burson-Marsteller. Burson-Marsteller is a leading perception management,
public relations and public affairs company. 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 is headquartered in New York and operates in the United
States, Latin America, the Asia/Pacific region and Europe.
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.
Cohn & Wolfe was founded in 1970 and was acquired by Burson-Marsteller in
1984. Cohn & Wolfe operates in North America, Europe and Australia.
Robinson Lerer & Montgomery. Robinson Lerer & Montgomery ("RLM")
specializes in working with the senior management of companies to develop and
implement strategies for corporate image-building, financial transactions,
crisis management, litigation support and media and investor programs. RLM was
founded in 1986 and was acquired by Y&R in March 2000.
Landor Associates. Landor Associates ("Landor") is a leading branding
consultancy and strategic design firm. 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.
6
<PAGE>
Landor was founded in 1941 and was acquired by Y&R in 1989. Landor is
headquartered in San Francisco and operates in the Americas, Asia/Pacific and
Australia, Europe and the Middle East, including multidisciplinary consulting
and design studios in New York, Seattle, Mexico City, Hamburg, London, Paris,
Hong Kong and Tokyo.
Sudler & Hennessey. Sudler & Hennessey ("S&H") is a leading healthcare
communications firm that develops strategic promotional and educational programs
for a wide spectrum of healthcare brands. S&H creates advertising, direct
marketing and sales promotion programs for prescription drugs and
over-the-counter medications. In addition, S&H provides strategic consultancy
and communications support in the areas of managed care, medical devices and
equipment, nutrition, veterinary medicine and general healthcare. Communications
programs produced by S&H on behalf of its largely pharmaceutical industry client
base are directed to a wide range of healthcare professionals as well as
patients and their support networks.
S&H was founded in 1941 and was acquired by Y&R in 1973. S&H is
headquartered in New York and operates in North America, Europe and the
Asia/Pacific region.
CLIENTS
We represent clients in various industries, including automotive, consumer
packaged goods, financial services, food and beverages, government services,
telecommunications and the internet. Among our approximately 5,500 client
accounts are a number of large multinational organizations, including AT&T,
Citibank, Colgate-Palmolive, Ford Motor Company, Philip Morris and Sony. Our ten
largest clients accounted for approximately 37% of consolidated revenues in
1999; our three largest clients accounted for approximately 22% of consolidated
revenues in 1999 and our largest client, Ford Motor Company, accounted for
approximately 13% of consolidated revenues in 1999.
OTHER INFORMATION
For information concerning revenues and assets on a geographical basis for
each of the last three years, reference is made to Note 10 -- "Worldwide
Operations" of the Notes to the Consolidated Financial Statements beginning on
page F-1.
DEVELOPMENTS IN 1999
The Company completed secondary public offerings of Common Stock on May 28,
1999 pursuant to which certain selling stockholders sold an aggregate of
17,250,000 shares of Common Stock to the public, and on November 23, 1999
pursuant to which certain selling stockholders sold an aggregate of 5,515,443
shares of Common Stock to the public.
The Company did not receive any proceeds from the sale of shares of Common
Stock by the selling stockholders in either of such offerings.
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;
7
<PAGE>
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 towards consolidation of global accounts
requires companies seeking to compete effectively in the international marketing
and communications industry to make significant investments. These investments
include additional offices and personnel around the world and new and improved
technology for linking these offices and people.
United States clients typically may cancel contracts with agencies upon 90
days' notice, and non-U.S. clients typically also may cancel contracts with
agencies on 90 to 180 days' notice. In addition, clients generally remain able
to move from one agency to another with relative ease. However, we believe that
clients may find it increasingly difficult to terminate relationships with
agencies that represent their brands on a global basis because of the complexity
of coordinating creative, media and non-media services. As is typical in the
marketing and communications industry, we have lost or resigned client accounts
and assignments, including The Clorox Company and Blockbuster Video, 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, would have a material
adverse effect on our prospects, business, financial condition and results of
operations.
When we represent a client, we do not always handle all advertising, public
relations or other marketing and communications services 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
("FTC") which is charged with administering the Federal Trade Commission Act
(the "FTC Act"). The FTC Act covers a wide range of practices involving false,
misleading and unfair advertising. In the event of violations of federal laws or
regulations, the FTC may seek cease and desist orders, may impose monetary
penalties and may require other remedies. The Federal Food and Drug
Administration, the Federal Communications
8
<PAGE>
Commission and other agencies also have regulatory authority that affects the
advertising business. In addition, many state and local governments have adopted
laws and regulations similar in scope to the FTC Act and the regulations
thereunder.
Self-regulatory activities have become significant in the advertising
business. The Council of Better Business Bureaus has created the National
Advertising Division and the National Advertising Review Board, which review and
process possible violations of proper business conduct through advertising. The
national television networks and various other media have also adopted strict
and extensive regulations governing the advertising that they will accept for
broadcast or publication. Trade associations in certain industries publish
advertising guidelines for their members and, in addition, various consumer
groups have been and continue to be powerful advocates of increased regulation
of advertising.
Advertising is also subject to regulation in countries other than the
United States in which we and our affiliates do business. We have developed
internal review procedures to help ensure that our work product, as well as that
of our affiliates, is in compliance with standards of accuracy, fair disclosure
and ethical proprieties, including those established by federal, state and local
laws and regulations and the pre-clearance procedures of the broadcast media.
In addition, as an international organization we are subject to the Foreign
Corrupt Practices Act, which imposes civil and criminal fines and penalties on
companies and individuals that violate its anti-bribery and other provisions.
EMPLOYEES
We are 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. Competition among the Company and its competitors for qualified personnel
is substantial, and the Company, like its principal competitors, is vulnerable
to the potentially adverse consequences that would arise from the inability to
attract or retain qualified personnel. We have approximately 15,000 employees
(including part-time employees) worldwide, including approximately 6,000
employed in the United States. Our U.S. employees are not covered by collective
bargaining agreements. We believe that our relations with employees are
satisfactory.
9
<PAGE>
ITEM 2. PROPERTIES
We own our headquarters office building at 285 Madison Avenue, New York,
New York. We lease other offices and space for our facilities in New York City
and elsewhere throughout the world. The following table sets forth certain
information relating to our principal properties:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION USE FOOTAGE EXPIRATION
- - ---------------------------- --------------------------------------------------------- ------------ -----------
<S> <C> <C> <C>
285 Madison Avenue (owned) Young & Rubicam Advertising, impiric, Brand Dialogue 370,000 N/A
New York, New York and corporate headquarters
230 Park Avenue South Burson-Marsteller, Bravo, Landor and impiric 340,500 1/22/06
New York, New York
Gallus Park Young & Rubicam Advertising, impiric, Burson-Marsteller 154,000 4/26/04
Frankfurt, Germany and Sudler & Hennessey
825 Seventh Avenue The Media Edge 111,832 1/31/10
New York, New York
550 Town Center Drive Young & Rubicam Advertising, Burson-Marsteller and 60,678 1/31/10
Dearborn, Michigan impiric
675 Avenue of the Americas Impiric 92,500 6/30/03
New York, New York
Greater London House Young & Rubicam Advertising, impiric and Sudler & 80,000 5/31/13
London, U.K. Hennessey
295 Madison Avenue Young & Rubicam Advertising 65,821 1/22/06
New York, New York
49-59 Avenue Andre Morizet Young & Rubicam Advertising and impiric 65,000 3/30/08
Paris, France
100 First Plaza Young & Rubicam Advertising, impiric, Burson-Marsteller 73,000 4/30/03
San Francisco, California and Bravo
Two Illinois Center Young & Rubicam Advertising, impiric, Burson-Marsteller 122,000 11/30/11
233 North Michigan and Cohn & Wolfe
Avenue
Chicago, Illinois
1801 K Street NW Burson-Marsteller and Cohn & Wolfe 60,000 10/31/06
Washington, D.C.
701 North Plano Road KnowledgeBase Marketing 58,596 2/28/01
Richardson, Texas
1001 Front Street Landor 70,000 5/31/08
San Francisco, California
60 Bloor Street West Young & Rubicam Advertising, impiric and Sudler & 65,000 8/31/07
Toronto, Canada Hennessey
7535 Irvine Center Drive Young & Rubicam Advertising and impiric 53,794 12/14/09
Irvine, California
</TABLE>
ITEM 3. 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, these existing claims, in the aggregate, are not expected to have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of 1999.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "YNR." The table below shows the range of reported last sale prices
on the New York Stock Exchange Composite Tape for the Company's Common Stock for
the periods indicated and dividends paid during such periods; the reported last
sale price on March 24, 1999 was $49.25. As of March 24, 1999, there were
approximately 1,038 holders of record of Common Stock.
<TABLE>
<CAPTION>
DIVIDENDS PAID PER SHARE
HIGH LOW OF COMMON STOCK
----------- ----------- -------------------------
<S> <C> <C> <C>
1998
Second Quarter (commencing
May 12, 1998) ............ $ 33.06 $ 26.50 --
Third Quarter ............ 35.88 28.38 --
Fourth Quarter ........... 33.63 19.75 --
1999
First Quarter ............ $ 43.31 $ 31.25 --
Second Quarter ........... 44.38 37.25 $ .025
Third Quarter ............ 48.25 39.69 .025
Fourth Quarter ........... 73.25 43.00 .025
</TABLE>
On March 15, 2000, Y&R paid a quarterly cash dividend of $0.025 per common
share to all stockholders of record as of March 1, 2000. The decision whether to
apply legally available funds to the payment of 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
facilities. Our credit facilities contain financial and operating restrictions
and covenant requirements and permit the payment of cash dividends except in the
event of a continuing default under the credit agreements governing those
facilities.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data set forth below has been derived from
and should be read in conjunction with Young & Rubicam Inc.'s ("Y&R") audited
consolidated financial statements and notes thereto (the "consolidated financial
statements") and Management's Discussion and Analysis of Financial Condition and
Results of Operations presented herein.
SELECTED STATEMENT OF OPERATIONS IS AS FOLLOWS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(in thousands)
Revenues .................................... $ 1,717,186 $ 1,522,464 $ 1,382,740 $ 1,222,139 $ 1,085,494
Compensation expense, including
employee benefits (1) ...................... 994,119 903,948 836,150 730,261 672,026
General and administrative expenses (1) ..... 514,981 455,578 463,936 391,617 356,523
Other operating charges (1) ................. -- 234,449 11,925 17,166 31,465
Recapitalization-related charges (2) ........ -- -- -- 315,397 --
------------ ----------- ----------- ----------- -----------
Operating expenses .......................... 1,509,100 1,593,975 1,312,011 1,454,441 1,060,014
------------ ----------- ----------- ----------- -----------
Operating profit (loss) ..................... 208,086 (71,511) 70,729 (232,302) 25,480
Income (loss) before extraordinary charge. 167,099 (81,635) (23,938) (238,311) 820
Net income (loss) (3) ....................... 167,099 (86,068) (23,938) (238,311) 820
Earnings (loss) per share (3):
Basic:
Income (loss) before extraordinary
charge .................................. $ 2.43 $ (1.34) $ (0.51)
Extraordinary charge ..................... -- (0.08) --
------------ ----------- -----------
Net income (loss) ........................ $ 2.43 $ (1.42) $ (0.51)
------------ ----------- -----------
Diluted:
Income (loss) before extraordinary
charge .................................. $ 2.02 $ (1.34) $ (0.51)
Extraordinary charge ..................... -- (0.08) --
------------ ----------- -----------
Net income (loss) ........................ $ 2.02 $ (1.42) $ (0.51)
============ =========== ===========
Weighted average shares outstanding used to compute:
Basic ...................................... 68,688,848 60,673,994 46,949,355
============ =========== ===========
Diluted .................................... 82,871,725 60,673,994 46,949,355
============ =========== ===========
</TABLE>
- - ------------------
(1) For a discussion of charges included in compensation expense, including
employee benefits, general and administrative expenses, and other operating
charges, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" under the heading "Results of Operations."
(2) Represents charges, primarily related to compensation, recorded in
connection with Y&R's recapitalization in 1996 (the "Recapitalization").
(3) Net income in 1999 includes the aggregate after-tax effect of approximately
$51 million ($0.62 per share) in connection with the net gain recognized on
the sale of certain assets of Brand Dialogue in exchange for an ownership
interest in Luminant Worldwide Corporation and additional consideration
received as a result of achieving certain revenue and operating profit
performance targets of the Brand Dialogue contributed assets. Net loss in
1998 includes an extraordinary loss on the retirement of debt of $4.4
million ($0.08 per share). Earnings per share for 1996 and 1995 cannot be
computed because Y&R's capital structure prior to its Recapitalization
consisted of both common stock and limited partnership units in predecessor
entities.
12
<PAGE>
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(in thousands)
Cash and cash equivalents ................... $ 144,517 $ 122,138 $ 160,263 $ 110,180 $ 21,646
Total assets ................................ 2,414,281 1,635,119 1,537,807 1,598,812 1,226,581
Total debt .................................. 159,278 63,925 351,051 267,238 230,831
Mandatorily redeemable equity securities..... -- -- 508,471 363,264 --
Total stockholders' equity (deficit) ........ 424,180 115,497 (661,714) (480,033) 55,485
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements beginning on page F-1.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items
derived from our consolidated statements of operations and the percentages of
revenue represented by such items. References to years are to years ended
December 31. Totals may not add due to rounding.
<TABLE>
<CAPTION>
% OF % OF % OF
(IN MILLIONS) 1999 REVENUES 1998 REVENUES 1997 REVENUES
-------------- ---------- -------------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................... $ 1,717.2 100.0% $ 1,522.5 100.0% $ 1,382.7 100.0%
Compensation expense, including
employee benefits ..................... 994.1 57.9% 903.9 59.4% 836.2 60.5%
General and administrative expenses..... 515.0 30.0% 455.6 29.9% 463.9 33.6%
Other operating charges ................ -- -- 234.4 15.4% 11.9 0.9%
---------- ------ ---------- ------ ---------- -------
Operating profit (loss) ................ 208.1 12.1% (71.5) (4.7%) 70.7 5.1%
Net income (loss) ...................... $ 167.1 9.7% $ (86.1) (5.7%) $ (23.9) (1.7%)
========== ====== ========== ====== ========== =======
</TABLE>
1999 COMPARED TO 1998
Revenues for 1999 increased by $194.7 million, or 12.8%, to $1,717.2
million compared to 1998. Organic worldwide revenue growth, excluding the effect
of acquisitions and foreign currency fluctuations, was 10.4% due to the growth
of existing businesses, including net new business gains and net higher spending
from existing clients. Acquisitions contributed 5.0% of revenue growth, or $82.2
million. Domestic revenues increased by 16.0%, or 11.7% excluding acquisitions,
to $899.8 million for 1999 compared to 1998. International revenues increased by
9.5% to $817.4 million. Excluding the effect of foreign currency fluctuations
and acquisitions, international revenues increased 9.1% for 1999 compared to
1998.
Compensation expense increased by $90.2 million to $994.1 million for 1999
compared to 1998. This increase in compensation expense was primarily due to
additional salary expense to support an increased revenue base and compensation
expense attributable to acquired entities, partially offset by the favorable
impact of a decrease in employee benefit expenses as a percentage of total
compensation. Compensation expense in 1999 decreased as a percentage of revenues
to 57.9% from 59.4% in 1998, principally reflecting the savings in employee
benefit expenses as a percentage of total compensation, and improved
productivity.
General and administrative expenses increased by $59.4 million to $515.0
million for 1999 compared to 1998. This increase was primarily due to additional
operating expenses to support revenue growth, amortization of goodwill and other
intangible assets attributable to acquired entities and incremental facilities
costs associated with the expansion and relocation of certain domestic and
international offices, partially offset by ongoing cost containment initiatives.
General and administrative expenses for 1999 as a percentage of revenues were
30.0% as compared to 29.9% for 1998.
13
<PAGE>
Operating profit was $208.1 million for 1999. As a result of the $234.4
million of other operating charges associated with our initial public offering
in 1998, operating loss was $71.5 million for 1998. Excluding the other
operating charges in 1998, operating profit increased $45.1 million, or 27.7%,
in 1999 compared to 1998. This increase was primarily due to net new business
gains in 1999 combined with improved operating margins. The operating profit
margin for 1999 was 12.1%, a 140 basis point improvement over 1998, excluding
the effect of the other operating charges.
Net interest expense decreased by $2.8 million to $14.8 million for 1999
compared to 1998. The decline was principally due to lower average borrowing
rates during 1999 compared to 1998.
Other income of $85.0 million in 1999 represented the net pre-tax gain on
the sale of certain assets of our Brand Dialogue operations in exchange for an
ownership interest in Luminant Worldwide Corporation ("Luminant") and additional
consideration received in the fourth quarter of 1999 as a result of achieving
revenue and operating profit performance targets of the Brand Dialogue
contributed assets.
Income tax expense was $111.3 million for 1999 compared to an income tax
benefit of $2.6 million for 1998. In 1998, an income tax benefit of $64.6
million was attributable to the other operating charges of $234.4 million
incurred in connection with our initial public offering and reflected the
anticipated federal, state and foreign tax effect of these charges after
consideration of valuation allowances for certain non-U.S. deductions, partially
offset by income tax expense of $62.0 million. The effective tax rate for 1999
was 40.0% compared to 42.0% in 1998, after excluding the benefit derived from
the other operating charges. The decrease in the effective tax rate resulted
from various tax planning initiatives and a shift in foreign income to
jurisdictions taxed at rates lower than the U.S. statutory rate.
Equity in net income of unconsolidated affiliates was $4.5 million for 1999
compared to $4.7 million in 1998, reflecting improved operating results of these
companies offset by the effect of the step up to majority ownership in Dentsu,
Young & Rubicam companies throughout principal markets in Asia, with the
exception of Japan, resulting in the consolidation of these entities from August
2, 1999.
Minority interest in net income of consolidated companies was $4.3 million
for 1999 compared to $2.0 million in 1998, primarily reflecting the effect of
the acquisition on August 2, 1999 of incremental ownership interests in Dentsu,
Young & Rubicam companies throughout principal markets in Asia, with the
exception of Japan.
In 1998, we incurred an extraordinary charge of $4.4 million, net of a tax
benefit of $2.8 million, due to the write-off of unamortized deferred financing
costs related to a previous credit facility.
Net income for 1999 was $167.1 million. As a result of the other operating
charges incurred in connection with our initial public offering in 1998, net
loss was $86.1 million for 1998. Excluding the other operating charges in 1998
of $234.4 million and other income of $85.0 million in 1999, net income
increased $32.3 million, or 38.5%, in 1999 compared to 1998. This increase was
principally due to revenue growth, acquisition activity, improved operating
margins, lower net borrowing costs and a reduced effective tax rate.
1998 COMPARED TO 1997
Revenues for 1998 increased by $139.8 million, or 10.1%, to $1,522.5
million compared to 1997. Organic worldwide revenue growth, excluding the effect
of acquisitions and foreign currency fluctuations, was 12.2% due to growth of
existing businesses, including net new business gains and net higher spending
from existing clients. Domestic revenues increased by 17.3% to $775.7 million
for 1998 compared to 1997. International revenues increased by 3.5% to $746.8
million. Excluding the effect of foreign currency fluctuations, international
revenues increased 7.9% for 1998 compared to 1997.
14
<PAGE>
Compensation expense increased by $67.7 million to $903.9 million for 1998
compared to 1997. The growth in compensation expense was primarily attributable
to additional staffing to support business growth and salary increases.
Compensation expense in 1997 also included a $12.3 million charge primarily for
deferred compensation awards granted to senior 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.
Effective upon the completion of our initial public offering in 1998, 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 in 1998, we
reported an operating loss 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, operating
profit 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 these charges after consideration of valuation allowances
for certain 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 in 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 affiliates was $4.7 million for 1998
compared to $0.3 million in 1997, reflecting improved worldwide operating
results by advertising agency affiliates.
Minority interest in net income of consolidated companies was $2.0 million
for 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 our initial public offering.
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 our initial public offering 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.
15
<PAGE>
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.
Cash and cash equivalents were $144.5 million and $122.1 million at
December 31, 1999 and 1998, respectively. Cash provided by operating activities
in 1999 was $326.9 million compared to $195.6 million in 1998, reflecting
revenue and net income growth, improved operating margins and a significant
improvement in working investment. Operating cash flows are significantly
impacted by 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 these expenditures.
Our practice, where possible, is to bill and collect from our clients in
sufficient time to pay the amounts due the media.
Free cash flow, which is defined as cash provided by operating activities
less capital expenditures, totaled $240.8 million in 1999, a 100% increase from
1998.
Cash used in investing activities in 1999 was $301.3 million and included
$86.2 million in capital expenditures and $216.1 million for investments and
acquisitions, net of cash acquired. In 1998, cash used in investing activities
was $99.7 million, principally consisting of $76.4 million in capital
expenditures. The majority of capital expenditures in 1999 were for leasehold
improvements and information technology-related purchases. Acquisitions and
investments in 1999 included the purchase of KnowledgeBase Marketing, Inc., the
contribution of cash and certain net assets of our Brand Dialogue operations in
exchange for an ownership interest in Luminant, the purchase of an incremental
ownership interest in the Dentsu, Young & Rubicam companies throughout principal
markets in Asia, with the exception of Japan, and an investment in
DigitalConvergence.com Inc.
Cash provided by financing activities in 1999 was $8.6 million and included
net borrowings of $127.1 million. In 1998, our Board of Directors approved a
plan to repurchase an aggregate of up to 8.0 million shares of our common stock
in the open market or in private transactions. In 1999, our Board of Directors
approved an increase of 4.0 million shares to our authorized share repurchase
program, bringing the total shares we can repurchase through August 2001 under
the repurchase program to 12.0 million. During 1999, we repurchased 3.5 million
shares of our common stock on the open market and in other transactions at an
average price of $41.70 per share for an aggregate cost of $146.0 million. From
January 1, 2000 through March 15, 2000, we repurchased an additional
approximately 1.7 million shares of common stock at an average price of $51.15
per share on the open market and in other transactions. This brings the total to
7.1 million shares repurchased under our authorized repurchase program. In 1998,
cash used in financing activities was $136.2 million, reflecting the repayment
of our previous credit facility, offset in part by the proceeds received from
the consummation of our initial public offering and borrowings under our current
credit facility.
During 1999, we increased our borrowing capacity by entering into an
additional $200 million credit facility. At December 31, 1999, we had
approximately $123.5 million in outstanding indebtedness under our aggregate
$600 million credit facilities. We expect to fund payments of principal and
interest under these credit facilities with cash from operations. During the
first quarter of 1999, all interest rate protection agreements to which we were
party either matured or were retired. Accordingly, at December 31, 1999, we had
no such agreements outstanding.
Our credit facilities contain financial and operating restrictions and
covenant requirements, including maximum leverage ratio and minimum interest
coverage requirements, and permit the payment of cash dividends except in the
event of a continuing default under the credit agreements. On June 15, 1999,
September 15, 1999 and December 15, 1999, we paid a quarterly cash dividend of
$0.025 per share of common stock to all shareholders of record as of June 1,
1999, September 1, 1999 and December 1, 1999, respectively. The payment of
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 January 20, 2000, we completed the placement of $287.5 million of 3%
convertible subordinated notes due January 15, 2005. At the option of the
holder, the notes are convertible into
16
<PAGE>
shares of our common stock at a conversion price of $73.36 per share, subject to
adjustment. We used the net proceeds of the offering to repay outstanding debt
under our existing bank credit facilities and to fund operations.
We may, from time to time, pursue acquisition opportunities that would
strengthen or enhance existing capabilities or expand the geographic scope of
our operations.
At December 31, 1999, our net deferred tax assets were $85.2 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 in 1998 and our
recapitalization in 1996, partially offset by deferred tax liabilities related
to the Luminant net gain and unrealized appreciation in equity securities.
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.
MARKET RISK MANAGEMENT
Our market risks primarily consist of the impact of changes in currency
exchange rates on assets and liabilities of non-U.S. operations, the impact of
changes in interest rates on debt and the impact of changes in market prices on
publicly traded equity securities held by us. At December 31, 1999 and 1998, the
carrying value of our financial instruments approximated fair value in all
material respects.
INTEREST RATE RISK
At December 31, 1999, we had $159.3 million in outstanding indebtedness as
compared to $63.9 million at December 31, 1998, consisting primarily of floating
rate debt. For floating rate debt, interest rate changes generally do not affect
the fair market value but do impact future earnings and cash flows, assuming
other factors are held constant. Based on outstanding indebtedness as of
December 31, 1999, the annual after-tax earnings impact resulting from a
one-percentage point increase or decrease in interest rates would be
approximately $1.0 million, holding other variables constant.
At December 31, 1998, we had interest rate protection agreements with
respect to $31.5 million of our indebtedness. The fair value approximated the
notional amount at December 31, 1998. During the first quarter of 1999, all
interest rate protection agreements to which we were party either matured or
were retired. Accordingly, at December 31, 1999, we had no such agreements
outstanding.
MARKET RISK
On September 21, 1999, we received equity securities in Luminant, an
internet and e-commerce services firm, in exchange for cash and certain net
assets of our Brand Dialogue operations. During 1999, Y&R also made strategic
investments in marketable equity securities of certain other entities and
received certain marketable equity securities in exchange for services rendered.
We account for our investments in equity securities with readily determinable
fair values under Statement of Financial Accounting Standards ("SFAS") No. 115,
which requires that certain equity securities be adjusted to market value at the
end of each accounting period. The values of these securities have since
appreciated significantly. However, the value of equity securities may fluctuate
based on the volatility of the respective company's stock price and other
general market conditions. All of these equity securities have been classified
as available-for-sale securities and, as such, are carried net of tax as a
separate component of stockholder's equity in the consolidated balance sheet
caption "Unrealized appreciation in equity securities."
FOREIGN EXCHANGE RATE RISK
Our consolidated financial statements are denominated in U.S. dollars. In
1999, we derived approximately 48% of our revenues from operations outside of
the United States. Significant strengthening of the U.S. dollar against other
major foreign currencies could have a material adverse
17
<PAGE>
effect on our results of operations. Substantially all 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 certain assets
and liabilities, which are recorded in a currency different from that in which
they will be settled. 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, 1999, Y&R had contracts for
the sale of $26.1 million and the purchase of $11.9 million of foreign
currencies at fixed rates, compared to contracts for the sale of $19.4 million
and the purchase of $6.1 million of foreign currencies at fixed rates at
December 31, 1998.
Management believes that any losses resulting from market risk would not
have a material adverse impact on Y&R's consolidated financial position, results
of operations or cash flows.
CONVERSION TO EURO
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 condition, results of operations or cash
flows.
YEAR 2000 COMPLIANCE
We continue to monitor 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. We have modified or replaced all significant systems
necessary for us to operate our business that we have identified as requiring
year 2000 remediation. We are also dependent in part on third-party computer
systems and applications, particularly with respect to such critical tasks as
accounting, billing and buying, planning and paying for media, as well as on our
own computer systems.
Since January 1, 2000, we have experienced no material impact on our
computer systems or operations as a result of the year 2000 issue. While we
believe our efforts have been successful to date, 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, may not be sufficient to prevent all year 2000 issues that may arise
in the future. Our failure to satisfactorily and completely address the year
2000 issue could have a material adverse effect on our prospects, business,
financial condition and results of operations.
The out-of-pocket costs incurred in 1999 in respect of the year 2000 issue
were not material. We have funded all remedial projects in connection with our
program.
18
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), which provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. In June 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133", which delays implementation of SFAS No. 133 until
fiscal years beginning after June 15, 2000. We do not anticipate that the
adoption of SFAS No. 133 will have a significant effect on our financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information required in response to this Item 7A, reference is made to
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the heading "Market Risk Management" and to Notes 1 and 13 of
Notes to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required in response to
this Item 8 appear beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the executive officers and directors of the
Company and compliance with Section 16(a) of the Securities Exchange Act of 1934
and the rules thereunder is incorporated by reference to the Company's
definitive proxy statement for its 2000 Annual Meeting of Stockholders (the
"Proxy Statement") expected to be filed by April 14, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Proxy Statement expected to be filed by
April 14, 2000. Such incorporation shall not be deemed to incorporate
specifically by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Proxy Statement expected to be filed by
April 14, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Proxy Statement expected to be filed by
April 14, 2000. Such incorporation shall not be deemed to incorporate
specifically by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS; FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Management ................................................................ F-2
Report of Independent Accountants ................................................... F-3
Consolidated Statements of Operations for the three years ended December 31, 1999.... F-4
Consolidated Balance Sheets as of December 31, 1999 and 1998 ........................ F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1999.... F-6
Consolidated Statements of Changes in Equity (Deficit) for the three years ended
December 31, 1999 ................................................................. F-7
Quarterly Financial Information ..................................................... F-8
Notes to Consolidated Financial Statements .......................................... F-9
</TABLE>
2. Financial Statement Schedules:
<TABLE>
<S> <C>
Schedule II - Valuation and Qualifying Accounts for the three years
ended December 31, 1999 ......................................... S-1
</TABLE>
All other schedules are omitted because they are not applicable.
3. Exhibits:
<TABLE>
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Young & Rubicam Inc.
(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 Young & Rubicam Inc. (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 Young & Rubicam Inc. (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).
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 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).
10.2 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).+
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
10.3 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).+
10.4 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).+
10.5 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of December
19, 1997, with Peter A. Georgescu (incorporated by reference from Exhibit 10.7 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the Company).+
10.6 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of January
1, 1995, with Peter A. Georgescu (incorporated by reference from Exhibit 10.8 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the Company).+
10.7 Young & Rubicam Inc. Select Executive Retirement Income Plan, dated as of January
1, 1986, with Peter A. Georgescu (incorporated by reference from Exhibit 10.9 to the
Registration Statement on Form S-1 (File No. 333-46929) filed by the Company).+
10.8 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).+
10.9 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).+
10.10 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).+
10.11 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).+
10.12 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).
10.13 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).
10.14 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).
10.15 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).+
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
10.16 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.+
10.17 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).+
10.18 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 for the year ended December 31, 1998 filed by the Company).+
10.19 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 for the year ended December 31, 1998 filed by the Company).+
10.20 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).+
10.21 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).+
10.22 Young & Rubicam Inc. Change in Control Severance Plan.*+
10.23 Amendment No. 2 to Young & Rubicam Inc. 1997 Incentive Compensation Plan.*+
10.24 Young & Rubicam Inc. Director Deferred Fee Plan, as amended by Amendment No. 1*+
10.25 Young & Rubicam Inc. Director Stock Option Plan.*+
10.26 Credit Agreement for the Credit Facility (incorporated by reference from Exhibit 10.28 to
the Registration Statement on Form S-1 (File No. 333-66883) filed by the Company).
10.27 Credit Agreement, dated as of June 30, 1999, among Young & Rubicam Inc. and the banks
named therein (incorporated by reference from Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999 filed by the Company.)
10.28 Indenture by Young & Rubicam Inc. to The Bank of New York, as Trustee, dated as of
January 20, 2000, with respect to 3% Convertible Subordinated Notes due 2005.*
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. *
24.1 Powers of Attorney to sign Form 10-K and resolution of Board of Directors re Power of
Attorney. *
27.1 Financial Data Schedule (filed in electronic format only).*
</TABLE>
- - ----------
* Filed herewith.
+ This exhibit is a management contract or a compensatory plan or arrangement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1999.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ------------------------------ ------------------------------------ ----------------
<S> <C> <C>
/s/ EDWARD H. VICK Chairman of the Board and Chief March 24, 2000
- - -----------------------
Creative Officer
Edward H. Vick
/s/ THOMAS D. BELL, JR. President, Chief Executive Officer March 24, 2000
- - -----------------------
and Director
Thomas D. Bell, Jr.
/s/ MICHAEL J. DOLAN Vice Chairman, Chief Financial March 24, 2000
- - -----------------------
Officer and Director
Michael J. Dolan
/s/ STEPHANIE W. ABRAMSON Executive Vice President, General March 24, 2000
- - -----------------------
Counsel and Secretary
Stephanie W. Abramson
/s/ JACQUES TORTOROLI Senior Vice President, Finance March 24, 2000
- - -----------------------
(Principal Accounting Officer)
Jacques Tortoroli
/s/ RICHARD S. BODMAN Director March 24, 2000
- - -----------------------
Richard S. Bodman
/s/ F. WARREN HELLMAN Director March 24, 2000
- - -----------------------
F. Warren Hellman
/s/ MICHAEL H. JORDAN Director March 24_, 2000
- - -----------------------
Michael H. Jordan
/s/ SIR CHRISTOPHER LEWINTON Director March 24, 2000
- - -----------------------
Sir Christopher Lewinton
/s/ JOHN F. MCGILLICUDDY Director March 24, 2000
- - -----------------------
John F. McGillicuddy
/s/ JUDITH RODIN Director March 24, 2000
- - -----------------------
Judith Rodin
/s/ ALAN D. SCHWARTZ Director March 24, 2000
- - -----------------------
Alan D. Schwartz
</TABLE>
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Management ..................................................................... F-2
Report of Independent Accountants ........................................................ F-3
Consolidated Statements of Operations for the three years ended December 31, 1999 ........ F-4
Consolidated Balance Sheets as of December 31, 1999 and 1998 ............................. F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1999 ........ F-6
Consolidated Statements of Changes in Equity (Deficit) for the three years ended December
31,
1999 .................................................................................... F-7
Quarterly Financial Information .......................................................... F-8
Notes to Consolidated Financial Statements ............................................... F-9
Financial Statement Schedule II -- Valuation and Qualifying Accounts
for the three years ended December 31, 1999.............................................. S-1
</TABLE>
F-1
<PAGE>
REPORT OF MANAGEMENT
The management of Young & Rubicam Inc. ("Y&R") and its subsidiaries is
responsible for the integrity of the financial data reported by Y&R. Management
uses its best judgment to ensure that the financial statements present fairly,
in all material respects, the consolidated financial position and results of
operations of Y&R. These financial statements have been prepared in accordance
with generally accepted accounting principles.
The system of internal controls of Y&R is designed to provide reasonable
assurance that assets are safeguarded, that transactions are executed in
accordance with management's authorization and are properly recorded, and that
accounting records may be relied upon for the preparation of financial
statements and other financial information. Underlying this concept of
reasonable assurance is the premise that the cost of control should not exceed
the benefits derived and that the evaluation of those factors requires estimates
and judgments by management. Further, because of inherent limitations in any
system of internal accounting control, errors or irregularities may occur and
not be detected. Nevertheless, management believes that a high level of internal
control is maintained by Y&R through the selection and training of qualified
personnel, the establishment and communication of accounting and business
policies, and its internal audit program.
The financial statements have been audited by independent accountants.
Their report expresses an independent informed judgment as to the fairness of
management's reported operating results and financial position. This judgment is
based on the procedures described in their report.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not officers or employees of Y&R, meets regularly with
corporate management, Y&R's internal auditors and legal counsel, and the
independent accountants to review the activities of each and to satisfy itself
that each is properly discharging its responsibility. In addition, the Audit
Committee meets on a scheduled basis with the independent accountants, without
management's presence, to discuss the audit of the financial statements as well
as other auditing and financial reporting matters.
<TABLE>
<S> <C>
Thomas D. Bell, Jr. Michael J. Dolan
President and Vice Chairman and
Chief Executive Officer Chief Financial Officer
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Young & Rubicam Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 21 present fairly, in all material
respects, the financial position of Young & Rubicam Inc. and its subsidiaries
(the "Company") at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(2) on page 21 presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, 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 11, 2000
F-3
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------- ------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues ............................................................ $ 1,717,186 $ 1,522,464 $ 1,382,740
Compensation expense, including employee benefits ................... 994,119 903,948 836,150
General and administrative expenses ................................. 514,981 455,578 463,936
Other operating charges ............................................. -- 234,449 11,925
----------- ----------- -----------
Operating expenses .................................................. 1,509,100 1,593,975 1,312,011
----------- ----------- -----------
Operating profit (loss) ............................................. 208,086 (71,511) 70,729
Interest income ..................................................... 9,221 8,315 8,454
Interest expense .................................................... (24,069) (26,001) (42,879)
----------- ----------- -----------
Net interest expense ................................................ (14,848) (17,686) (34,425)
Other income ........................................................ 84,982 2,200 --
----------- ----------- -----------
Income (loss) before income taxes ................................... 278,220 (86,997) 36,304
Income tax provision (benefit) ...................................... 111,288 (2,644) 58,290
----------- ----------- -----------
166,932 (84,353) (21,986)
Equity in net income of unconsolidated affiliates ................... 4,509 4,707 342
Minority interest in net income of consolidated companies ........... (4,342) (1,989) (2,294)
----------- ----------- -----------
Income (loss) before extraordinary charge ........................... 167,099 (81,635) (23,938)
----------- ----------- -----------
Extraordinary charge for early retirement of debt, net of tax ....... -- (4,433) --
----------- ----------- -----------
Net income (loss) ................................................... $ 167,099 $ (86,068) $ (23,938)
=========== =========== ===========
Earnings (loss) per share:
Basic:
Income (loss) before extraordinary charge .......................... $ 2.43 $ (1.34) $ (0.51)
Extraordinary charge ............................................... -- ( 0.08) --
----------- ----------- -----------
Net income (loss) .................................................. $ 2.43 $ (1.42) $ (0.51)
=========== =========== ===========
Diluted:
Income (loss) before extraordinary charge .......................... $ 2.02 $ (1.34) $ (0.51)
Extraordinary charge ............................................... -- ( 0.08) --
----------- ----------- -----------
Net income (loss) .................................................. $ 2.02 $ (1.42) $ (0.51)
-=========== =========== ===========
Weighted average shares outstanding
Basic .............................................................. 68,688,848 60,673,994 46,949,355
=========== =========== ===========
Diluted ............................................................ 82,871,725 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 BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
-------------- --------------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE AMOUNTS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................................... $ 144,517 $ 122,138
Accounts receivable, net of allowance for doubtful accounts of $25,012 and $17,938 at
December 31, 1999 and December 31, 1998, respectively .................................. 1,031,445 835,284
Costs billable to clients ............................................................... 76,982 55,187
Other receivables ....................................................................... 43,138 37,177
Deferred tax benefits ................................................................... 50,302 46,803
Prepaid expenses and other current assets ............................................... 27,803 25,979
----------- -----------
Total Current Assets ................................................................... 1,374,187 1,122,568
----------- -----------
NONCURRENT ASSETS
Property, leasehold improvements and equipment at cost, net of accumulated
depreciation and amortization of $248,112 and $231,655 at December 31, 1999
and December 31,
1998, respectively ..................................................................... 194,569 150,413
Deferred income taxes ................................................................... 34,875 158,510
Intangibles, net of accumulated amortization of $91,285 and $87,283 at December 31, 1999
and December 31, 1998, respectively .................................................... 353,860 121,005
Equity in net assets of and advances to unconsolidated affiliates ....................... 36,001 38,397
Investments in equity securities ........................................................ 366,590 --
Other noncurrent assets ................................................................. 54,199 44,226
----------- -----------
Total Assets ........................................................................... $ 2,414,281 $ 1,635,119
=========== ===========
CURRENT LIABILITIES
Accounts payable ........................................................................ $ 1,206,385 $ 886,632
Accrued expenses and other current liabilities .......................................... 226,006 202,433
Accrued payroll and bonuses ............................................................. 78,531 77,078
Advance billings ........................................................................ 132,130 121,992
Accrued taxes on income ................................................................. 24,844 19,290
Short-term debt ......................................................................... 31,710 32,031
----------- -----------
Total Current Liabilities .............................................................. 1,699,606 1,339,456
----------- -----------
NONCURRENT LIABILITIES
Long-term debt .......................................................................... 127,568 31,894
Deferred compensation ................................................................... 31,328 30,635
Other noncurrent liabilities ............................................................ 117,405 113,064
----------- -----------
Minority Interests ....................................................................... 14,194 4,573
----------- -----------
Commitments and Contingencies
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 -- 72,950,004 shares and 66,374,569 shares at December 31, 1999 and
December 31, 1998, respectively (excluding 2,471 shares and 3,976,941 shares in 730 704
treasury)
Capital surplus ......................................................................... 908,969 934,676
Accumulated deficit ..................................................................... (596,470) (758,292)
Unrealized appreciation in equity securities ............................................ 144,977 --
Cumulative translation adjustment ....................................................... (33,092) (10,810)
Pension liability adjustment ............................................................ (817) (1,210)
----------- -----------
424,297 165,068
Common stock in treasury, at cost ....................................................... (117) (49,571)
Total Stockholders' Equity ............................................................. 424,180 115,497
----------- -----------
Total Liabilities and Stockholders' Equity ............................................. $ 2,414,281 $ 1,635,119
=========== ===========
</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 CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1999
--------------
(IN THOUSANDS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................................... $ 167,099
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ...................................................... 71,217
Other non-cash operating charges ................................................... --
Other non-cash income .............................................................. (84,982)
Extraordinary charge for early retirement of debt, net of tax ...................... --
Deferred income tax expense (benefit) .............................................. 73,341
Equity in net income of unconsolidated affiliates .................................. (4,509)
Dividends from unconsolidated affiliates ........................................... 3,714
Minority interest in net income of consolidated companies .......................... 4,342
Change in assets and liabilities, excluding effects from acquisitions, dispositions
and foreign exchange:
Accounts receivable ................................................................ (138,036)
Costs billable to clients .......................................................... (12,900)
Other receivables .................................................................. (2,885)
Prepaid expenses and other assets .................................................. 13,083
Accounts payable ................................................................... 232,277
Accrued expenses and other current liabilities ..................................... (9,590)
Accrued payroll and bonuses ........................................................ (1,900)
Advance billings ................................................................... 10,139
Accrued taxes on income ............................................................ 4,246
Deferred compensation .............................................................. 926
Other .............................................................................. 1,346
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................................... $ 326,928
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, leasehold improvements and equipment ........................ $ (86,174)
Acquisitions, net of cash acquired ................................................. (154,715)
Investments in equity securities ................................................... (61,364)
Proceeds from investing activities ................................................. 978
-----------
NET CASH USED IN INVESTING ACTIVITIES ............................................... $ (301,275)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ....................................................... $ 107,590
Repayments of long-term debt ....................................................... (10,421)
Net proceeds from short-term debt .................................................. 30,318
Net proceeds from issuance of common stock in initial public offering .............. --
Common stock issued ................................................................ 35,940
Purchase of treasury shares ........................................................ (146,028)
Dividends paid ..................................................................... (5,277)
Payment of deferred compensation ................................................... (1,356)
Recapitalization payments .......................................................... --
Net payment of installment notes ................................................... (399)
Other financing activities ......................................................... (1,802)
-----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................................. $ 8,565
-----------
Effect of exchange rate changes on cash and cash equivalents ........................ (11,839)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 22,379
Cash and cash equivalents, beginning of period ...................................... 122,138
-----------
Cash and cash equivalents, end of period ............................................ $ 144,517
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ...................................................................... $ 24,108
===========
Income taxes paid .................................................................. $ 29,655
===========
NONCASH INVESTING ACTIVITY:
Common stock issued in acquisitions ................................................ $ 85,584
===========
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................................... $ (86,068) $ (23,938)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ...................................................... 60,610 56,721
Other non-cash operating charges ................................................... 234,449 11,925
Other non-cash income .............................................................. (2,200) --
Extraordinary charge for early retirement of debt, net of tax ...................... 4,433 --
Deferred income tax expense (benefit) .............................................. (38,664) (384)
Equity in net income of unconsolidated affiliates .................................. (4,707) (342)
Dividends from unconsolidated affiliates ........................................... 3,467 2,728
Minority interest in net income of consolidated companies .......................... 1,989 2,294
Change in assets and liabilities, excluding effects from acquisitions,
dispositions and foreign exchange:
Accounts receivable ................................................................ (29,398) 42,144
Costs billable to clients .......................................................... 5,418 15,834
Other receivables .................................................................. (2,346) 13,930
Prepaid expenses and other assets .................................................. (6,702) 269
Accounts payable ................................................................... 72,216 109,205
Accrued expenses and other current liabilities ..................................... (29,374) (15,368)
Accrued payroll and bonuses ........................................................ 8,869 2,179
Advance billings ................................................................... 15,074 (39,881)
Accrued taxes on income ............................................................ (10,652) 19,352
Deferred compensation .............................................................. 3,234 13,052
Other .............................................................................. (4,033) 14,791
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................................... $ 195,615 $ 224,511
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, leasehold improvements and equipment ........................ $ (76,378) $ (51,899)
Acquisitions, net of cash acquired ................................................. (17,423) (11,281)
Investments in equity securities ................................................... (7,072) (5,640)
Proceeds from investing activities ................................................. 1,190 1,678
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES ............................................... $ (99,683) $ (67,142)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ....................................................... $ 225,834 $ 226,770
Repayments of long-term debt ....................................................... (524,883) (105,870)
Net proceeds from short-term debt .................................................. 71,997 20,103
Net proceeds from issuance of common stock in initial public offering .............. 158,637 --
Common stock issued ................................................................ 7,995 10,390
Purchase of treasury shares ........................................................ (60,956) (1,500)
Dividends paid ..................................................................... -- --
Payment of deferred compensation deferred compensation ............................. (3,535) (1,118)
Recapitalization payments .......................................................... -- (247,789)
Net payment of installment notes ................................................... (8,883) --
Other financing activities ......................................................... (2,448) 347
----------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ................................. $ (136,242) $ (98,667)
----------- ----------
Effect of exchange rate changes on cash and cash equivalents ........................ 2,185 (8,619)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ (38,125) 50,083
Cash and cash equivalents, beginning of period ...................................... 160,263 110,180
----------- ----------
Cash and cash equivalents, end of period ............................................ $ 122,138 $ 160,263
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ...................................................................... $ 29,439 $ 39,986
=========== ==========
Income taxes paid .................................................................. $ 36,288 $ 25,020
=========== ==========
NONCASH INVESTING ACTIVITY:
Common stock issued in acquisitions ................................................ $ -- $ 1,126
=========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON CAPITAL ACCUMULATED
STOCK SURPLUS DEFICIT
----------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 ................ $ 111 $ 106,825 $ (498,928)
===== ========== ===========
Net loss .................................... -- -- (23,938)
Foreign currency translation adjustments..... -- -- --
Minimum pension liability adjustments ....... -- -- --
----- ---------- -----------
Comprehensive income (loss) ................. (23,938)
Common stock issued ......................... -- 1,501 --
Purchase of treasury shares ................. -- -- --
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 $ (522,866)
===== ========== ===========
Net loss .................................... -- -- (86,068)
Foreign currency translation adjustments..... -- -- --
Minimum pension liability adjustments ....... -- -- --
----- ---------- -----------
Comprehensive income (loss) ................. -- -- (86,068)
Issuance of restricted stock ................ -- 94,039 --
Common stock options exercised and
other ...................................... 17 1,134 --
Purchase of treasury shares ................. -- -- --
Issuance of common stock in initial
public offering, net of expenses ........... 69 158,568 --
Accretion of mandatorily redeemable
equity securities .......................... (3) (137,942) (149,358)
Conversion of mandatorily redeemable
equity securities .......................... 510 795,264 --
------ ---------- -----------
BALANCE AT DECEMBER 31, 1998 ................ $ 704 $ 934,676 $ (758,292)
====== ========== ===========
Net income .................................. -- -- 167,099
Foreign currency translation adjustments..... -- -- --
Unrealized appreciation in equity
securities, net of $92,690 of deferred
income taxes ............................... -- -- --
Minimum pension liability adjustments ....... -- -- --
------ ---------- -----------
Comprehensive income (loss) ................. -- -- 167,099
Common stock options exercised .............. 26 (69,771) --
Purchase of treasury shares ................. -- -- --
Common stock issued in acquisitions ......... -- 44,064 --
Dividends paid .............................. -- -- (5,277)
------ ---------- -----------
BALANCE AT DECEMBER 31, 1999 ................ $ 730 $ 908,969 $ (596,470)
====== ========== ===========
<CAPTION>
ACCUMULATED
COMMON OTHER
STOCK IN RESTRICTED COMPREHENSIVE
TREASURY STOCK INCOME TOTAL
------------- -------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 ................ $ -- $ (85,000) $ (3,041) $ (480,033)
========== =========== ========== ===========
Net loss .................................... -- -- -- (23,938)
Foreign currency translation adjustments..... -- -- (14,255) (14,255)
Minimum pension liability adjustments ....... -- -- 13 13
---------- ----------- ---------- -----------
Comprehensive income (loss) ................. (14,242) (38,180)
Common stock issued ......................... -- -- -- 1,501
Purchase of treasury shares ................. (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 ................ $ (8,550) $ (136,739) $ (17,283) $ (661,714)
========== =========== ========== ===========
Net loss .................................... -- -- -- (86,068)
Foreign currency translation adjustments..... -- -- 5,767 5,767
Minimum pension liability adjustments ....... -- -- (504) (504)
---------- ----------- ---------- -----------
Comprehensive income (loss) ................. -- -- 5,263 (80,805)
Issuance of restricted stock ................ -- 136,739 -- 230,778
Common stock options exercised and
other ...................................... 19,935 -- -- 21,086
Purchase of treasury shares ................. (60,956) -- -- (60,956)
Issuance of common stock in initial
public offering, net of expenses ........... -- -- -- 158,637
Accretion of mandatorily redeemable
equity securities .......................... -- -- -- (287,303)
Conversion of mandatorily redeemable
equity securities .......................... -- -- -- 795,774
---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1998 ................ $ (49,571) $ -- $ (12,020) $ 115,497
========== =========== ========== ===========
Net income .................................. -- -- -- 167,099
Foreign currency translation adjustments..... -- -- (22,282) (22,282)
Unrealized appreciation in equity
securities, net of $92,690 of deferred
income taxes ............................... -- -- 144,977 144,977
Minimum pension liability adjustments ....... -- -- 393 393
---------- ----------- ---------- -----------
Comprehensive income (loss) ................. -- -- 123,088 290,187
Common stock options exercised .............. 153,962 -- -- 84,217
Purchase of treasury shares ................. (146,028) -- -- (146,028)
Common stock issued in acquisitions ......... 41,520 -- -- 85,584
Dividends paid .............................. -- -- -- (5,277)
---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1999 ................ $ (117) $ -- $ 111,068 $ 424,180
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EARNINGS (LOSS) PER
INCOME (LOSS) SHARE BEFORE
OPERATING BEFORE EXTRAORDINARY CHARGE
PROFIT EXTRAORDINARY -----------------------
QUARTER REVENUES (LOSS) CHARGE BASIC DILUTED
- - --------------------- ------------ ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1999
1st ................. $ 383,873 $ 34,558 $ 19,701 $ 0.30 $ 0.24
2nd ................. 414,361 52,834 30,585 0.45 0.37
3rd (1) ............. 428,452 55,305 73,942 1.06 0.88
4th ................. 490,500 65,389 42,871 0.60 0.51
---------- ----------- -----------
Year ................ 1,717,186 208,086 167,099 2.43 2.02
---------- ----------- -----------
1998
1st ................. $ 348,173 $ 25,333 $ 12,190 $ 0.24 $ 0.19
2nd (2) (3) ......... 372,128 (190,472) (145,391) ( 2.45) ( 2.45)
3rd ................. 375,419 42,178 24,306 0.36 0.29
4th ................. 426,744 51,450 27,260 0.41 0.34
---------- ----------- -----------
Year ................ 1,522,464 (71,511) (81,635) ( 1.34) ( 1.34)
---------- ----------- -----------
1997
1st ................. $ 298,206 $ 14,093 $ 4,089 $ 0.09 $ 0.07
2nd ................. 345,474 35,156 13,516 0.29 0.22
3rd ................. 333,387 (4,302) (5,700) ( 0.12) ( 0.12)
4th ................. 405,673 25,782 (35,843) ( 0.77) ( 0.77)
---------- ----------- -----------
Year ................ 1,382,740 70,729 (23,938) ( 0.51) ( 0.51)
---------- ----------- -----------
<CAPTION>
NET COMMON STOCK DIVIDENDS PAID
INCOME ----------------------- PER SHARE OF
QUARTER (LOSS) HIGH LOW COMMON STOCK
- - --------------------- ------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
1999
1st ................. $ 19,701 $ 43.31 $ 31.25 --
2nd ................. 30,585 44.38 37.25 $ .025
3rd (1) ............. 73,942 48.25 39.69 $ .025
4th ................. 42,871 73.25 43.00 $ .025
----------- ------
Year ................ 167,099 73.25 31.25 $ .075
----------- ------
1998
1st ................. $ 12,190 $ -- $ --
2nd (2) (3) ......... (149,824) 33.06 26.50
3rd ................. 24,306 35.88 28.38
4th ................. 27,260 33.63 19.75
-----------
Year ................ (86,068) 35.88 19.75
-----------
1997
1st ................. $ 4,089
2nd ................. 13,516
3rd ................. (5,700)
4th ................. (35,843)
-----------
Year ................ (23,938)
-----------
</TABLE>
- - ----------
(1) Operating profit (loss) for the third quarter of 1999 includes $70.8 million
of net pre-tax gain on the sale of certain assets of our Brand Dialogue
operations in exchange for an ownership interest in Luminant Worldwide
Corporation.
(2) Operating profit (loss) for the second quarter of 1998 includes $234.4
million of non-recurring, non-cash, pre-tax compensation charges recognized
upon the consummation of our initial public 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 Y&R's replaced credit
facility.
(3) The high and low prices of common stock reflect amounts from the period
commencing upon the consummation of our initial public offering on May 12,
1998, the first day of public trading, through June 30, 1998.
F-8
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1 -- DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BUSINESS: Young & Rubicam Inc. ("Y&R") is a global marketing and
communications company which offers clients integrated services in the creation
and production of advertising, strategic media planning and buying, direct
marketing and customer relationship management, perception management and public
relations, branding consultancy and design services, and healthcare
communications. Y&R operates through wholly owned subsidiaries, joint ventures
and non-equity affiliations worldwide. Operations cover the major geographic
regions of North America, Europe, Latin America, the Far East, Australia, New
Zealand, the Middle East and Africa.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements include the accounts of Y&R and its majority owned subsidiaries. The
equity in net income attributable to minority shareholder interests are shown
separately in the consolidated balance sheets and consolidated statements of
operations. Investments in entities owned 20% or more, but less than majority
owned and not otherwise controlled by Y&R are accounted for under the equity
method. All significant intercompany transactions are eliminated.
CASH EQUIVALENTS: Y&R considers all highly liquid instruments with an
initial maturity of three months or less to be cash equivalents at the time of
purchase. Y&R records book overdrafts in accounts payable. Accounts payable
included $88.6 million and $51.8 million of book overdrafts as of December 31,
1999 and 1998, respectively.
REVENUE RECOGNITION: Substantially all revenues are derived from
commissions for placement of advertisements in various media and from fees for
manpower and for production of advertisements and other marketing and
communications services. Commission revenue is recognized when media is placed
and when labor and production costs are billed. Fee revenue is recognized when
services are rendered.
COSTS BILLABLE TO CLIENTS: Costs billable to clients consist principally of
costs incurred in providing communication services to clients. Such amounts are
generally billed to clients when manpower is used, when costs are incurred for
production and when print production is completed.
DEPRECIATION AND AMORTIZATION: Depreciation charges are computed using the
straight-line method over the estimated useful life of the respective asset up
to 25 years. Leasehold improvements are amortized on a straight-line basis over
the lesser of the term of the related lease or the estimated useful life of
these assets.
INTANGIBLES: Intangibles, including goodwill, are carried at cost less
accumulated amortization which is being provided on a straight line basis over
the economic lives of the respective assets with a maximum life of 40 years.
Each year, the intangibles are written down if, and to the extent they are
determined to be impaired. Intangibles are determined to be impaired if the
future anticipated undiscounted cash flows arising from the use of the
intangibles is less than the net unamortized cost of the intangibles.
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. Y&R'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," 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
F-9
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
the method prescribed by Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Y&R has elected to continue to
account for such plans under the provisions of APB Opinion No. 25 and has
included, in Note 15, the required SFAS No. 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.
TREASURY STOCK: Y&R accounts for treasury share purchases at cost. The
reissuance of treasury shares is accounted for at the average cost. Gains or
losses on the reissuance of treasury shares are accounted for as capital
surplus.
FOREIGN CURRENCY TRANSLATION: Y&R's financial statements were prepared in
accordance with the requirements of SFAS No. 52, "Foreign Currency
Translation." Under this method, net foreign currency transaction gains of $0.5
million and net losses of $1.3 million were recorded in 1999 and 1997,
respectively. Net losses in 1998 were immaterial.
DERIVATIVE FINANCIAL INSTRUMENTS: Derivative financial instruments are used
by Y&R principally in the management of its interest rate and foreign currency
exposures. Y&R does not hold or issue derivative financial instruments 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.
INVESTMENTS IN EQUITY SECURITIES: Y&R accounts for its investments in
publicly traded equity securities under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with SFAS No. 115,
unrealized gains on securities owned by Y&R, which are classified as
available-for-sale securities, are carried net of tax as a separate component of
stockholders' equity under the consolidated balance sheet caption "Unrealized
appreciation in equity securities." Unrealized appreciation in equity securities
included in stockholders' equity at December 31, 1999, was $145.0 million, net
of $92.7 million of related income taxes. Investments which are not publicly
traded are accounted for at cost.
CONCENTRATIONS OF CREDIT RISK: Y&R's clients are engaged in various
businesses located primarily in North America, Europe, Latin America and the
Asia/Pacific region. Y&R performs ongoing credit evaluations of its clients.
Allowances for credit losses are maintained at levels considered adequate by
management. Y&R 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. Y&R's top 10 clients accounted for approximately
37%, 36% and 31% of consolidated revenues in 1999, 1998 and 1997, respectively.
Y&R's largest client accounted for approximately 13%, 10% and 10% of
consolidated revenues for the years ended December 31, 1999, 1998 and 1997,
respectively.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. In June 1999, the FASB issued Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133", which delays implementation
of SFAS No. 133 until fiscal years beginning after June 15, 2000. We do not
anticipate that the adoption of SFAS No. 133 will have a significant effect on
our financial condition.
F-10
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
RECLASSIFICATIONS: Certain reclassifications have been made to the prior
years' financial statements to conform to the 1999 presentation.
NOTE 2 -- EARNINGS PER SHARE
Basic earnings (loss) per share are calculated by dividing net income
(loss) by the weighted average shares of common stock outstanding during the
years ended December 31, 1999, 1998 and 1997. Diluted earnings per share reflect
the dilutive effect of stock options, primarily stock options granted to
employees under stock-based compensation plans, and other dilutive securities.
Shares used in computing basic and diluted earnings per share were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Basic -- weighted average shares ............ 68,688,848 60,673,994 46,949,355
Effect of dilutive securities ............... 14,182,877 -- --
---------- ---------- ----------
Diluted -- weighted average shares .......... 82,871,725 60,673,994 46,949,355
========== ========== ==========
</TABLE>
In the years ended December 31, 1998 and 1997, basic and diluted weighted
average shares used in the calculation were the same since the inclusion of the
effect of stock options on loss per share would have been antidilutive.
In computing basic loss per share for the year ended December 31, 1997,
Y&R'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 Y&R's initial public offering on May 15, 1998, a condition which
was not satisfied at December 31, 1997 (see Note 3).
NOTE 3 -- INITIAL PUBLIC OFFERING
On May 15, 1998, Y&R closed an initial public offering of its common stock
(the "Offering"). An aggregate of 19,090,000 shares of Y&R's common stock was
offered to the public, of which 6,912,730 shares were sold by Y&R and 12,177,270
shares were sold by certain selling shareholders. Y&R used the net proceeds of
$158.6 million, 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.
The completion of the Offering 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 the completion of the
Offering. These charges have been reflected as other operating charges in Y&R's
consolidated statement of operations for the year ended December 31, 1998. Y&R
redeemed the remaining 1,855,845 shares of restricted stock held in the
restricted stock trust upon the consummation of the Offering.
NOTE 4 -- COMMON STOCK DIVIDEND
On April 6, 1998, the Board of Directors declared a stock dividend of 14
shares of common stock payable for each share of common stock outstanding, which
became effective and was paid on May 11, 1998. Y&R's historical financial
statements have been presented to give retroactive effect to this stock
dividend.
F-11
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
NOTE 5 -- EQUITY IN NET ASSETS OF UNCONSOLIDATED AFFILIATES
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY
OWNERSHIP IN NET IN NET IN NET IN NET IN NET IN NET
AFFILIATE INTEREST ASSETS INCOME ASSETS INCOME ASSETS INCOME
- - ----------------------------------- ------------- ----------- ---------- ----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Dentsu, Y&R Partnerships .......... 15%-50% $ 20,816 $ 2,354 $ 27,790 $ 2,389 $ 17,510 $ 2,587
Eco S.A. .......................... 40% 2,249 231 2,085 (75) 2,206 96
Cresswell, Munsell, Fultz &
Zirbel ........................... 33% 2,210 151 2,183 500 1,922 508
Team Holdings ..................... 25% 4,078 -- -- -- -- --
National Public Relations ......... 22% 749 167 527 (19) 647 98
Other ............................. 50% or less 5,899 1,606 5,812 1,912 4,108 (2,947)
-------- ------- -------- ------- -------- --------
$ 36,001 $ 4,509 $ 38,397 $ 4,707 $ 26,393 $ 342
======== ======= ======== ======= ======== ========
</TABLE>
Effective August 2, 1999, the ownership and management structure of Dentsu,
Young & Rubicam ("DY&R") was amended. The agreement resulted in Y&R acquiring
majority ownership in and operational control of all DY&R companies throughout
principal markets in Asia, with the exception of Japan. In Japan, Dentsu has
acquired a majority share. Effective August 2, 1999, Y&R commenced consolidating
the results of DY&R for those markets where it holds a majority ownership
interest. For periods prior to August 2, 1999, the financial information
reflects the DY&R partnerships in which Y&R held a minority equity ownership
interest.
The summarized unaudited financial information below represents an
aggregation of Y&R's unconsolidated affiliates.
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS DATA
Revenues ....................... $ 241,183 $ 218,973 $ 207,668
Operating profit ............... 27,557 22,320 13,768
Net income ..................... 15,189 15,424 4,347
BALANCE SHEET DATA
Current assets ................. $ 276,183 $ 317,916 $ 321,372
Noncurrent assets .............. 52,658 60,624 40,147
Current liabilities ............ 234,441 266,090 287,101
Noncurrent liabilities ......... 22,308 17,023 13,215
Equity ......................... 72,092 95,427 61,203
</TABLE>
F-12
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
NOTE 6 -- INVESTMENTS IN EQUITY SECURITIES
On September 21, 1999, Y&R contributed $15 million and certain net assets
of its Brand Dialogue operations (the "Brand Dialogue Contributed Assets") in
exchange for an ownership interest in Luminant Worldwide Corporation
("Luminant"), an internet and e-commerce services firm that provides strategic
consulting, content development and systems integration capabilities to its
clients. Y&R recognized a net after-tax gain of approximately $42 million on the
sale of the Brand Dialogue Contributed Assets in the third quarter of 1999. Y&R
accounts for its investment in Luminant equity securities at fair value under
SFAS No. 115. Since September 1999, the value of these equity securities has
appreciated significantly. However, the value of the equity securities may
fluctuate based on the volatility of Luminant's stock price and other general
market conditions. We have classified the Luminant securities as
available-for-sale securities. At December 31, 1999, the cost basis of these
securities was $91.5 million. The securities are carried at their fair value of
$306.5 million and are included in other investments on the balance sheet. The
difference between cost and fair value of $215.0 million is carried net of $83.9
million of related income taxes as a separate component of stockholders' equity
under the consolidated balance sheet caption "Unrealized appreciation in equity
securities." Under the terms of the contribution agreement between Luminant and
Y&R, Y&R recorded a net after-tax gain of approximately $9 million in the fourth
quarter of 1999 reflecting the realization of contingent consideration as a
result of achieving certain revenue and operating profit performance targets of
the Brand Dialogue Contributed Assets, and is eligible to receive, in 2000,
future contingent consideration from Luminant, in the form of cash and/or
non-voting shares of Luminant common stock, at Luminant's discretion, based on
the consolidated performance of Luminant for the first six months of 2000.
During 1999, Y&R also made strategic investments in marketable equity
securities of certain other entities for an aggregate cost of approximately $45
million and also received certain marketable equity securities in exchange for
services rendered. Y&R accounts for its investments in equity securities with
readily determinable fair values under SFAS No. 115. At December 31, 1999, all
equity securities covered by SFAS No. 115 were designated as available-for-sale.
Accordingly, these securities are stated at fair value, with unrealized holding
gains, net of taxes, reported in a separate component of shareholders' equity.
Such equity securities at December 31, 1999, excluding Luminant, had an
aggregate cost basis of $14.7 million. These securities are carried at their
fair value of $37.3 million and are included in investments in equity securities
on the balance sheet. Differences between cost and fair value of $22.6 million
are carried net of $8.8 million of related income tax as a separate component of
stockholders' equity under the consolidated balance sheet caption "Unrealized
appreciation in equity securities."
When readily determinable fair values are not available, marketable
securities are carried on the balance sheet at cost, except in cases where it is
determined that a decline in the estimated fair value of the investment is other
than temporary. At December 31, 1999, the carrying value of such cost
investments was $22.8 million, which includes our investment in
DigitalConvergence.com Inc. of approximately $20 million.
NOTE 7 -- ACQUISITIONS
Effective August 2, 1999, the ownership and management structure of DY&R
was amended. The agreement resulted in Y&R acquiring majority ownership in and
operational control of all DY&R companies throughout principal markets in Asia,
with the exception of Japan. In Japan, Dentsu has acquired a majority share.
Effective August 2, 1999, Y&R commenced consolidating the results of DY&R for
those markets where it holds a majority ownership interest. Y&R paid
approximately $6 million for the incremental ownership interest and will pay $4
million in the first quarter of 2001. This transaction has been accounted for
under the purchase method of accounting for business combinations. A preliminary
allocation of the cost to acquire the additional interest in DY&R has been made
based upon the fair value of DY&R's net assets.
F-13
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
On May 21, 1999, Y&R acquired KnowledgeBase Marketing, Inc. ("KBM"), a
provider of database and analytical services, in a stock and cash transaction
valued at approximately $175 million. This transaction has been accounted for
under the purchase method of accounting for business combinations. A preliminary
allocation of the cost to acquire KBM has been made based upon the fair value of
KBM's net assets.
Also during 1999, Y&R acquired The Direct Impact Company, a company
specializing in grassroots issues management; Rainey, Kelly, Campbell, Roalfe, a
London-based advertising agency; a majority ownership interest in The Banner
Corporation, a European marketing and communications firm specializing in the
technology sector, and made several other acquisitions and equity investments
for which the aggregate purchase price was approximately $80 million. All of
these acquisitions were accounted for under the purchase method of accounting
and a preliminary allocation of the costs to acquire these entities has been
made based on the fair value of the net assets.
During 1998 and 1997, Y&R acquired full or partial interests in certain
domestic and international entities and obtained additional interests in certain
partially owned entities for an aggregate purchase price of $17.6 million and
$14.7 million, respectively. In 1998, acquisitions included Y&R's purchase of a
multi-cultural advertising agency and certain other assets located in the United
States. In 1997, Y&R acquired an additional 37.5% equity interest in the DY&R
companies in Australia and New Zealand. In consideration for this additional
equity interest, Y&R contributed to Dentsu 12.5% of its equity interest in its
advertising and direct marketing agencies in Australia and New Zealand. All of
these acquisitions were accounted for under the purchase method of accounting.
During 1997, Y&R also recorded $11.9 million in other operating charges for
certain asset impairment writedowns.
Certain acquisitions completed in 1999 and prior years require payments in
future years if certain results are achieved by the companies that were
acquired. Formulas for these contingent future payments differ from acquisition
to acquisition. Contingent future payments are not expected to be material to
Y&R's results of operations or financial position.
NOTE 8 -- PROPERTY, LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Property, leasehold improvements and equipment are recorded at cost and are
comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
USEFUL LIVES 1999 1998
-------------------------------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and buildings ........................ 20-25 years $ 31,038 $ 29,706
Furniture, fixtures and equipment ......... 3-10 years 303,853 252,673
Leasehold improvements .................... Shorter of 10 years or life of lease 104,235 93,797
Automobiles ............................... 3-5 years 3,555 5,892
--------- ---------
442,681 382,068
--------- ---------
Less -- Accumulated depreciation and
amortization ............................. 248,112 231,655
--------- ---------
$ 194,569 $ 150,413
========= =========
</TABLE>
During 1999, 1998 and 1997, depreciation expense amounted to $53.6 million,
$49.2 million and $47.6 million, respectively.
NOTE 9 -- INCOME TAXES
Income (loss) before income taxes consisted of the amounts shown below:
F-14
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic ......... $191,920 $ (127,325) $12,304
Foreign .......... 86,300 40,328 24,000
-------- ---------- -------
Total ............ $278,220 $ (86,997) $36,304
======== ========== =======
</TABLE>
The following summarizes the provision (benefit) for income taxes:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT:
Federal ................. $ 3,365 $ 3,938 $ 18,195
State and local ......... 1,110 3,512 4,220
Foreign ................. 33,472 28,570 36,259
--------- --------- ---------
37,947 36,020 58,674
--------- --------- ---------
DEFERRED:
Federal ................. 67,707 (28,126) 7,547
State and local ......... 5,551 (6,415) 2,472
Foreign ................. 83 (4,123) (10,403)
--------- --------- ---------
73,341 (38,664) (384)
--------- --------- ---------
Total ................... $ 111,288 $ (2,644) $ 58,290
========= ========= =========
</TABLE>
Y&R's effective income tax rate varied from the statutory federal income
tax rate as a result of the following factors:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ------------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate ................................ 35.0% (35.0)% 35.0%
Effect of Y&R's initial public offering .......................... -- 32.1 --
State and local income taxes, net of federal tax effect .......... 2.4 ( 6.3) 17.1
Foreign subsidiaries' tax rate differential ...................... 1.9 7.2 107.2
Nondeductible goodwill amortization .............................. 0.8 0.7 8.5
Other, net ....................................................... (0.1) ( 1.7) ( 7.2)
---- ----- -----
Consolidated effective tax rate .................................. 40.0% ( 3.0)% 160.6%
==== ===== =====
</TABLE>
Y&R'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 $102.9 million and $59.1
million at December 31, 1999 and 1998, respectively. 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 $5.1
million and $8.1 million would be payable upon remittance of all previously
unremitted earnings at December 31, 1999 and 1998, respectively.
F-15
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
The components of Y&R's net deferred income tax assets are:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Allowance for doubtful accounts ............ $ 4,633 $ 4,274
Net operating loss carryforwards ........... 54,624 45,126
Deferred compensation ...................... 2,424 2,424
---------- ---------
61,681 51,824
Valuation allowance ........................ (11,379) (5,021)
---------- ---------
Current portion ............................ 50,302 46,803
---------- ---------
Investments in equity securities ........... (116,260) --
Deferred compensation ...................... 47,721 53,501
Depreciable and amortizable assets ......... 23,461 30,417
Long-term leases ........................... 7,154 7,377
Other noncurrent items ..................... 20,900 15,235
Net operating loss carryforwards ........... 57,526 65,300
Tax credit carryforwards ................... 3,658 3,658
---------- ---------
44,160 175,488
Valuation allowance ........................ (9,285) (16,978)
---------- ---------
Noncurrent portion ......................... 34,875 158,510
---------- ---------
Net deferred income tax assets ............. $ 85,177 $ 205,313
========== =========
</TABLE>
Y&R'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 federal, state and local, and foreign NOLs. At December 31, 1999 and 1998,
Y&R had approximately $251.3 million and $258.3 million, respectively, of NOL
carryforwards for U.S. tax purposes which expire in the year 2018 and
approximately $111.9 million and $91.4 million, respectively, of NOL
carryforwards for foreign tax purposes with carryforward periods ranging from
one year to an indefinite time. At December 31, 1999 and 1998, Y&R had
approximately $3.4 million and $3.2 million, respectively, 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.
Furthermore, Y&R, under its stock option plans, has a significant number of
non-qualified stock options issued to employees that remain outstanding at
December 31, 1999. These options, if exercised, would create additional tax
deductions that would further reduce Y&R's domestic and international taxable
income. The tax deduction has no impact on Y&R's consolidated results of
operations, in accordance with APB Opinion No. 25, except for payroll taxes
imposed by certain taxing jurisdictions upon exercise. It is impractical to
quantify the future deduction as it is dependent upon, among other factors, the
fair market value of Y&R stock at the time of exercise.
Y&R 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 $20.7 million and $22.0
million were recorded at December 31, 1999 and 1998, respectively. The valuation
allowances represent a provision for uncertainty as to the realization of
certain deferred tax assets, including NOL carryforwards in certain
jurisdictions. Y&R has concluded that based upon expected future results, it is
more likely than not that the net deferred tax asset balance will be realized.
F-16
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
NOTE 10 -- WORLDWIDE OPERATIONS
Y&R's wholly owned and partially owned businesses and affiliates operate in
the global marketing and communications operating segment. These businesses
provide marketing and communications services to clients on an integrated basis,
where appropriate, through several worldwide, regional and national networks and
brands. Y&R's financial information by geographic area as of December 31, 1999,
1998 and 1997 and for the years then ended is presented below.
<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER TOTAL
--------------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
Revenues ............. $ 899,750 $582,267 $235,169 $1,717,186
Total assets ......... 1,393,600 638,649 382,032 2,414,281
1998
Revenues ............. $ 775,700 $532,404 $214,360 $1,522,464
Total assets ......... 844,070 589,128 201,921 1,635,119
1997
Revenues ............. $ 661,367 $472,225 $249,148 $1,382,740
Total assets ......... 697,250 582,424 258,133 1,537,807
</TABLE>
NOTE 11 -- EMPLOYEE BENEFITS
Y&R provides retirement benefits for their U.S. full-time employees
primarily through a defined benefit pension plan ("the Plan"). Contributions to
the Plan are based upon current costs and prior service costs which are
actuarially computed, with the latter being amortized over the average remaining
service period.
During 1999, there were no contributions made to the Plan. Total
contributions to the Plan made in 1998 were $10.0 million. Pursuant to an
agreement with the Pension Benefit Guaranty Corporation, Y&R 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. Y&R is not required to make any payment that would not be deductible
under Internal Revenue Code section 404. Y&R's credit balance maintenance
requirement terminates when Y&R's indebtedness obtains specified rating levels
(or, if there are no such ratings from certain major ratings agencies, when Y&R
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.
Y&R 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.
F-17
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
A summary of the components of net periodic pension cost for the defined
benefit plans are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
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 ................. $ 4,265 $ 229 $ 4,494 $ 3,801 $ 254 $ 4,055
Interest costs on projected
benefit obligation ................ 9,151 677 9,828 9,151 598 9,749
Expected return on plan assets ..... (11,125) -- (11,125) (10,263) -- (10,263)
Amortization of prior service
costs ............................. (411) -- (411) (411) -- (411)
Amortization of transitional
(asset)/obligation ................ (61) 117 56 (61) 112 51
Recognized actuarial
loss/(income) ..................... 2,150 28 2,178 1,910 (8) 1,902
---------- ------- ---------- ---------- ------- ----------
Net periodic pension cost of the
plans ............................. $ 3,969 $ 1,051 $ 5,020 $ 4,127 $ 956 $ 5,083
========== ======= ========== ========== ====== ==========
<CAPTION>
1997
--------------------------------
U.S. NON-U.S. TOTAL
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs for benefits earned
during the period ................. $ 2,671 $ 306 $ 2,977
Interest costs on projected
benefit obligation ................ 8,804 639 9,443
Expected return on plan assets ..... (9,281) -- (9,281)
Amortization of prior service
costs ............................. (411) -- (411)
Amortization of transitional
(asset)/obligation ................ (61) 114 53
Recognized actuarial
loss/(income) ..................... 1,057 2 1,059
-------- ------- --------
Net periodic pension cost of the
plans ............................. $ 2,779 $ 1,061 $ 3,840
======== ======= ========
</TABLE>
Changes in the benefit obligation and plan assets are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- ----------------------------------------
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 ..... $ 138,416 $ 11,526 $ 149,942 $ 130,036 $ 9,080 $ 139,116
Service costs ............................... 4,265 229 4,494 3,801 254 4,055
Interest costs .............................. 9,151 677 9,828 9,151 598 9,749
Foreign currency exchange rate
(gain)/loss ................................ -- (1,595) (1,595) -- 796 796
Actuarial (gain)/loss ....................... (12,399) (352) (12,751) 6,958 984 7,942
Benefits paid ............................... (11,709) (211) (11,920) (11,530) (186) (11,716)
--------- --------- --------- --------- ---------- ---------
Benefit obligation at end of year ........... 127,724 10,274 137,998 138,416 11,526 149,942
--------- --------- --------- --------- ---------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year, primarily fixed income and
equity securities .......................... 139,200 -- 139,200 129,421 -- 129,421
Actual return on plan assets ................ 18,861 -- 18,861 11,309 -- 11,309
Company contributions ....................... -- 211 211 10,000 186 10,186
Benefits paid ............................... (11,709) (211) (11,920) (11,530) (186) (11,716)
--------- --------- --------- --------- ---------- ---------
Fair value of plan assets at end of year..... 146,352 -- 146,352 139,200 -- 139,200
--------- --------- --------- --------- ---------- ---------
Funded status ............................... 18,628 (10,274) 8,354 784 (11,526) (10,742)
Unrecognized net transition (asset)/
obligation ................................. (42) 401 359 (103) 581 478
Unrecognized prior service benefit .......... (1,720) -- (1,720) (2,131) -- (2,131)
Unrecognized net (gain)/loss ................ (1,931) 741 (1,190) 20,354 1,242 21,596
Additional liability ........................ -- (817) (817) -- (1,210) (1,210)
--------- --------- --------- --------- ---------- ---------
Prepaid (accrued) pension costs for
defined benefit plans ...................... $ 14,935 $ (9,949) $ 4,986 $ 18,904 $ (10,913) $ 7,991
========= ========= ========= ========= ========== =========
</TABLE>
F-18
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
Assumptions used were:
<TABLE>
<CAPTION>
1999 1998 1997
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 -------------------- -------------------- -------------------------
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 ................... 8.3% 6.0% 7.0% 6.0% 7.25% 6.5%-7.0%
Rate of increase in compensation levels ........ 7.6% 2.5% 5.0% 2.5% 5.0% 3.0%
Expected long-term rate of return on assets .... 9.0% N/A 9.0% N/A 9.0% N/A
</TABLE>
Y&R recorded liabilities of $0.8 million and $1.2 million at December 31,
1999 and 1998, 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 $9.9 million, $9.0
million and $8.4 million in 1999, 1998 and 1997, respectively.
Y&R 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. Y&R currently matches
100% of each employee's contribution up to a maximum of 5% of the employee's
earnings up to $160,000. Amounts expensed by Y&R for its contributions to the
plan were $9.1 million, $8.4 million and $7.8 million in 1999, 1998 and 1997,
respectively.
At December 31, 1999 and 1998, other noncurrent liabilities include $10.2
million and $8.6 million, respectively, relating to postretirement and
postemployment benefits other than pensions.
Y&R 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, 1999 and 1998, Y&R recorded deferred compensation
liabilities of $31.3 million and $30.6 million, respectively.
F-19
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
NOTE 12 -- DEBT
Y&R's short-term debt consists principally of advances under bank lines of
credit and generally bears interest at prevailing market rates. Y&R's short-term
debt of $31.7 million and $32.0 million include short-term portions of long-term
debt of $2.0 million and $0.5 million at December 31, 1999 and 1998,
respectively.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1999 1998
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Unsecured revolving credit facilities ......... $ 123,500 $ 31,460
Capital lease obligations ..................... 2,197 34
Other borrowings .............................. 3,821 862
--------- --------
129,518 32,356
Less -- Current portion ....................... 1,950 462
--------- --------
127,568 31,894
========= ========
</TABLE>
On June 30, 1999, Y&R increased its borrowing capacity by entering into a
$200 million 364-day unsecured revolving credit facility. On May 15, 1998, Y&R
entered into a $400 million, five-year unsecured multicurrency revolving credit
facility and used the net proceeds from the Offering together with $155 million
of borrowings under this 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 Y&R's consolidated statement of operations for the year ended
December 31, 1998. Amounts due under the credit facility are required to be
repaid on May 15, 2003. Y&R is required to pay varying rates of interest on
outstanding borrowings, generally based on LIBOR plus an applicable margin
ranging from 0.275% to 0.70%, depending on the leverage ratio, or the Federal
Funds Rate plus 0.5%. Y&R is also required to pay a facility fee ranging from
0.10% to 0.20% and, if the outstanding advances exceed 50% of the aggregate
facility, a utilization fee will be charged ranging from 0.075% to 0.125%. In
1999 and 1998, the total facility fees under the credit facilities were $0.6
million and $0.4 million, respectively. Our credit facilities contain financial
and operating restrictions and covenant requirements, including maximum leverage
ratio and minimum interest coverage requirements, and permit the payment of cash
dividends except in the event of a continuing default under the credit
agreements.
At December 31, 1999, the current portion of long-term debt includes
installment notes payable to management investors of $0.7 million. At December
31, 1998, short-term and long-term debt includes installment notes payable to
management investors of $0.7 million and $0.4 million, respectively.
The weighted-average interest rate on outstanding debt was 5.71% for the
year ended December 31, 1999. The weighted-average interest rate on outstanding
debt, including the effect of interest rate swap contracts, was 6.27% for the
year ended December 31, 1998. At December 31, 1998, Y&R had interest rate
protection agreements with respect to $31.5 million of its indebtedness. During
the first quarter of 1999, all interest rate protection agreements to which we
were party either matured or were retired. Accordingly, at December 31, 1999, we
had no such agreements outstanding.
At December 31, 1999 and 1998, Y&R had $760 million and $543 million,
respectively, in availability under its commercial lines of credit ($635 million
and $435 million, respectively, in the United States and $125 million and $108
million, respectively, outside the United States). Unused commercial lines of
credit at December 31, 1999 and 1998 were $600 million and $480 million,
respectively. Y&R has no obligation to pay commitment fees on our current credit
facilities. During 1998, Y&R paid commitment fees of approximately $0.1 million
on the unused portion of the replaced credit facility.
F-20
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS AND HEDGING ACTIVITY
At December 31, 1999 and 1998, the carrying value of Y&R's financial
instruments approximated fair value in all material respects.
At December 31, 1999, Y&R had $159.3 million in outstanding indebtedness as
compared to $63.9 million at December 31, 1998, consisting primarily of floating
rate debt. For floating rate debt, interest rate changes generally do not affect
the fair market value but do impact future earnings and cash flows, assuming
other factors are held constant. Based on outstanding indebtedness as of
December 31, 1999, the annual after-tax earnings impact resulting from a
one-percentage point increase or decrease in interest rates would be
approximately $1.0 million, holding other variables constant.
Y&R enters into forward foreign exchange contracts to hedge certain assets
and liabilities which are recorded in a currency different from that in which
they settle. The purpose of these contracts is almost exclusively to hedge
intercompany transactions. 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, 1999, Y&R had contracts for
the sale of $26.1 million and the purchase of $11.9 million of foreign
currencies at fixed rates, compared to contracts for the sale of $19.4 million
and the purchase of $6.1 million of foreign currencies at fixed rates at
December 31, 1998.
At December 31, 1998, Y&R had entered into interest rate protection
agreements with respect to $31.5 million of its indebtedness. The fair value
approximated the notional amount at December 31, 1998. During the first quarter
of 1999, all interest rate protection agreements to which we were party either
matured or were retired. Accordingly, at December 31, 1999, we had no such
agreements outstanding.
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 Y&R.
NOTE 14 -- EQUITY
The following schedule summarizes the changes in the number of outstanding
shares of common stock and treasury stock:
<TABLE>
<CAPTION>
COMMON COMMON STOCK
STOCK IN TREASURY
--------------- ---------------
<S> <C> <C>
BALANCE JANUARY 1, 1997 ............ 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
---------- ----------
Issued -- Option Exercises ......... 7,927,665 (5,326,700)
Issued -- Acquisitions ............. 2,149,951 (2,149,951)
Repurchased ........................ (3,502,181) 3,502,181
---------- ----------
BALANCE DECEMBER 31, 1999 .......... 72,950,004 2,471
========== ==========
</TABLE>
F-21
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
In 1997, payments of $247.8 million were made to U.S.-based equity holders
for options and other equity holdings tendered in connection with Y&R's
recapitalization in 1996 (the "Recapitalization").
In connection with the consummation of the Recapitalization, Y&R 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 Y&R's election for $115.00 per share following the fifth
anniversary of the issuance thereof. At December 31, 1999 and 1998, 50,000
shares of Money Market Preferred were authorized and 87 shares were issued and
outstanding.
NOTE 15 -- OPTIONS
The Young & Rubicam Inc. 1997 Incentive Compensation 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 Y&R common stock
reserved and available for delivery to participants in connection with Awards is
19,125,000, plus the number of shares of Y&R 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 Y&R common stock with respect to which incentive stock
options may be granted shall not exceed 1,000,000. Any shares of Y&R 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 prior to 1999 under the ICP become exercisable
over a three-year vesting period beginning on the third anniversary of the date
of grant and expire ten years from the date of grant. The three-year vesting
period for options granted in 1999 generally begins on the first anniversary of
the date of grant. However, the Board of Directors may, at its discretion,
accelerate the exercisability, the lapsing of restrictions, or the expiration of
deferral or vesting periods of any award, and such accelerated exercisability,
lapse, expiration and vesting shall occur automatically in the case of a "change
in control" of Y&R 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 in 1996, 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.
At the closing of the Recapitalization, the Board of Directors also granted
to employees options to purchase 5,200,590 shares of Y&R common stock at $7.67
per share and, in 1997, additional options to purchase 1,891,200 shares of Y&R
common stock at $7.67 per share (the "Additional Options"). As a result of the
granting of the Additional Options in 1997, Y&R recognized a compensation charge
of $1.3 million reflecting the difference between the estimated fair market
value of Y&R common stock on the
F-22
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
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 in existence prior to the effective
date of the ICP.
Additionally, at the closing of the Recapitalization, Y&R granted to
Hellman & Friedman Capital Partners III, L.P. ("HFCP") and certain other
investors options to purchase 2,598,105 shares of Y&R common stock at $7.67 per
share which were exercisable immediately and expire on the seventh anniversary
of the closing. Substantially all of the HFCP options were exercised in 1999.
Y&R has adopted SFAS No. 123 (see Note 1). In accordance with the
provisions of SFAS No. 123, Y&R applies APB Opinion No. 25, and related
interpretations, in accounting for its plans. If Y&R 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 No. 123,
Y&R's net income in 1999 would be decreased by $8.3 million and the net income
per common share would be decreased by $0.12 and $0.10, for basic and diluted
earnings per share, respectively. Y&R's net loss would be increased by $7.8
million and $6.3 million for the years ended December 31, 1998 and 1997,
respectively, and the net basic and diluted loss per common share would be
increased by $0.13 for each of the years ended December 31, 1998 and 1997.
These SFAS No. 123 pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years. The fair value for these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following assumptions for the
period ended December 31, 1999, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Expected term ................ 4 years 6 years 10 years
Risk-free rate ............... 5.22%-6.23% 4.26%-5.84% 5.59%-7.12%
Dividend yield ............... 0.26% 0% 0%
Expected volatility .......... 28.60% 24.90% 0%
</TABLE>
Since Y&R's common stock was publicly traded for the first time in 1998 as
a result of the Offering, we did not have sufficient historical information to
make a reasonable assumption as to the expected volatility of our 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 Y&R. 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 Y&R's common stock resulting from
the Offering.
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 Y&R common stock on the grant date was $12.30 and
$38.76 in 1999, respectively, $7.80 and $22.59 in 1998, respectively, and $5.28
and $12.33 in 1997, respectively.
In 1997, Y&R granted options to certain executives at exercise prices below
the fair value of Y&R 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.
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 Y&R'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-23
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
Transactions involving options are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
--------------- -----------------
<S> <C> <C>
JANUARY 1, 1997 ........... 24,622,260 $ 3.76
---------- --------
Granted ................... 11,469,150 11.56
Exercised ................. (4,250,790) 2.19
Cancelled ................. (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
---------- --------
Granted ................... 4,414,179 38.76
Exercised ................. (7,927,665) 4.54
Cancelled ................. (2,228,060) 13.65
---------- --------
DECEMBER 31, 1999 ......... 24,336,096 $ 14.47
========== ========
</TABLE>
At December 31, 1999, 1998 and 1997, Y&R had exercisable options of
8,494,699, 14,963,354, and 17,242,995, respectively.
The following information is as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- - ------------------------------------ ------------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$1.92.............................. 6,083,314 3.11 $ 1.92 6,083,314 $ 1.92
$7.67.............................. 4,322,980 6.24 7.67 2,221,361 7.67
$12.00-$15.00...................... 8,312,700 8.10 12.40 103,650 12.59
$25.00-$31.00...................... 1,420,223 8.94 28.55 86,374 30.22
$37.00-$49.00...................... 4,196,879 9.47 38.98 -- --
--------- ---- -------- --------- --------
TOTAL AT DECEMBER 31, 1999 ......... 24,336,096 6.81 $ 14.47 8,494,699 $ 3.84
---------- ---- -------- --------- --------
</TABLE>
NOTE 16 -- LITIGATION, COMMITMENTS AND CONTINGENT LIABILITIES
Y&R is involved in various legal proceedings incident to the ordinary
course of business. Y&R's practice is to attempt to minimize potential
liabilities through insurance coverage and/or indemnification provisions in its
agreements with clients and others. Y&R believes that the outcome of all pending
legal proceedings and unasserted claims in the aggregate will not have a
material adverse effect on its results of operations, consolidated financial
position or liquidity.
At December 31, 1999, Y&R was committed under operating leases, principally
for office space. Certain leases contain renewal options calling for increased
rentals. Others contain certain escalation clauses relating to taxes and other
operating expenses.
F-24
<PAGE>
YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
Net rental expense was $85.1 million, $75.5 million, and $74.4 million in
1999, 1998 and 1997, respectively. Future minimum rental commitments as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000 ..................... $ 61,831
2001 ..................... 56,600
2002 ..................... 50,672
2003 ..................... 42,891
2004 ..................... 38,092
Thereafter ............... 93,014
</TABLE>
Y&R had outstanding guarantees of $4.5 million and $8.6 million at December
31, 1999 and 1998, respectively, primarily in support of credit lines of
unconsolidated affiliates.
NOTE 17 -- SUBSEQUENT EVENTS (UNAUDITED)
On January 20, 2000, Y&R completed the placement of $287.5 million of 3%
convertible subordinated notes due January 15, 2005, which includes $37.5
million of notes issued pursuant to the exercise by the initial purchasers of
their over-allotment option. At the option of the holder, the notes are
convertible into shares of Y&R's common stock at a conversion price of $73.36
per share, subject to adjustment. Y&R used the net proceeds of the offering to
repay outstanding debt under Y&R's existing bank credit facilities and to fund
operations.
In January 2000, Y&R contributed cash and certain assets and rights known
as Y&R TeamSpace, a proprietary software tool, to eMotion Inc., a firm that
provides digital media management solutions that facilitate the creative
workflow, sale, distribution and management of media rich broadband content. In
exchange for an ownership interest in eMotion Inc. Y&R expects to record a gain
in the first quarter of 2000 in connection with this transaction.
In the first quarter of 2000, Y&R acquired 100% of Robinson Lerer
Montgomery, LLC and also made strategic investments in certain other entities.
Cash payments made in connection with these transactions amounted to
approximately $45 million.
F-25
<PAGE>
YOUNG AND RUBICAM INC. AND SUBSIDIARY COMPANIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO AT END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
- - ----------------------------------------- ------------ ------------ ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Allowance for Doubtful Accounts ......... $ 17,938 $ 10,766 -- $ 3,692 $ 25,012
======== ======== == ======= ========
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
======== ======== == ======= ========
</TABLE>
S-1
EXHIBIT 10.22
YOUNG & RUBICAM INC.
CHANGE IN CONTROL SEVERANCE PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT OF THE PLAN. Y&R hereby establishes this Change in
Control severance plan to be known as the "Young & Rubicam Inc. Change in
Control Severance Plan" (the "Plan").
1.2 PURPOSE OF THE PLAN. The Board of Directors of Y&R has determined that
it is in the best interests of the Company and its stockholders to secure the
continued services, dedication and objectivity of certain key employees of the
Company in the event of any threat or occurrence of a Change in Control (as
defined in Section 2(j)) of Y&R, without concern as to whether such employees
might be hindered or distracted by personal uncertainties and risks created by
any such actual or threatened Change in Control.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below:
(a) "AGE SUPPLEMENT" means the number of years, if any, specified in a
Participant's Participation Schedule to be added to the Participant's age for
purposes of computing the amount of and the Participant's eligibility for
benefits afforded by the Company under the Pension Plans and Welfare Benefit
Plans.
(b) "BASE SALARY" means a Participant's highest annual rate of salary or
wages, including any amounts deferred at the election of the Participant, in
effect at any time during the twelve months immediately preceding such
Participant's Termination Date.
(c) "BENEFICIARY" means the persons or entities entitled to benefits
hereunder upon a Participant's death.
(d) "BENEFICIAL OWNER" shall have the meaning ascribed to such term in Rule
13d-3 under the Exchange Act and any successor to such Rule (except that a
Person shall be deemed to be the Beneficial Owner of all shares that any such
Person has the right to acquire pursuant to any agreement or arrangement or upon
exercise of conversion rights, warrants or options or otherwise, without regard
to the sixty day period referred to in Rule 13d-3 under the Exchange Act).
(e) "BENEFIT CONTINUATION PERIOD" means the period specified in a
Participant's Participation Schedule during which the Benefit Plans are
continued pursuant to Section 6.1(c) hereof.
(f) "BENEFIT PLANS" means Welfare Benefit Plans and Fringe Benefits.
(g) "BOARD" means the Board of Directors of Y&R or its successor.
<PAGE>
(h) "BONUS AMOUNT" means the greater of (i) the annual target bonus for the
Participant as of the date immediately prior to the Change in Control or (ii)
the annual average of the bonuses payable to the Participant, including any
amounts deferred at the election of the Participant, with respect to the three
calendar years preceding the Change in Control (excluding any bonus payable as a
result of a Change in Control), provided that if a Participant has less than
three full years of employment with the Company prior to the calendar year in
which a Change in Control occurs, this clause (ii) shall equal the product of
(A)(1) the aggregate annual bonuses payable to the Participant with respect to
the period of employment prior to the calendar year in which a Change in Control
occurs, including any amounts deferred at the election of the Participant,
divided by (2) the number of full months of the Participant's employment during
such period multiplied by (B) twelve (12).
(i) "CAUSE" when used in connection with the termination of a Participant's
employment by the Company under the Plan, means (a) the willful and continued
failure by the Participant substantially to perform his or her duties and
obligations to the Company as in effect immediately prior to the Change in
Control (other than any such failure resulting from any physical or mental
condition, whether or not such condition constitutes a Disability) which failure
continues after Y&R has given notice thereof to the Participant which notice
specifies the aspects in which the Participant has failed to perform his or her
duties or obligations to the Company and sets forth specific corrective action
required of the Participant or (b) the willful engaging by the Participant in
misconduct which is materially injurious to the Company, monetarily or
otherwise. For purposes of this definition, no act, or failure to act, on a
Participant's part shall be considered "willful" unless done, or omitted to be
done, by the Participant in bad faith and without reasonable belief that his or
her action or omission was in the best interests of the Company.
(j) "CHANGE IN CONTROL" shall be deemed to have occurred if:
(i) any Person (other than Y&R, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, the Management Voting
Trust, or any company owned, directly or indirectly, by the stockholders of Y&R
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 Y&R immediately prior to the occurrence with respect to which
the evaluation is being made) becomes the Beneficial Owner, directly or
indirectly, of securities of Y&R representing 30 % or more of the combined
voting power of Y&R's then outstanding securities (other than as a result of an
issuance of voting securities initiated by Y&R to any such Person);
(ii) on any date, persons who are Continuing Directors shall
fail to constitute a majority of the members of the Board;
(iii) the consummation of a merger or consolidation of Y&R
with any other entity, which merger or consolidation 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 by being converted into voting securities of
the surviving or resulting publicly-held parent entity) 40% or more of
the combined voting power of the surviving or resulting publicly-held
parent entity outstanding immediately
2
<PAGE>
after such merger or consolidation or (B) (x) the voting securities of
Y&R 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
publicly-held parent 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) (I) in
connection with 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 and/or one or more of the five highest-paid
executive officers of such other entity becomes eligible for material
severance rights not theretofore available, and/or (II) a majority of
the directors of the surviving or resulting publicly-held parent entity
immediately following such merger or consolidation are not persons who
were Continuing Directors of Y&R immediately prior to such merger or
consolidation;
(iv) 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 such a sale or disposition immediately after
which such assets will be owned directly or indirectly by an entity
owned by the stockholders of Y&R in substantially the same proportions
as their ownership of the common stock of Y&R immediately prior to such
sale or disposition) in which case the Board shall determine the
effective date of the Change in Control resulting therefrom, which
shall not be later than the consummation of such sale or disposition;
or
(v) any other event occurs which the Board determines, in its
discretion, to be a Change in Control.
(k) "COMPANY" means Young & Rubicam Inc., organized under the laws of
the state of Delaware, including any and all subsidiaries, or any successor or
successors thereto.
(l) "CONTINUING DIRECTORS" means, as of any determined date,
individuals who, (a) as of the later of the date of this Plan and the date two
years prior to such determination date, were directors, or (b) were initially
elected or appointed to the Board by a two-thirds vote of the Continuing
Directors then in office or were initially nominated for election by Y&R's
shareholders by a two-thirds vote of the Continuing Directors then in office;
provided, that no individual designated or proposed by a Person who has entered
into an agreement with Y&R to effect a transaction described in clause (i),
(iii) or (iv) of the definition of "Change in Control", and no individual whose
initial appointment, election or nomination as a director occurs as a result of
an actual or threatened election contest (as such terms are used in Rule 14a-11
under the Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of any Person other than the Board, shall constitute a
Continuing Director.
(m) "DISABILITY" shall mean (i) a physical or mental condition
entitling the Company to terminate the Participant's employment pursuant to an
employment agreement between the Participant and the Company or (ii) in the
absence of such a provision for disability termination or in the absence of an
employment agreement, a physical or mental incapacity of a Participant which
entitles the Participant to benefits under the long term disability plan
applicable to the
3
<PAGE>
Participant and maintained by the Company as in effect immediately prior to a
Change in Control.
(n) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.
(p) "FRINGE BENEFITS" means any material fringe benefit provided to the
Participant by the Company immediately prior to the Termination Date or, if more
favorable to the Participant, immediately prior to the Change in Control.
(q) "GOOD REASON," when used with reference to a termination of a
Participant's employment with the Company, shall mean, without a Participant's
express written consent, the occurrence of any of the following events during
the Protected Period:
(i) The assignment to the Participant of any duties
inconsistent with, or the reduction of powers, responsibilities or
functions associated with, the Participant's positions and status with
the Company immediately prior to a Change in Control, or any removal of
the Participant from, or any failure to reelect the Participant to, any
positions or offices with the Company that the Participant held
immediately prior to a Change in Control, except in connection with the
termination of the Participant's employment by the Company for Cause or
on account of Disability pursuant to the requirements of the Plan;
(ii) A reduction by the Company of the Participant's base
salary as in effect immediately prior to a Change in Control or of such
higher base salary as may have been in effect during the Protected
Period, except in connection with the termination of the Participant's
employment by the Company for Cause or on account of Disability
pursuant to the requirements of the Plan;
(iii) The failure by the Company to pay the Participant any
portion of his or her current compensation, or any portion of his or
her compensation deferred under any plan, agreement or arrangement of
or with the Company within seven (7) days of the date such compensation
is due;
(iv) A change in the Participant's principal work location
more than fifty (50) miles from the Participant's principal work
location immediately prior to a Change in Control;
(v) A change in the Participant's required travel on the
Company's business to the extent such travel obligations are
substantially inconsistent with the Participant's business travel
obligations immediately prior to a Change in Control;
(vi) (A) The failure by the Company to continue in effect any
Benefit Plans (or substitute plans, programs or arrangements providing
the Participant with substantially similar benefits), (B) the taking of
any action, or the failing to take any action, by the
4
<PAGE>
Company which could (x) adversely affect the Participant's
participation in, or materially reduce the Participant's benefits
under, such Benefit Plans or (y) materially adversely affect the basis
for computing benefits under such Benefit Plans, or (C) the failure by
the Company to provide the Participant with the number of paid vacation
days to which the Participant was entitled immediately prior to a
Change in Control in accordance with the Company's vacation policy
applicable to the Participant then in effect, except, in each case, in
connection with the termination of the Participant's employment by the
Company for Cause or on account of Disability pursuant to the
requirements of the Plan;
(vii) The failure by the Company to afford the Participant
annual bonus and long-term incentive compensation opportunities at a
level which is at least equal to the level of annual bonus and
long-term incentive compensation opportunities made available to the
Participant immediately prior to the Change in Control;
(viii) A material increase in the required working hours of
the Participant from that required prior to the Change in Control;
(ix) The failure by the Company to obtain pursuant to Section
10.1 an assumption of the obligations of the Company under the Plan by
any successor to the Company; or
(x) Any other event which is expressly described in the
Participant's Participation Schedule as Good Reason occurs during the
Protected Period.
Notwithstanding the foregoing, an isolated and inadvertent action taken
in good faith and which is remedied by the Company within five (5) days after
receipt of notice thereof given by the Participant shall not constitute Good
Reason.
(r) "NON-QUALIFYING TERMINATION" means a termination of a Participant's
employment (1) by the Company for Cause, (2) by the Participant for any reason
other than Good Reason, or (3) as a result of the Participant's death or
Disability.
(s) "PARTICIPANT" means an employee of the Company who fulfills the
eligibility and participation requirements, as provided in Article 4 herein.
(t) "PARTICIPATION SCHEDULE" means the schedule evidencing the
Participant's participation in the Plan.
(u) "PENSION PLAN" shall mean, with respect to a Participant, any
employee pension plan of the Company within the meaning of Section 3(2) of ERISA
in which the Participant was participating immediately prior to the Change in
Control.
(v) "PERFORMANCE SHARE AMOUNT" means a lump-sum cash payment equal to
the greater of (i) the target award for the Participant for the award period
beginning on January 1 of the year immediately prior to the calendar year in
which the Change in Control occurs or (ii) 50% of the Participant's annual rate
of salary or wages, including any amounts deferred at the election of the
Participant, in effect immediately prior to the Change in Control.
5
<PAGE>
(w) "PERFORMANCE SHARE PLAN" means the Company's performance share plan
implemented pursuant to the Young & Rubicam Inc. 1997 Incentive Compensation
Plan, as may be amended from time to time.
(x) "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and
shall include a "group" as defined in Section 13(d) thereof.
(y) "PLAN" means this Young & Rubicam Inc. Change in Control Severance
Plan.
(z) "PROTECTED PERIOD" shall mean the period beginning on the first
date during the Term on which a Change in Control occurs and ending two years
after that date. Anything in the Plan to the contrary notwithstanding, if a
Participant's employment with the Company is terminated or the terms and
conditions of the Participant's employment are adversely changed in a manner
which would constitute grounds for a termination of employment by the
Participant for Good Reason prior to the date on which a Change in Control
occurs, and it is reasonably demonstrated that such termination of employment or
adverse change (i) was at the request of a third party who has taken steps
reasonably calculated to effect the Change in Control or (ii) otherwise arose
within six months of and in connection with or in anticipation of the Change in
Control, then for all purposes of the Plan the "Protected Period" for such
Participant shall begin on the date immediately prior to the date of such
termination of employment or adverse change and end two years after the date of
such Change in Control.
(aa) "RESTRICTIVE COVENANTS" shall mean the covenants set forth in
Article 11 of the Plan.
(bb) "SERVICE SUPPLEMENT" means the number of years, if any, specified
in a Participant's Participation Schedule to be added to the Participant's
service for purposes of computing the amount of, and the Participant's
eligibility for, benefits afforded by the Company under the Company's Welfare
Benefit Plans and under the Company's Pension Plans that are defined benefit
plans as provided in Article 6.
(cc) "SEVERANCE FACTOR" means the number specified in a Participant's
Participation Schedule used to determine the Severance Payment payable to a
Participant pursuant to Section 6.1(b) hereof.
(dd) "SEVERANCE PAYMENT" means the benefit payable in accordance with
Section 6.1(b) of the Plan.
(ee) "TERM" means the period commencing on the date of adoption of the
Plan and ending on the third anniversary of such date; provided, however, that
commencing on the date one year after the date of adoption of the Plan, and on
each anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Term shall be automatically
extended with respect to a Participant so as to terminate three years from such
Renewal Date, unless at least 60 days prior to the Renewal Date the Company
shall give notice to such Participant that the Term shall not be so extended.
6
<PAGE>
(ff) "TERMINATION DATE" shall be the effective date of a Participant's
termination of employment as provided in Article 5.
(gg) "WELFARE BENEFIT PLANS" means any employee benefit plan, program
or arrangement within the meaning of Section 3(1) of ERISA, in which the
Participant was participating immediately prior to the Termination Date or, if
more favorable to the Participant, immediately prior to the Change in Control.
(hh) "WITHOUT CAUSE", when used in reference to a termination of a
Participant's employment with the Company, shall mean any termination of the
Participant's employment which is not a termination of employment for Cause,
Disability or death.
(ii) "Y&R" means Young & Rubicam Inc. and its successors.
ARTICLE 3. ADMINISTRATION
The Plan shall be administered by the Board. The Board shall have full
authority, consistent with the Plan, to administer the Plan, including authority
to interpret and construe any provisions of the Plan. The decisions of the Board
shall be final and binding on all parties.
ARTICLE 4. PARTICIPATION
The Board shall designate those key employees of the Company
entitled to participate in the Plan; provided, that the Board may delegate to
the Compensation Committee of the Board or the Chief Executive Officer of the
Company the right to designate non-executive officers entitled to participate in
the Plan. Each key employee so designated shall receive a Participation Schedule
in substantially the form attached hereto. Such Participation Schedule shall
specify: (a) the Severance Factor; (b) the Benefit Continuation Period; (c) the
Age Supplement or Service Supplement, if any; (d) whether or not the Participant
will be entitled to the additional payment under Section 7.3 or be subject to
the limitations of Section 7.3; and (e) the additional events, if any, that
constitute termination of employment for Good Reason. Notwithstanding anything
in the Plan to the contrary, as a condition to participation, a Participant must
execute an agreement to be bound by the Restrictive Covenants in substantially
the form attached hereto, within thirty (30) days after the date of the
Participant's Participation Schedule.
ARTICLE 5. TERMINATION OF EMPLOYMENT
5.1 TERMINATION OF EMPLOYMENT OF A PARTICIPANT BY THE COMPANY DURING
THE PROTECTED PERIOD. (a) During the Protected Period, the Company shall have
the right to terminate a Participant's employment hereunder for Cause, for
Disability, Without Cause or on account of the Participant's death by following
the procedures hereinafter specified.
(b) Termination of a Participant's employment for Disability shall
become effective thirty (30) days after a notice of intent to terminate the
Participant's employment, specifying Disability as the basis for such
termination, is given to the Participant by the Board. Termination
7
<PAGE>
of a Participant's employment on account of his or her death shall become
effective as of the date of his or her death.
(c) A Participant may not be terminated for Cause unless and until a
notice of intent to terminate the Participant's employment for Cause, specifying
the particulars of the conduct of the Participant forming the basis for such
termination and setting forth specific corrective action required of the
Participant, is given to the Participant by the Board and, subsequently, a
majority of the Board finds, after reasonable notice to the Participant (but in
no event less than fifteen (15) days' notice) and an opportunity for the
Participant and his or her counsel to be heard by the Board, that termination of
the Participant's employment for Cause is justified. Termination of the
Participant's employment for Cause shall become effective after such finding has
been made by the Board and five (5) business days after the Board gives to the
Participant notice thereof, specifying in detail the particulars of the conduct
of the Participant found by the Board to justify such termination for Cause.
(d) The Company shall have the absolute right to terminate a
Participant's employment Without Cause at any time by vote of a majority of the
Board. Termination of the Participant's employment Without Cause shall be
effective five (5) business days after the Board gives to the Participant notice
thereof, specifying that such termination is Without Cause.
5.2 TERMINATION OF EMPLOYMENT BY A PARTICIPANT DURING THE PROTECTED
PERIOD. During the Protected Period, a Participant shall be entitled to
terminate his or her employment with the Company and, if such termination is for
Good Reason, to receive the benefits provided in Section 6.1 hereof. The
Participant shall give Y&R notice of voluntary termination of employment, which
notice need specify only Participant's desire to terminate his or her employment
and, if such termination is for Good Reason, set forth in reasonable detail the
facts and circumstances claimed by the Participant to constitute Good Reason.
Termination of Participant's employment by the Participant pursuant to this
Section 5.2 shall be effective ten (10) business days after the Participant
gives notice thereof to Y&R.
ARTICLE 6. PAYMENTS UPON TERMINATION OF EMPLOYMENT IN CERTAIN CIRCUMSTANCES
6.1 TERMINATION OTHER THAN NON-QUALIFYING TERMINATION. If during the
Protected Period, the employment of a Participant shall terminate, other than by
reason of a Non-Qualifying Termination, then the Company shall provide to such
Participant the following benefits:
(a) ACCRUED COMPENSATION. Y&R shall pay to the Participant, within
thirty (30) days following the Termination Date, a lump sum cash amount equal to
the sum of (i) the full Base Salary (without regard to any reduction
constituting Good Reason) earned by the Participant through the Termination Date
and unpaid at the Termination Date, (ii) any bonus awards earned by the
Participant but not yet paid or credited as a deferral at the Termination Date,
(iii) the amount of any Base Salary attributable to vacation earned by the
Participant but not taken before the Termination Date, and (iv) one-twelfth of
the Participant's Bonus Amount times the number of months and parts thereof,
from the beginning of the calendar year including the Termination Date through
the Termination Date.
8
<PAGE>
(b) SEVERANCE PAYMENT. Y&R shall pay to the Participant, not later than
thirty (30) days following the Termination Date, a lump-sum cash Severance
Payment equal to the sum of the product of the Participant's Severance Factor
times the sum of (i) the Participant's Base Salary and (ii) the Participant's
Bonus Amount.
(c) BENEFITS CONTINUATION. The Company shall maintain in full force and
effect (or otherwise provide) with respect to the Participant (and, to the
extent applicable, his or her dependents) all Benefit Plans, upon the same terms
and otherwise to the same extent as such Benefit Plans shall have been in effect
immediately prior to the Termination Date (or, if more favorable to the
Participant, immediately prior to the Change in Control), until the expiration
of the Benefit Continuation Period, provided that the Participant's continued
participation is possible under the general terms and provisions of such Benefit
Plans. The Company and the Participant shall share the costs of the continuation
of such Benefit Plans in the same proportion as such costs were shared
immediately prior to the Termination Date (or, if more favorable to the
Participant, immediately prior to the Change in Control). In the event that the
Participant's participation in any such Benefit Plan is prohibited, the Company
shall arrange to provide the Participant with benefits substantially similar to
those which the Participant is entitled to receive under such Benefit Plan. Each
Benefit Plan continued under this Section 6(c) shall cease on the date the
Participant becomes reemployed and covered under another employer's benefit
plans providing the same type and level of benefits. In the event that the
Participant becomes reemployed and covered under another employer's benefit
plans that do not provide the same level of benefits, the benefits received
under the Benefit Plans shall be offset by any benefits received from the new
employer.
(d) PENSION PLAN CALCULATION.
(i) DEFINED BENEFIT PLAN. With respect to Pension Plans that
are qualified defined benefit pension plans, Y&R shall pay to the
Participant (or his or her beneficiary upon his or her death) the
excess, if any, of:
(A) the benefit the Participant (or his or her
Beneficiary, as the case may be) would have been entitled to
receive under the Pension Plan determined as though (i) the
Participant continued to participate in the Pension Plan
through the Termination Date and as though his or her age at
the Termination Date were increased by the Age Supplement, if
any, and his or her service at the Termination Date were
increased by the Service Supplement, if any, and (ii) the
Participant were fully vested in the accrued benefit so
determined; over
(B) the benefit actually payable to the Participant
(or such Beneficiary, as the case may be) under the Pension
Plan based on his or her actual age, service and compensation
through the Termination Date.
Except as specifically provided herein, such excess benefit shall be
determined, and payment thereof shall commence, in accordance with the
provisions, rules, and assumptions of the Pension Plan (assuming the
Age Supplement and the Service
9
<PAGE>
Supplement were credited thereunder), but shall actually be paid from
the general assets of Y&R.
(ii) DEFINED CONTRIBUTION PLAN. With respect to Pension Plans
that are defined contribution plans, the Company shall continue
contributions to such plan at the same level as were made immediately
prior to the date of the Change in Control for the Benefit Continuation
Period as if the Participant had remained employed with the Company
through the end of such period, provided that the Participant's
continued participation is possible under the general terms and
provisions of such plan. In the event the Participant's participation
in the plan is prohibited, Y&R shall pay the Participant an amount
equal to the value of such benefit in a lump-sum cash payment not later
than the Termination Date from the general assets of Y&R.
(e) OTHER RETIREMENT BENEFITS. For purposes of determining the
Participant's eligibility for early or other retirement benefits under the
Benefit Plans, the Participant's age and service factors thereunder at the
Termination Date shall be increased by the amount, if any, of the Participant's
Age Supplement and the Participant's Service Supplement, respectively. The
Company shall continue to provide to the Participant and, to the extent
applicable, any beneficiaries and dependents, the benefits and perquisites that
the Company then provides to early retirees and retirees who have a comparable
age and service factor as the Participant's age and service factors, as so
increased.
(f) INDEMNIFICATION. Y&R shall indemnify the Participant and hold the
Participant harmless from and against any claim, loss or cause of action arising
from or out of the Participant's performance as an officer, director or employee
of the Company or any of its subsidiaries or in any other capacity, including
any fiduciary capacity, in which the Participant serves at the request of the
Company to the maximum extent permitted by applicable law and Y&R's Certificate
of Incorporation and By-Laws (the "Governing Documents"), provided that in no
event shall the protection afforded to the Participant hereunder be less than
that afforded under the Governing Documents as in effect immediately prior to
the Change in Control.
6.2 NON-QUALIFYING TERMINATION. If during the Protected Period the
employment of a Participant shall terminate by reason of a Non-Qualifying
Termination, then Y&R shall pay to the Participant or to the Participant's
Beneficiary if a Participant dies while any amount would still be payable to the
Participant hereunder had the Participant continued to live, within thirty (30)
days following the Termination Date, a lump sum cash amount equal to the sum of
(i) the full Base Salary earned by the Participant through the Termination Date
and unpaid at the Termination Date, (ii) any bonus awards earned by the
Participant but not yet paid or credited as a deferral at the Termination Date,
and (iii) the amount of any Base Salary attributable to vacation earned by the
Participant but not taken before the Termination Date.
6.3 OTHER AGREEMENTS. The Severance Payment and the other benefits
described in this Article 6 shall be payable in addition to, and not in lieu of,
all other accrued, vested or deferred compensation, rights, options or other
benefits which may be owed to a Participant following termination or upon a
Change in Control, including but not limited to amounts or benefits payable
under any incentive plan, stock option plan, stock ownership plan, stock
purchase plan,
10
<PAGE>
life insurance plan, health plan, disability plan or similar or successor plan;
provided, however, that in the event the Participant is entitled to any benefits
or payments upon his or her termination of employment under an employment
agreement with, or severance plan maintained by, the Company, the Participant
shall not be entitled to the payments and benefits hereunder upon such
termination unless the Participant then waives any rights that the Participant
may then have under such employment agreement or severance plan in respect of
such termination of employment. If the Participant does not waive his or her
rights under such employment agreement or severance plan in accordance with this
Section 6.3, the Participant shall not be entitled to any payments or benefits
hereunder and shall not be bound by the Restricted Covenants contained herein.
In the event that the Participant is entitled to receive from the Company
benefits in the nature of severance under applicable law, then the amounts of
benefits provided hereunder shall, to the extent lawful, be reduced by the
amount of such legally-mandated benefits.
ARTICLE 7. OTHER BENEFITS; ADDITIONAL PAYMENTS AND LIMITATIONS ON PAYMENTS
7.1 PERFORMANCE SHARES. This Section 7.1 shall apply to a Participant
if and only if such Participant is a participant under the Company's Performance
Share Plan. Unless otherwise provided in the agreement confirming the award of
the Participant's performance shares under the Company's Performance Share Plan,
in the event that a Change in Control occurs prior to the end of an award period
with respect to an award of performance shares to the Participant, the
performance shares shall be deemed to have been fully earned by the Participant
as of the date of the Change in Control, regardless of the attainment or
nonattainment of any performance target and Y&R shall pay to the Participant, no
later than thirty (30) days following the Change in Control, a lump-sum cash
payment equal to the value of such performance shares. In the event that the
Company's Performance Share Plan has not been terminated prior to a Change in
Control and an award of performance shares has not yet been made to the
Participant under such plan in respect of the award period beginning on January
1 of the calendar year in which the Change in Control occurs, Y&R shall pay to
the Participant, no later than thirty (30) days following the Change in Control,
the Performance Share Amount.
7.2 GROSS-UP PAYMENT. (a) This Section 7.2 shall apply to a Participant
if and only if so expressly provided in the Participant's Participation
Schedule. No Payments (as such term is defined below) shall be made under this
Section 7.2 on or after a Non-Qualifying Termination that constitutes a
termination for any reason other than as a result of the Participant's death or
Disability.
(b) Anything in the Plan to the contrary notwithstanding, in the event
it shall be determined that any payment or distribution by the Company to or for
the benefit of the Participant, whether paid or payable or distributed or
distributable pursuant to the terms of the Plan or otherwise (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"),or any interest or penalties are
incurred by the Participant with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Participant shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Participant of all taxes (including any interest or
penalties
11
<PAGE>
imposed with respect to such taxes), including, without limitation, any income
or payroll taxes and Excise Tax imposed upon the Gross-Up Payment, the
Participant retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(c) Subject to the provisions of Section 7.2(d), Y&R shall cause all
determinations required to be made under this Section 7, including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions not specified herein to be used in arriving at such determinations,
to be made by the Company's independent auditors immediately prior to the Change
in Control (the "Accounting Firm"). Y&R shall cause the Accounting Firm to make
such determination within fifteen business days after request therefor by notice
from the Participant or Y&R to such Firm and to the other party hereto. In
making such determination with respect to any matter which is uncertain, Y&R
shall cause the Accounting Firm to adopt the position which it believes more
likely than not would be adopted by the Internal Revenue Service. Y&R shall
cause the Accounting Firm to provide detailed supporting calculations with
respect to its determination both to Y&R and the Participant within such fifteen
business day period. All fees and expenses of the Accounting Firm shall be borne
solely by the Company. In making the determinations required by this Section,
the Accounting Firm may rely on a benefit consultant, selected by it, as to
whether any of the payments or benefits provided for in Article 6 hereof are
"reasonable compensation for personal services actually rendered" within the
meaning of Section 280G(b)(4) of the Code. The Initial Gross-Up Payment, if any,
as determined pursuant to this Section 7.2(c), shall be paid by Y&R to the
Participant within five days of the receipt by Y&R of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Participant, Y&R shall cause the Accounting Firm to furnish the
Participant with a written opinion that failure to report the Excise Tax on the
Participant's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be final, binding and conclusive upon the Company and the
Participant, except as provided in the following sentences of this Section
7.2(c). As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by Y&R
should have been made (an "Underpayment") or that Gross-Up Payments which have
been made by Y&R should not have been made (an "Excess Gross-Up Payment"),
consistent with the calculations required to be made hereunder. Either party
hereto can request a redetermination by the Accounting Firm. An Underpayment can
result from a claim by the Internal Revenue Service or from a determination by
the Accounting Firm. In the event that the Internal Revenue Service makes a
claim and the Company exhausts its remedies pursuant to Section 7.2(d) and the
Participant thereafter is required to make a payment of any Excise Tax, Y&R
shall cause the Accounting Firm to promptly determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by Y&R to or for the benefit of the Participant. An Excess Gross-Up Payment can
result from a determination by the Internal Revenue Service or the Accounting
Firm. If the Accounting Firm makes an Excess Gross-Up Payment determination, Y&R
shall cause the Accounting Firm to furnish the Participant with a written
opinion that the basis for its determination would be accepted by the Internal
Revenue Service and that the Participant has a right to a refund of taxes or
credit against taxes with respect to the Excess Gross-Up Payment. The
Participant shall promptly repay to Y&R an amount equal to the reduction in
aggregate taxes due by the Participant resulting from such determination by the
Internal Revenue Service or the Accounting
12
<PAGE>
Firm, provided that the Participant shall only be required to repay any portion
of such amount that had been paid to the Internal Revenue Service to the extent
that and when the Participant receives a refund from the Internal Revenue
Service (or is entitled and able to utilize such amount as a credit against
other taxes due).
(d) The Participant shall notify Y&R in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by Y&R
of a Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten business days after the Participant is informed in writing
of such claim and shall apprise Y&R of the nature of such claim and the date on
which such claim is requested to be paid. The Participant shall not pay such
claim prior to the expiration of the 30-day period following the date on which
the Participant gives such notice to Y&R (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If Y&R
notifies the Participant in writing prior to the expiration of such period that
it desires to contest such claim, the Participant shall:
(i) Give Y&R information reasonably requested by Y&R relating
to such claim,
(i) Take such action in connection with contesting such claim
as Y&R shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected
by Y&R,
(iii) Cooperate with Y&R in good faith in order effectively to
contest such claim, and
(iv) Permit Y&R to participate in any proceedings relating to
such claim;
provided, however, that Y&R shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Participant harmless, on an after-tax
basis, for any taxes, including, without limitation, any Excise Tax or income
tax, including interest and penalties with respect thereto, imposed as a result
of such representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 7.2(d), Y&R shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Participant
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as Y&R shall determine; provided, however, that if Y&R directs the
Participant to pay such claim and sue for a refund, Y&R shall advance the amount
of such payment to the Participant, on an interest-free basis and shall
indemnify and hold the Participant harmless, on an after-tax basis, from any
taxes, including, without limitation, any Excise Tax or income or payroll taxes,
including interest or penalties with respect thereto, imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations
13
<PAGE>
relating to payment of taxes for the taxable year of the Participant with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, Y&R's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Participant shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(e) If, after the receipt by the Participant of an amount advanced by
Y&R pursuant to Section 7.2(d), the Participant becomes entitled to receive any
refund with respect to such claim, the Participant shall (subject to Y&R's
complying with the requirements of Section 7.2(d)) promptly pay to Y&R the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Participant of an amount
advanced by Y&R pursuant to Section 7.2(d), a determination is made that the
Participant shall not be entitled to any refund with respect to such claim and
Y&R does not notify the Participant in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
(f) Payments or distributions by Y&R to or for the benefit of the
Participant pursuant to any "incentive stock options" (within the meaning of
Section 422 of the Code) granted to the Participant which were granted prior to
the date of the Participant's Participation Schedule shall be "Excluded
Payments." In the event that Payments which include Excluded Payments are
subject to Excise Tax, the determinations made pursuant to Section 7.2(c) above
shall be calculated with respect to all Payments (including any Excluded
Payments), but any resulting Gross-Up Payment required to be made by Y&R shall
be reduced by the product of the Gross-Up Payment multiplied by a fraction the
numerator of which is the Excluded Payments and the denominator of which is all
Payments (including the Excluded Payments).
7.3 LIMITS ON PAYMENTS BY THE COMPANY. (a) This Section 7.3 shall apply
to a Participant if and only if so expressly provided in the Participant's
Participation Schedule. In the event that the Participant's Participation
Schedule provides for the application of this Section 7.3 at the election of the
Participant, such election must be made by the Participant as soon as
practicable but in any event no later than ten business days after the
Participant is informed of the Accounting Firm's determination that any payment
or benefit provided for under Article 6 constitutes an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code that would be
subject to Excise Tax in accordance with Section 7.3(b) below.
(b) The payments or benefits provided for in Article 6 hereof shall be
reduced to the extent and only to the extent necessary to avoid any payment or
benefit provided for under Article 6 from constituting an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code, that would be
subject to Excise Tax. Y&R shall cause the Accounting Firm to determine whether
any such reduction shall be required pursuant to this Section 7.3 and, if any
such reduction is required, to reduce payments or benefits in the order
specified by the Participant to the extent necessary to satisfy the requirements
of the first sentence of this Section. All determinations of the Accounting Firm
shall be binding on the Company and the Participant. Y&R shall cause the
Accounting Firm to determine that payments or benefits shall be reduced
14
<PAGE>
only to the extent that it is more likely than not that such payments or
benefits, if not reduced, would be "excess parachute payments" (as referred to
above) subject to Excise Tax. In making the determinations required by this
Section, the Accounting Firm may rely on a benefit consultant, selected by it,
as to whether any of the payments or benefits provided for in Article 6 hereof
are "reasonable compensation for personal services actually rendered" within the
meaning of Section 280G(b)(4). Y&R hereby agrees to pay all fees and expenses of
the Accounting Firm and shall indemnify and hold the Accounting Firm harmless
from any and all cost, expense, liability or damage arising out of any
determinations made by the Accounting Firm pursuant to this Section.
ARTICLE 8. WITHHOLDING TAXES
The Company may withhold from all payments due to a Participant (or his
or her beneficiary or estate) hereunder all taxes which, by applicable federal,
state, local or other law, the Company is required to withhold therefrom.
ARTICLE 9. Y&R'S PAYMENT OBLIGATION; NO MITIGATION
9.1 PAYMENT OBLIGATIONS ARE ABSOLUTE. Y&R's obligation to a Participant
to make the payments and the arrangements provided for herein shall be absolute
and unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Participant or anyone else, except
to the extent so provided in Section 6.1(c) and Article 7, if applicable. All
amounts payable by Y&R hereunder shall be paid without notice or demand. Each
and every payment made hereunder by Y&R shall be final, and the Company shall
not seek to recover all or any part of such payment from Participants or from
whomsoever may be entitled thereto.
Participants shall not be obligated to seek other employment or take
other action by way of mitigation of the amounts payable or arrangements made
under any provision of the Plan, and the obtaining of any such other employment
shall in no event effect any reduction of Y&R's obligations to make the payments
and arrangements required to be made under the Plan, except to the extent
expressly provided in Section 6.1(c).
9.2 CONTRACTUAL RIGHTS TO BENEFITS. The Plan, together with a
Participation Schedule, establishes and vests in each Participant a contractual
right to the benefits to which he is entitled hereunder.
ARTICLE 10. SUCCESSORS AND ASSIGNMENT
10.1 SUCCESSORS TO Y&R. Y&R will require any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform Y&R's obligations under the Plan. Failure of Y&R to
obtain such assumption and agreement prior to the effective date of any such
succession shall be a breach of the Plan and shall entitle the Participants to
resign for Good Reason.
15
<PAGE>
10.2 ASSIGNMENT BY THE PARTICIPANT. The Plan shall inure to the benefit
of and be enforceable by the Participant and each Participant's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If a Participant dies while any amount
would still be payable to the Participant hereunder had the Participant
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of the Plan, to the Participant's Beneficiary.
If the Participant has not named a Beneficiary, then such amounts shall be paid
to the Participant's devisee, legatee, or other designee, or if there is no such
designee, to the Participant's estate.
ARTICLE 11. COVENANT NOT TO COMPETE; COVENANT NOT TO SOLICIT.
(a) As a condition to participation, a Participant shall agree within
thirty (30) days after the date of the Participant's Participation Schedule:
(i) for one (1) year after the Participant's Termination Date,
the Participant shall not work for any competitor of the
Company on the account of any client of the Company with whom
such Participant had a direct relationship or as to which the
Participant had a significant supervisory responsibility or
otherwise was significantly involved at any time during the
two (2) years prior to such termination;
(ii) for six (6) months after the Participant's Termination
Date, with respect to the Participant whose principal
responsibilities are of a corporate nature or for a corporate
department (e.g., finance, tax, treasury, legal, business
affairs, etc.) and do not principally involve client service
related functions, such Participant shall not work for a
principal competitor of the Company in a substantially similar
corporate function as such Participant held with the Company
during the two-year period prior to the Participant's
Termination Date, or with respect to the Participant whose
principal responsibilities are of a client service related
nature (e.g., creative, account management, etc.), such
Participant shall not work for a competitor of the Company on
the account of any substantial competitor of any client of the
Company for which such Participant had substantial
responsibility during the two-year period prior to the
Termination Date and shall not work directly for such a
competitor of such a client;
(iii) for one (1) year after the Participant's Termination
Date, the Participant may not directly or indirectly solicit
or hire, or assist any other person in soliciting or hiring,
any employee of the Company (as of the Participant's
Termination Date) or any person who, as of the Participant's
Termination Date, was in the process of being recruited by the
Company or induce any such employee to terminate his or her or
her employment with the Company.
(b) The Restrictive Covenants are in addition to any rights the Company
may have in law or at equity or under any other agreement.
16
<PAGE>
(c) As a condition to participation, a Participant shall further agree
that it is impossible to measure in money the damages which will accrue to the
Company in the event the Participant breaches the Restrictive Covenants.
Therefore, if Y&R shall institute any action or proceeding to enforce the
provisions hereof, the Participant shall agree to waive the claim or defense
that the Y&R has an adequate remedy at law and the Participant shall agree not
to assert in any such action or proceeding the claim or defense that Y&R has an
adequate remedy at law. The foregoing shall not prejudice Y&R's right to require
the Participant to account for and pay over to Y&R any profit obtained by the
Participant as a result of any transaction constituting a breach of the
Restrictive Covenants.
ARTICLE 12. ARBITRATION OF DISPUTES
(a) Any disagreement, dispute, controversy or claim arising out of or
relating to the Plan or the interpretation or validity hereof shall be settled
exclusively and finally by binding arbitration. It is specifically understood
and agreed that any disagreement, dispute or controversy which cannot be
resolved between the parties, including without limitation any matter relating
to the interpretation of the Plan, shall be submitted to arbitration
irrespective of the magnitude thereof, the amount in controversy or whether such
disagreement, dispute or controversy would otherwise be considered justifiable
or ripe for resolution by a court or arbitral tribunal.
(b) The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA"), except as otherwise provided below.
(c) The arbitral tribunal shall consist of one arbitrator. The parties
to the arbitration jointly shall directly appoint such arbitrator within 30 days
of initiation of the arbitration. If the parties shall fail to appoint such
arbitrator as provided above, such arbitrator shall be appointed in accordance
with the Arbitration Rules of the AAA and shall be a person who (i) maintains
his or her or her principal place of business within 30 miles of the location of
the arbitration as set forth in subparagraph (d) of this Article 12 and (ii) has
had substantial experience in mergers and acquisitions. Y&R shall pay all of the
fees, if any, and expenses of such arbitrator.
(d) The arbitration shall be conducted within 30 miles of the
Participant's principal work location, or in such other city in the United
States of America as the parties to the dispute may designate by mutual written
consent.
(e) At any oral hearing of evidence in connection with the arbitration,
each party thereto or its legal counsel shall have the right to examine its
witnesses and to cross-examine the witnesses of any opposing party. No evidence
of any witness shall be presented unless the opposing party or parties shall
have the opportunity to cross-examine such witness, except as the parties to the
dispute otherwise agree in writing.
(f) Any decision or award of the arbitral tribunal shall be final and
binding upon the parties to the arbitration proceeding. The parties hereto
hereby waive to the extent permitted by law any rights to appeal or to seek
review of such award by any court or tribunal. The parties hereto agree that the
arbitral award may be enforced against the parties to the arbitration
17
<PAGE>
proceeding or their assets wherever they may be found and that a judgment upon
the arbitral award may be entered in any court having jurisdiction.
(g) Nothing herein contained shall be deemed to give the arbitral
tribunal any authority, power, or right to alter, change, amend, modify, add to,
or subtract from any of the provisions of the Plan.
ARTICLE 13. LEGAL FEES
Y&R agrees to pay, to the full extent permitted by law, on a quarterly
basis, all legal fees and expenses which a Participant may reasonably incur as a
result of any contest in which there is a reasonable basis for the claims or
defenses asserted by the Participant and such claims and defenses are asserted
by the Participant in good faith (regardless of the outcome thereof) regarding
the validity or enforceability of, or liability under, any provision of the Plan
(including as a result of any contest by the Participant about the amount of any
payment pursuant to Article 6); provided, however, that Y&R shall not be
obligated to pay any such fees and expenses, and the Participant shall be
obligated to return any such fees and expenses that were advanced plus simple
interest on such amount from the date of advancement at the 90-day US Treasury
Bill rate as in effect from time to time, compounded annually, if the arbitrator
(as provided in Article 12) determines that the Participant was terminated for
Cause or that the Participant did not have a good faith basis to assert the
claim in question.
ARTICLE 14. TRUSTS; UNFUNDED STATUS OF PLAN
14.1 UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
"unfunded" plan and Participants shall have no claim against the Company or its
assets other than as unsecured general creditors. Notwithstanding the foregoing,
Y&R may establish a trust or purchase other property to assist it in meeting its
obligations hereunder as set forth in Section 14.2 below; provided, however,
that in no event shall any Participant have any interest in such trust or
property other than as an unsecured general creditor.
14.2 CREATION OF TRUSTS. The Board may, in its discretion, authorize
the creation of one or more trusts (including sub-accounts under such trust(s)),
and deposit therein amounts of cash, stock, or other property not exceeding the
amount of Y&R's obligations with respect to the Plan, or make other arrangements
to meet Y&R's obligations under the Plan, which trusts or other arrangements
shall be consistent with the "unfunded" status of the Plan.
ARTICLE 15. MISCELLANEOUS
15.1. EMPLOYMENT STATUS. Except as may be provided under any other
agreement between a Participant and the Company, the employment of the
Participant by the Company is "at will." The Plan does not constitute a contract
of employment or impose on the Company any obligation to retain the Participant
as an employee, to change the status of the Participant's employment, or to
change the policies of the Company regarding termination of employment.
15.2. BENEFICIARIES. Each Participant may designate one or more persons
or entities as the primary and/or contingent Beneficiaries of any amounts owing
to the Participant under the
18
<PAGE>
Plan. Such designation must be in the form of a signed writing acceptable to the
Board. Participants may make or change such designations at any time.
15.3. NUMBER. Except where otherwise indicated by the context, the
plural shall include the singular, and the singular shall include the plural.
15.4. SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included. Further,
the captions of the Plan are not part of the provisions hereof and shall have no
force and effect.
15.5. MODIFICATION. The Board may amend or modify the Plan; provided,
however, than no provision of the Plan may be amended or modified in a manner
adverse to a Participant unless such amendment or modification is agreed to in
writing by such affected Participant.
15.6. APPLICABLE LAW. To the extent not preempted by the laws of the
United States, the laws of the State of New York shall be the controlling law in
all matters relating to the Plan.
15.7 NOTICE. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
delivered or five (5) days after deposit in the United States mail, certified
and return receipt requested, postage prepaid, addressed as follows:
If to Y&R:
Young & Rubicam Inc.
285 Madison Avenue
New York, NY 10017
Attention: General Counsel
If to a Participant, to the Participant's address as indicated
on the Participant's Participation Schedule,
or to such other address as either party may have provided to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
15.8 JOINT AND SEVERAL OBLIGATION. If the Participant is employed
during the Protected Period by one or more entities that form part of the
Company, whether or not such Participant is also employed by Y&R during the
Protected Period, each such entity shall be jointly and severally liable
together with Y&R for the obligations of Y&R to the Participant hereunder.
19
<PAGE>
RESTRICTIVE COVENANT AGREEMENT
This Restrictive Covenant Agreement dated as of ______________ (this
"Agreement"), is made and entered into by and between Young & Rubicam Inc., a
Delaware corporation ("Y&R"), and ______________(the "Participant"). Capitalized
terms used herein and not otherwise defined shall have the respective meanings
ascribed to them in the Young & Rubicam Inc. Change in Control Plan (the
"Plan").
WHEREAS, the Company has established the Plan to provide the Company
and the Participant with certain rights and obligations upon the occurrence of a
Change in Control;
WHEREAS, the Board has designated the Participant as an individual
entitled to participate in the Plan and the Participant has received a
Participation Schedule evidencing his or her participation in the Plan;
WHEREAS, the Participant desires to be a participant in the Plan;
WHEREAS, pursuant to Article 4 of the Plan, as a condition to
participation in the Plan, the Participant must execute an agreement to be bound
by the Restrictive Covenants therein within thirty (30) days after the date of
the Participant's Participation Schedule;
NOW, THEREFORE, in consideration of the premises and mutual covenants
therein contained, it is hereby agreed by and between Y&R and the Participant as
follows:
1. Restrictive Covenants. As a condition to participation, a
Participant shall agree within thirty (30) days after the date of the
Participant's Participation Schedule:
(i) for one (1) year after the Participant's Termination Date,
the Participant shall not work for any competitor of the
Company on the account of any client of the Company with whom
such Participant had a direct relationship or as to which the
Participant had a significant supervisory responsibility or
otherwise was significantly involved at any time during the
two (2) years prior to such termination;
(ii) for six (6) months after the Participant's Termination
Date, with respect to the Participant whose principal
responsibilities are of a corporate nature or for a corporate
department (e.g., finance, tax, treasury, legal, business
affairs, etc.) and do not principally involve client service
related functions, such Participant shall not work for a
principal competitor of the Company in a substantially similar
corporate function as such Participant held with the Company
during the two-year period prior to the Participant's
Termination Date, or with respect to the Participant whose
principal responsibilities are of a client service related
nature (e.g., creative, account management, etc.), such
Participant shall not work for a competitor of the Company on
the account of any substantial competitor of any client of the
Company for which such Participant had substantial
responsibility during the two-year period prior to the
Termination Date and shall not work directly for such a
competitor of such a client;
(iii) for one (1) year after the Participant's Termination
Date, the Participant may not directly or indirectly solicit
or hire, or assist any other person in soliciting or hiring,
any employee of the Company (as of the Participant's
Termination Date) or any person who, as of the Participant's
Termination Date, was in the process of being recruited by the
Company or induce any such employee to terminate his or her
employment with the Company.
2. Additional Rights of the Company. The Participant acknowledges that
the Restrictive Covenants are in addition to any rights the Company may have in
law or at equity or under any other agreement.
3. Inadequate Remedy at Law. The Participant agrees that it is
impossible to measure in money the damages which will accrue to the Company in
the event the Participant breaches the Restrictive Covenants. Therefore, if Y&R
shall institute any action or proceeding to enforce the provisions hereof, the
Participant agrees to waive the claim or defense that Y&R has an adequate remedy
at law and the Participant agrees not to assert in any such action or proceeding
the claim or defense that Y&R has an adequate remedy at law. The foregoing shall
not prejudice Y&R's right to require the Participant to account for and pay over
to Y&R any profit obtained by the Participant as a result of any transaction
constituting a breach of the Restrictive Covenants.
4. Severability. In the event any provision of this Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of this Agreement, and this Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
5. Applicable Law. To the extent not preempted by the laws of the
United States, the laws of the State of New York shall be the controlling law in
all matters relating to the Plan.
6. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
counterpart, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
YOUNG & RUBICAM INC.
By: ____________________
________________________
Participant
<PAGE>
PARTICIPATION SCHEDULE
[Date]
[Name and
Address of Executive]
We are offering you the opportunity to become a Participant in the
Young & Rubicam Inc. Change in Control Severance Plan (the "Plan"). All defined
terms used herein shall have the meaning ascribed to them in the Plan. As a
condition to your participation in the Plan, you must execute the agreement to
be bound by the Restrictive Covenants in the form attached hereto no later than
thirty (30) days after the date hereof.
Except as may be provided under any other agreement between you and the
Company, your employment by the Company is "at will." The Plan does not
constitute a contract of employment or impose on the Company any obligation to
retain you as an employee, to change the status of your employment, or to change
the policies of the Company regarding termination of employment.
For purposes of the Plan, your participation shall be determined based
upon the following:
(a) Severance Factor: [___]
(b) Benefit Continuation Period: [___]
(c) Age Supplement: [___]
(d) Service Supplement: [___]
(e) Additional Payments:
[The Gross-Up Payment provided under Section 7.2 applies to the
Participant.]1
[The Gross-Up Payment provided under Section 7.2 does not apply to the
Participant. The Limitation on Payment provisions of Section 7.3 will apply to
the Participant at the Participant's election in accordance with Section 7.3.]2
[The Gross-Up Payment provided under Section 7.2 does not apply to the
Participant. The Participant's payments and/or benefits are subject to a
mandatory cutback to be determined in accordance with Section 7.3.]3
[(f) Additional Good Reason:
____ (1) Any voluntary termination of employment by the
Participant with a Termination Date during the twenty-four (24) month
period following the Change in Control.4
____ (2) Any voluntary termination of employment by the
Participant with a Termination Date during the 30 day period commencing
on the first anniversary of the Change in Control.]5
Young & Rubicam Inc.6
By: __________________________
_________________________________
1 Insert Tier 1
2 Insert Tier 2
3 Insert Tier 3
4 Insert Tier 1
5 Insert Tier 2
6 If the Participant is employed by an entity other than Y&R Inc., add a
signature for that entity as well.
EXHIBIT 10.23
AMENDMENT NO. 2 TO THE
YOUNG & RUBICAM INC. 1997 INCENTIVE COMPENSATION PLAN
WHEREAS, Young & Rubicam Inc. (the "Corporation") maintains the Young &
Rubicam Inc. 1997 Incentive Compensation Plan (the "Plan");
WHEREAS, Section 10(e) of the Plan provides for amendment of the Plan by
the Board of Directors of the Corporation;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective as of December 16, 1997, Section 7(e)(iv) is amended and
restated in its entirety as follows:
(iv) Upon exercise, settlement, payment or delivery pursuant to an
Award, the Participant shall certify on a form acceptable to the Committee
that he or she is in compliance with the terms and conditions of the Plan.
Failure to comply with the provisions of this Section 7(e) prior to, or
during the one-year period after, any exercise, payment or delivery
pursuant to an Award shall cause the Participant to forfeit any gain
realized or value received at the time of the exercise, payment or delivery
in connection therewith. The Corporation shall notify the Participant in
writing of any such forfeiture within three years after such exercise,
payment or delivery. Within ten days after receiving such a notice from the
Corporation, the Participant shall pay to the Corporation in cash the
amount of any gain realized or value received at the time of the exercise,
payment or delivery in connection therewith.
2. Effective as of January 16, 2000, Section 2(e) is amended and restated
in its entirety as follows:
(e) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act and any successor to such Rule (except
that a Person shall be deemed to be the Beneficial Owner of all shares that
any such Person has the right to acquire pursuant to any agreement or
arrangement or upon exercise of conversion rights, warrants or options or
otherwise, without regard to the sixty day period referred to in Rule 13d-3
under the Exchange Act).
3. Effective as of January 16, 2000, Section 9(b) is amended and restated
in its entirety as follows:
<PAGE>
(b) Definition of "Change in Control." With respect to any Awards granted
under the Plan on or after January 16, 2000, a "Change in Control" shall be
deemed to have occurred if:
(i) any Person (other than the Corporation, any trustee or other
fiduciary holding securities under any employee benefit plan of the
Corporation, the Management Voting Trust, or any company owned, directly or
indirectly, by the stockholders of the Corporation immediately prior to the
occurrence with respect to which the evaluation is being made in
substantially the same proportions as their ownership of the common stock
of the Corporation immediately prior to the occurrence with respect to
which the evaluation is being made) becomes the Beneficial Owner, directly
or indirectly, of securities of the Corporation representing 30 % or more
of the combined voting power of the Corporation's then outstanding
securities (other than as a result of an issuance of voting securities
initiated by the Corporation to any such Person);
(ii) on any date, persons who are Continuing Directors shall fail to
constitute a majority of the members of the Board;
(iii) the consummation of a merger or consolidation of the Corporation
with any other entity, which merger or consolidation would result in either
(A) the voting securities of the Corporation outstanding immediately prior
to such merger or consolidation failing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
or resulting publicly-held parent entity) 40% or more of the combined
voting power of the surviving or resulting publicly-held parent entity
outstanding immediately after such merger or consolidation or (B) (x) the
voting securities of the Corporation outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
or resulting publicly-held parent 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) (I) in connection
with 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
and/or one or more of the five highest-paid executive officers of such
other entity becomes eligible for material severance rights not theretofore
available, and/or (II) a majority of the directors of the surviving or
resulting publicly-held parent entity immediately following such merger or
consolidation are not persons who were Continuing Directors of the
Corporation immediately prior to such merger or consolidation;
(iv) the stockholders of the Corporation approve a plan or agreement
for the sale or disposition of all or substantially all of the consolidated
assets of the Corporation (other than such a sale or disposition
immediately after which such assets will be owned directly or indirectly by
an entity owned by the stockholders of the Corporation in substantially the
same proportions as their ownership of the common stock of the Corporation
immediately prior to such sale or disposition) in which case the Board
shall determine the effective date of the Change in Control resulting
therefrom, which shall not be later than the consummation of such sale or
disposition; or
2
<PAGE>
(v) any other event occurs which the Board determines, in its
discretion, to be a Change in Control.
For purposes of Section 9(b) hereof, "Continuing Directors" means, as of
any determined date, individuals who, (a) as of the later of the date of this
Plan and the date two years prior to such determination date, were directors, or
(b) were initially elected or appointed to the Board by a two-thirds vote of the
Continuing Directors then in office or were initially nominated for election by
the Corporation's shareholders by a two-thirds vote of the Continuing Directors
then in office; provided, that no individual designated or proposed by a Person
who has entered into an agreement with the Corporation to effect a transaction
described in clause (i), (iii) or (iv) of the definition of "Change in Control",
and no individual whose initial appointment, election or nomination as a
director occurs as a result of an actual or threatened election contest (as such
terms are used in Rule 14a-11 under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of any Person
other than the Board, shall constitute a Continuing Director.
3
EXHIBIT 10.24
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
<PAGE>
Amendment to Directors Deferred Fee Plan
AMENDMENT NO. 1 TO THE DIRECTOR DEFERRED FEE PLAN
WHEREAS, Young & Rubicam Inc., a corporation organized under the laws of the
State of Delaware (hereinafter referred to as the "Company") established a
Director Deferred Fee Plan (hereinafter referred to as the "Plan") on March 23,
1999 and now wishes to amend the Plan to reflect the change in payment of
Director Fees to January and to change the definition of "Change in Control";
WHEREAS, Section 11 of the Plan provides for amendment of the Plan by the Board
of Directors of the Company; and
WHEREAS, the Board of Directors of the Company adopted such amendments at its
meeting on January 16, 2000.
NOW, THEREFORE, the Director Deferred Fee Plan is hereby amended as follows:
Section 1. Effective on January 16, 2000, clause (n) of Section 2 is hereby
amended to read in full, as follows:
"(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,
and as amended at the meeting of the Board of Directors held January
16, 2000."
Section 2. Effective on March 23, 1999, clause (b) of Section 2 is hereby
amended to read in full, as follows:
"(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 under the Securities Exchange Act, as amended from time to
time (the "Exchange Act") and any successor to such Rule (except that a
Person shall be deemed to be the Beneficial Owner of all shares that
any such Person has the right to acquire pursuant to any agreement or
arrangement or upon exercise of conversion rights, warrants or options
or otherwise, without regard to the sixty day period referred to in
Rule 13d-3 under the Exchange Act)."
Section 3. Effective on January 16, 2000, the first sentence of Section 6 is
hereby amended to read in full, as follows:
"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 or her Common Stock Account for that calendar year on the earlier
of (a) May 15, 2002 with respect to shares deposited in such subaccount
on May 15, 1999; (b) January 15
1
<PAGE>
of the third calendar year commencing after the calendar year to which
the subaccount relates for calendar years commencing after January 1,
2000 and (c) the first business date on which such person ceases to be
a Director."
Section 4. Effective on March 23, 1999, Section 8 is hereby amended to read as
follows:
"8. Change of Control. (a) 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 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 of Control. For purposes of
this Plan, "Change of Control" shall mean:
(i) any Person (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan
of the Company, the Management Voting Trust, 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, directly or indirectly, of securities of the Company
representing 30 % or more of the combined voting power of the
Company's then outstanding securities (other than as a result
of an issuance of voting securities initiated by the Company
to any such Person);
(ii) on any date, persons who are Continuing
Directors shall fail to constitute a majority of the members
of the Board of Directors;
(iii) 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 (either by remaining
outstanding or by being converted into voting securities of
the surviving or resulting publicly-held parent entity) 40% or
more of the combined voting power of the surviving or
resulting publicly-held parent 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 publicly-held parent
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) (I) in
connection with such merger or consolidation,
2
<PAGE>
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 and/or one or more of the five highest-paid
executive officers of such other entity becomes eligible for
material severance rights not theretofore available, and/or
(II) a majority of the directors of the surviving or resulting
publicly-held parent entity immediately following such merger
or consolidation are not persons who were Continuing Directors
of the Company immediately prior to such merger or
consolidation;
(iv) the stockholders of the Company approve a plan
or agreement for the sale or disposition of all or
substantially all of the consolidated assets of the Company
(other than such a sale or disposition immediately after which
such assets will be owned directly or indirectly by an entity
owned 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 of Directors shall determine the
effective date of the Change of Control resulting therefrom,
which shall not be later than the consummation of such sale or
disposition; or
(v) any other event occurs which the Board of
Directors determines, in its discretion, to be a Change of
Control.
(b) For purposes of Section 8 hereof, a Change of 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 of Directors 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.
3
<PAGE>
(c) For purposes of Section 8 hereof, "Continuing Directors"
means, as of any determined date, individuals who, (a) as of the later
of the date of the Plan and the date two years prior to such
determination date, were directors, or (b) were initially elected or
appointed to the Board of Directors by a two-thirds vote of the
Continuing Directors then in office or were initially nominated for
election by the Company's shareholders by a two-thirds vote of the
Continuing Directors then in office; provided, that no individual
designated or proposed by a Person who has entered into an agreement
with the Company to effect a transaction described in clause (i), (iii)
or (iv) of the definition of "Change of Control", and no individual
whose initial appointment, election or nomination as a director occurs
as a result of an actual or threatened election contest (as such terms
are used in Rule 14a-11 under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of any
Person other than the Board of Directors, shall constitute a Continuing
Director.
(d) For purposes of Section 8 hereof, "Person" shall have the
meaning ascribed to such term in Section 3(a)(9) of the Exchange Act
and used in Sections 13(d) and 14(d) thereof, and shall include a
"group" as defined in Section 13(d) thereof."
IN WITNESS WHEREOF, this Amendment No. 1 to the Director Deferred
Fee Plan has been executed by the Company as of January 16, 2000.
Young & Rubicam Inc.
By:
Stephanie W. Abramson
Executive Vice President and General
Counsel
4
EXHIBIT 10.25
YOUNG & RUBICAM INC.
DIRECTORS STOCK OPTION PLAN
AS ADOPTED JANUARY 16, 2000
<PAGE>
1. Purpose of the Plan
This Young & Rubicam Inc. Directors Stock Option Plan is
intended to promote the interests of the Company by providing non-employee
directors of Young & Rubicam Inc. with incentives and rewards to encourage them
to continue as directors.
2. Definitions
As used in the Plan, the following definitions apply to the
terms indicated below:
(a) "Affiliate" shall mean any entity (whether or not
incorporated) which, by reason of its relationship with Y&R, is required to be
aggregated with Y&R under Section 414(b), 414(c), 414(m) 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 Y&R or an
Affiliate.
(b) "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 under the Exchange Act and any successor to such Rule
(except that a Person shall be deemed to be the Beneficial Owner of all shares
that any such Person has the right to acquire pursuant to any agreement or
arrangement or upon exercise of conversion rights, warrants or options or
otherwise, without regard to the sixty day period referred to in Rule 13d-3
under the Exchange Act).
(c) "Board of Directors" shall mean the Board of Directors of
Y&R.
(d) "Change in Control" shall have the meaning assigned in
Section 6(e) hereof.
(e) "Committee" shall mean the Compensation Committee of the
Board of Directors or such other committee as the Board of Directors shall
appoint from time to time to administer the Plan.
(f) "Common Stock" shall mean Y&R's common stock, $.01 par
value per share, and such other securities as may be substituted (or
resubstituted) for Common Stock pursuant to Section 7 hereof.
(g) "Company" shall mean Y&R and its Affiliates.
(h) "Continuing Directors" shall mean, as of any determined
date, individuals who (a), as of the later of the date of the Plan and the date
two years prior to such determination date, were directors, or (b) were
initially elected or appointed to the Board of Directors by a two-thirds vote of
the Continuing Directors then in office or were initially nominated for election
by Y&R's stockholders by a two-thirds vote of the Continuing Directors then in
office; provided, that no individual designated or proposed by a Person who has
entered into an agreement with Y&R to effect a transaction described in clause
(i), (iii) or (iv) of the definition of "Change in Control", and no individual
whose initial appointment, election or nomination as a director occurs as a
result of an actual or threatened election contest (as such terms are used in
Rule 14a-11 under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of any Person other than the Board of
Directors, shall constitute a Continuing Director.
2
(i) "Director" shall mean a member of the Board of Directors
of Y&R who is not at the time of reference an employee of the Company and who is
entitled to receive a Director's Option pursuant to Section 6 hereof, and upon
his or her death, his or her successors, heirs, executors and administrators, as
the case may be.
(j) "Director's Option" shall mean an option to purchase
shares of Common Stock of Y&R granted pursuant to Section 6 hereof. Each
Director's Option shall be identified as a Non-Qualified Stock Option in the
agreement by which it is evidenced.
(k) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(l) the "Fair Market Value" of a share of Common Stock with
respect to any day shall be (i) the closing sales price on the immediately
preceding business day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then listed or admitted
to trading or (ii) if not so reported, the average of the closing bid and ask
prices on the immediately preceding business day of a share of Common Stock as
reported on the National Association of Securities Dealers Automated Quotation
System or (iii) if not so reported, as furnished by any member of the National
Association of Securities Dealers, Inc. selected by the Committee.
(m) "Non-Qualified Stock Option" shall mean a stock option
that is not an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
(n) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d) thereof.
(o) "Plan" shall mean the Young & Rubicam Inc. Directors
Stock Option Plan, as it may be amended from time to time.
(p) "Securities Act" shall mean the Securities Act of 1933,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(q) "Y&R" shall mean Young & Rubicam Inc., a Delaware
corporation, and its successors.
3
<PAGE>
3. Stock Subject to the Plan
Under the Plan, Directors will be granted Director's Options
pursuant to the provisions of Section 6 hereof. Subject to adjustment as
provided in Section 7 hereof, Director's Options shall be granted with respect
to a number of shares of Common Stock that in the aggregate does not exceed
140,000 shares.
In the event that any outstanding Director's Option expires,
terminates or is cancelled for any reason, the shares of Common Stock subject to
the unexercised portion of such Director's Option shall again be available for
grants under the Plan.
Shares of Common Stock issued under the Plan may be either
newly issued shares or treasury shares, at the discretion of the Committee.
4. Administration of the Plan
The Plan shall be administered by the Committee except to the
extent the Board of Directors elects to administer the Plan, in which case
references herein to the Committee shall be deemed to include references to the
Board of Directors. The Committee shall have full and final authority, in each
case subject to and consistent with the provisions of the Plan, to prescribe
agreements evidencing Director's Options and rules and regulations for the
administration of the Plan, construe and interpret the Plan and Director's
Option agreements and correct defects, supply omissions or reconcile
inconsistencies therein, and make all other decisions and determinations as the
Committee may deem necessary or advisable for the administration of the Plan. In
addition, subject to Section 10, the Committee shall retain full power and
discretion to accelerate, waive or modify, at any time, any term or condition of
the Director's Options, and to impose such additional terms and conditions as
the Committee shall determine. Any action of the Committee shall be final,
conclusive and binding on all persons, including Y&R, its Affiliates, Directors,
transferees under Section 6(d)(5) hereof or other persons claiming rights from
or through a Director, and stockholders. The Committee may appoint agents to
assist it in administering the Plan.
The Committee and each member thereof shall be entitled to, in
good faith, rely or act upon any report or other information furnished to him or
her by any executive officer, other officer or employee of Y&R or an Affiliate,
Y&R's independent auditors, consultants or any other agents assisting in the
administration of the Plan. Members of the Committee and any other officer or
employee of Y&R or an Affiliate acting at the direction or on behalf of the
Committee shall not be personally liable for any action or determination taken
or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified and protected by Y&R with respect to any
such action or determination.
5. Eligibility
The persons who shall be eligible to participate in the Plan
shall be such Directors who are entitled to receive Director's Options pursuant
to Section 6 hereof.
4
<PAGE>
6. Director's Options
Director's Options shall be granted pursuant to this Section 6
in the amounts and subject to the terms and conditions hereinafter set forth.
Each Director's Option shall be evidenced by an agreement in the form set forth
as Exhibit A hereto.
(a) Grant of Director's Options
On such date as may be determined by the Committee, the
Committee shall be authorized to grant, to each individual who is then a
Director, a Director's Option with respect to a specified number of shares of
Common Stock.
(b) Identification of Director's Options
All Director's Options granted under the Plan shall be clearly
identified in the agreement evidencing such Director's Options as Non-Qualified
Stock Options.
(c) Exercise Price
The per share exercise price of each Director's Option shall
be equal to the Fair Market Value of a share of Common Stock on the date on
which the Director's Option is granted.
(d) Term and Exercise of Director's Options
(1) Each Director's Option shall become exercisable with
respect to the number of shares of Common Stock subject thereto upon the first
anniversary of the date on which such Director's Option is granted; provided,
that no Director's Option shall be exercisable after the expiration of ten years
from the date on which it is granted; and provided, further that each Director's
Option shall be subject to earlier termination, expiration or cancellation as
provided herein.
(2) Each Director's Option shall be exercisable in whole or
in part; provided, that no partial exercise of a Director's Option shall be for
an aggregate exercise price of less than $1,000. The partial exercise of a
Director's Option shall not cause the expiration, termination or cancellation of
the remaining portion thereof.
(3) A Director's Option shall be exercised by delivering
notice to Y&R's principal office, to the attention of its Chief Financial
Officer, no less than three business days in advance of the effective date of
the proposed exercise. Such notice shall specify the number of shares of Common
Stock with respect to which the Director's Option is being exercised and the
effective date of the proposed exercise and shall be signed by the Director. The
Director may withdraw such notice at any time prior to the close of business on
the business day immediately preceding the effective date of the proposed
exercise. Payment for shares of Common Stock purchased upon the exercise of a
Director's Option shall be made on the effective date of such exercise either
(i) in cash, by certified check, bank cashier's check or wire transfer, (ii)
subject to the approval of the Committee, in shares of Common Stock owned by the
Director and valued at
5
<PAGE>
their Fair Market Value on the effective date of such exercise or (iii) subject
to the approval of the Committee, partly in shares of Common Stock with the
balance in cash, by certified check, bank cashier's check or wire transfer. Any
payment in shares of Common Stock shall be effected by the delivery of such
shares to the Chief Financial Officer of Y&R, duly endorsed in blank or
accompanied by stock powers duly executed in blank, together with any other
documents and evidences as the Chief Financial Officer of Y&R shall require from
time to time.
(4) Certificates for shares of Common Stock purchased upon
the exercise of a Director's Option shall be issued in the name of the Director
and delivered to the Director as soon as practicable following the effective
date on which the Director's Option is exercised. No fractional shares of Common
Stock shall be issued or delivered pursuant to the Plan. The Committee shall
determine whether cash or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
(5) No Director's Option or right to exercise any Director's
Option shall be pledged, hypothecated or otherwise encumbered or subject to any
lien, obligation or liability of the Director to any party (other than Y&R or an
Affiliate) or assigned or transferred by the Director directly or indirectly
other than by will or the laws of descent and distribution upon the death of the
Director, and any Director's Option shall be exercised during the lifetime of
the Director only by the Director or his or her guardian or legal
representative. No transfer permitted by the immediately preceding sentence
shall be effective to bind Y&R unless (i) Y&R shall have been furnished with
written notice thereof and with a copy of the will and/or such evidence as Y&R
may deem necessary to establish the validity of the transfer and (ii) the
permitted transferee (A) agrees in writing to be subject to all terms and
conditions of the Plan and the agreement evidencing the Director's Option as if
he or she had been an original signatory hereto, except as otherwise determined
by the Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee, and (B) executes and delivers to Y&R such
documents as may be requested by Y&R from time to time, including without
limitation, any voting trust or stockholders' agreement or supplement thereto as
Y&R may prescribe.
(e) Acceleration of Exercisability Upon Change in Control
(1) In the event of a Change in Control, any unvested
Director's Option shall become fully exercisable and vested as of the date of
the Change in Control and the restrictions and forfeiture conditions applicable
to the Director's Option shall lapse, except to the extent of any waiver by the
Director and subject to applicable restrictions set forth in Section 9 hereof.
(2) A Change in Control shall be deemed to have occurred if:
(i) any Person (other than Y&R, any trustee or other
fiduciary holding securities under any employee benefit plan of the
Company, the Management Voting Trust (as created by the Management
Voting Trust Agreement entered into as of December 12, 1996, by and
among Y&R, Young & Rubicam Holdings Inc., Young & Rubicam (Delaware),
the "Management Investors" and the "Voting Trustees" (each as
6
<PAGE>
defined therein), as it may be amended or supplemented from
time to time), or any company owned, directly or indirectly,
by the stockholders of Y&R 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 Y&R immediately prior to the occurrence
with respect to which the evaluation is being made) becomes
the Beneficial Owner, directly or indirectly, of securities
of Y&R representing 30 % or more of the combined voting power
of Y&R's then outstanding securities (other than as a result
of an issuance of voting securities initiated by Y&R to any
such Person);
(ii) on any date, persons who are Continuing Directors shall
fail to constitute a majority of the members of the Board of Directors;
(iii) the consummation of a merger or consolidation of Y&R
with any other entity, which merger or consolidation 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 by being converted into voting securities of
the surviving or resulting publicly-held parent entity) 40% or more of
the combined voting power of the surviving or resulting publicly-held
parent entity outstanding immediately after such merger or
consolidation or (B) (x) the voting securities of Y&R 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 publicly-held parent
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) (I) in connection with 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 and/or one or more of the five highest-paid executive
officers of such other entity becomes eligible for material severance
rights not theretofore available, and/or (II) a majority of the
directors of the surviving or resulting publicly-held parent entity
immediately following such merger or consolidation are not persons who
were Continuing Directors of Y&R immediately prior to such merger or
consolidation;
(iv) 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 such a sale or disposition immediately after
which such assets will be owned directly or indirectly by an entity
owned by the stockholders of Y&R in substantially the same proportions
as their ownership of the common stock of Y&R immediately prior to such
sale or disposition) in which case the Board of Directors shall
determine the effective date of the Change in Control resulting
therefrom, which shall not be later than the consummation of such sale
or disposition; or
(v) any other event occurs which the Board of Directors
determines, in its discretion, to be a Change in Control.
7
<PAGE>
(3) For purposes of Section 6(e)(1) hereof, a Change in
Control shall be deemed to have occurred immediately prior to the consummation
of (i) 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 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 (ii) a tender offer for securities of Y&R representing
any percentage of the combined voting power of Y&R'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 of
Directors at the time). Y&R intends by this Section 6(e)(3) to protect the
Director from being disadvantaged by being unable to participate in a tender
offer with respect to shares of Common Stock subject to the Director's Option
and will take reasonably appropriate steps to help the Director avoid being so
disadvantaged by establishing procedures to allow the Director to exercise his
or her Director's Option, the exercisability of which is accelerated pursuant to
this Section 6(e), and tender the resulting shares of Common Stock in the tender
offer, including, to the extent feasible in compliance with applicable law, by
permitting the Director to exercise his or her Director's Option provisionally
upon the consummation of the tender offer and by permitting the Director to pay
the exercise price of the Director's Option by means of a recourse note to Y&R
with such terms and conditions as the Board of Directors may require, including
a pledge of the related shares.
(f) Effect of Termination of Director's Term
(1) In the event that the term of a Director's membership on
the Board of Directors terminates for any reason other than on account of the
death or permanent disability of the Director, then (i) Director's Options
granted to such Director, to the extent that they were exercisable at the time
of such termination, shall remain exercisable until the expiration of their
term, and (ii) Director's Options granted to such Director, to the extent that
they were not exercisable at the time of such termination, shall immediately
expire.
(2) In the event that the term of a Director's membership on
the Board of Directors terminates on account of the death or permanent
disability of the Director, then (i) Director's Options granted to such
Director, to the extent that they were exercisable at the time of such
termination, shall remain exercisable until the expiration of their term, and
(ii) Director's Options granted to such Director, to the extent that they were
not exercisable at the time of such termination, shall become exercisable at
such time and shall remain exercisable until the expiration of their term.
7. Adjustment Upon Changes in Common Stock
In the event that any dividend or other distribution (whether
in the form of cash, Common Stock, or other property), recapitalization, forward
or reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, liquidation,
8
<PAGE>
dissolution or other similar corporate transaction or event affects the Common
Stock such that an adjustment is determined by the Committee to be appropriate
under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and kind of shares of Common
Stock which may be delivered in connection with Director's Options granted
thereafter, (ii) the number and kind of shares of Common Stock subject to or
deliverable in respect of outstanding Director's Options and (iii) the exercise
price relating to any Director's Option and/or make provision for payment of
cash or other property in respect of any outstanding Director's Option. In
addition, the Committee is authorized to make adjustments in the terms and
conditions of Director's Options in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding
sentence, as well as acquisitions and dispositions of businesses and assets)
affecting Y&R, any Affiliate or business unit, or the financial statements of
Y&R or any Affiliate, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of Y&R, any
Affiliate or business unit thereof and any other circumstances deemed relevant.
8. Rights as a Stockholder
No person shall have any rights as a stockholder with respect
to any shares of Common Stock covered by or relating to any Director's Option
granted pursuant to the Plan until the date of the issuance of a stock
certificate with respect to such shares. Except as otherwise expressly provided
in Section 7 hereof, no adjustment to any Director's Option shall be made for
dividends or other rights for which the record date occurs prior to the date
such stock certificate is issued. 9. Compliance with Legal and Other
Requirements
Y&R may, to the extent deemed necessary or advisable by the
Committee, postpone the issuance or delivery of Common Stock or payment of other
benefits under any Director's Option until completion of such registration or
qualification of such Common Stock or other required action under any federal or
state law, rule or regulation, listing or other required action with respect to
any stock exchange or automated quotation system upon which the Common Stock or
other securities of Y&R are listed or quoted, or compliance with any other
obligation of Y&R, as the Committee may deem appropriate, and may require any
Director to make such representations, furnish such information and comply with
or be subject to such other conditions as it may consider appropriate in
connection with the issuance or delivery of Common Stock or payment of other
benefits in compliance with applicable laws, rules, and regulations, listing
requirements, or other obligations. Y&R shall not be required to issue or
deliver any certificates evidencing shares of Common Stock in connection with
the exercise of a Director's Option (a) unless and until the Committee has
determined, with advice of counsel, that the issuance and delivery of such
certificates is in compliance with all applicable laws, regulations of
governmental authorities and, if applicable, the requirements of any exchange on
which the shares of Common Stock are listed or traded, and (b) if the effect of
such issuance or delivery would be to require Y&R to register any class of
securities of Y&R under the Exchange Act. Y&R shall in no event be obligated to
register such shares of Common Stock or to take any other action in order to
comply with any such law, regulation or requirement with respect to the
9
<PAGE>
issuance and delivery of such certificates. The foregoing notwithstanding, in
connection with a Change in Control, Y&R shall take or cause to be taken no
action, and shall undertake or permit to arise no legal or contractual
obligation, that results or would result in any postponement of the issuance or
delivery of Common Stock or payment of benefits under any Director's Option or
the imposition of any other conditions on such issuance, delivery or payment, to
the extent that such postponement or other condition would represent a greater
burden on the Director than existed on the 90th day preceding such Change in
Control.
10. Amendment; Termination
The Board of Directors may amend, alter, suspend, discontinue
or terminate the Plan without the consent of stockholders or participating
Directors, except that any amendment or alteration to the Plan shall be subject
to the approval of Y&R's stockholders no later than the annual meeting next
following such Board of Director action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Common Stock may then be listed or
quoted, and the Board of Directors may otherwise, in its discretion, determine
to submit other such changes to the Plan to stockholders for approval; provided,
that, without the consent of an affected Director, no such Board of Directors
action may materially and adversely affect the rights of such Director under any
previously granted and outstanding Director's Option. The Committee may waive
any conditions or rights under, or amend, alter, suspend, discontinue or
terminate any Director's Option theretofore granted and any Director's Option
award relating thereto, except as otherwise provided in the Plan; provided,
that, without the consent of the affected Director, no such Committee action may
materially and adversely affect the rights of such Director under such
Director's Option. Notwithstanding the foregoing, the Committee may terminate
any Director's Option theretofore granted and any Director's Option agreement
relating thereto in whole or in part provided that upon any such termination Y&R
in full consideration of the termination of such Director's Option (whether or
not exercisable) or portion thereof pays to such Director an amount in cash for
each share of Common Stock subject to such Director's Option or portion thereof
being terminated equal to the excess, if any, of (a) the Fair Market Value of a
share of Common Stock on the date of such termination, over (b) the exercise
price per share of such Director's Option, or, if the Committee permits and the
Director elects, accelerates the exercisability of such Director's Option or
portion thereof (if necessary) and allows such Director thirty days to exercise
such Director's Option or portion thereof before the termination of such
Director's Option or portion thereof. Notwithstanding anything in the Plan to
the contrary, if any right conferred under the Plan would cause a transaction to
be ineligible for pooling of interest treatment, the Committee may modify or
adjust the right so that pooling of interest accounting shall be available,
including the substitution of Common Stock having a Fair Market Value equal to
the cash otherwise payable hereunder for the right which caused the transaction
to be ineligible for pooling of interest accounting.
11. Expenses and Receipts
The expenses of the Plan shall be paid by Y&R. Any proceeds
received by Y&R in connection with any Director's Option will be used for
general corporate purposes.
10
<PAGE>
12. Failure to Comply
In addition to the remedies of Y&R elsewhere provided for
herein, failure by a Director to comply with any of the terms and conditions of
the Plan or the agreement executed by such Director evidencing an Director's
Option, unless such failure is remedied by such Director within ten days after
having been notified of such failure by the Committee, shall be grounds for the
cancellation and forfeiture of such Director's Option, in whole or in part, as
the Committee, in its absolute discretion, may determine.
13. Governing Law
The validity, construction and effect of the Plan, any rules
and regulations under the Plan, and any agreement evidencing a Director's Option
shall be determined in accordance with the Delaware General Corporation Law,
without giving effect to principles of conflicts of laws, and applicable federal
law.
14. Effective Date and Term of Plan
The Plan was adopted by the Board of Directors on January 16,
2000. No grants may be made under the Plan after January 16, 2010.
11
<PAGE>
EXHIBIT A
DIRECTOR'S STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this __the day of ______, 20__,
between YOUNG AND RUBICAM INC. ("Y&R"), a Delaware corporation, with its
principal offices at 285 Madison Avenue, New York, NY 10017, and ____________
(the "Director"), who resides at_______________________________________________.
WHEREAS, Y&R has adopted and maintains the Young & Rubicam
Inc. Directors Stock Option Plan (the "Plan");
WHEREAS, Section 6 of the Plan provides for the award to
Directors of Director's Options to purchase shares of common stock of Y&R, $.01
par value per share ("Common Stock");
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Grant of Director's Option. Pursuant to, and subject to,
the terms and conditions set forth herein and in the Plan, Y&R hereby grants to
the Director a Director's Option to purchase 2,000 shares of Common Stock for an
exercise price of $_______ per share (the "Option").
The Option granted hereby is a Non-Qualified Stock Option.
2. Exercise of Option. The Option shall be exercisable only in
accordance with the provisions of this Agreement and of the Plan. The Option
shall be first exercisable to the extent of 2,000 shares of Common Stock subject
thereto, on.
All or a portion of the Option may become earlier exercisable or forfeited in
accordance with the terms of the Plan. In no event may the Option be exercisable
with respect to any shares of Common Stock subject thereto after
____________________.
3. Non-Transferability. During the lifetime of the Director,
the Option shall be exercisable only by [him] [her] or [his] [her] guardian or
legal representatives. The Option shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution in accordance
with the Plan.
4. Modification and Waiver. Except as provided in the Plan,
neither this Agreement nor any provision hereof can be changed, modified,
amended, discharged, terminated or waived orally or by any course of dealing or
purported course of dealing, but only by an agreement in writing signed by the
Director and Y&R. No such agreement shall extend to or affect any provision of
this Agreement not expressly changed, modified, amended, discharged, terminated
or waived or impair any right consequent on such a provision. The waiver of or
failure to enforce any breach of this Agreement shall not be deemed to be a
waiver or acquiescence in any other breach thereof.
<PAGE>
5. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
regard to principles of conflict of laws, and the Director and each permitted
transferee agree to submit to personal jurisdiction and to waive any objection
as to venue of the Court of Chancery in the State of Delaware in connection with
any action arising out of or relating to this Agreement.
6. Director Acknowledgment. The Director hereby acknowledges
receipt of a copy of the Plan.
7. Incorporation of Plan. All terms and provisions of the Plan
are incorporated herein and made part hereof as if stated herein. If any
provision hereof and of the Plan shall be in conflict, the terms of the Plan
shall govern. All capitalized terms used herein and not defined herein shall
have the meanings assigned to them in the Plan.
8. Entire Agreement. This Agreement represents the final,
complete and total agreement of the parties hereto respecting the Option and the
matters discussed herein and this Agreement supersedes any and all previous
agreements and understandings, whether written, oral or otherwise, relating to
the Option and such matters.
IN WITNESS WHEREOF, Young & Rubicam Inc. has caused this
Agreement to be duly executed by its duly authorized officer and said Director
has hereunto signed this Agreement on [his] [her] own behalf, THEREBY
REPRESENTING THAT [HE] [SHE] HAS CAREFULLY READ AND UNDERSTANDS THIS AGREEMENT
AND THE PLAN, as of the day and year first above written.
Young & Rubicam Inc.
By: ________________________
[Director's Name]
___________________________
================================================================================
Young & Rubicam Inc.
to
The Bank of New York,
as Trustee
-----------
Indenture
Dated as of January 20, 2000
3% Convertible Subordinated Notes due 2005
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions..................................................1
Section 1.02 Other Definitions............................................9
Section 1.03 Incorporation by Reference of Trust Indenture Act...........10
Section 1.04 Rules of Construction.......................................11
ARTICLE II
THE SECURITIES
Section 2.01 Form and Dating.............................................11
Section 2.02 Execution, Authentication and Delivery......................14
Section 2.03 Registrar, Paying Agent and Conversion Agent................14
Section 2.04 Paying Agent to Hold Money in Trust.........................15
Section 2.05 Noteholder Lists............................................15
Section 2.06 Transfer and Exchange.......................................15
Section 2.07 Replacement Securities......................................20
Section 2.08 Outstanding Securities......................................21
Section 2.09 Treasury Securities.........................................21
Section 2.10 Temporary Securities; Exchange of Global Security
for Definitive Securities...................................22
Section 2.11 Cancellation................................................23
Section 2.12 Payment of Interest: Interest Rights........................23
Section 2.13 Computation of Interest.....................................25
Section 2.14 CUSIP Number................................................25
Section 2.15 RegulationS.................................................25
Section 2.16 Persons Deemed Owners.......................................25
ARTICLE III
REDEMPTION
Section 3.01 Notices to Trustee..........................................26
Section 3.02 Selection of Securities to be...............................26
Section 3.03 Notice of Redemption........................................27
Section 3.04 Effect of Notice of Redemption..............................28
Section 3.05 Deposit of Redemption Price.................................28
Section 3.06 Securities Redeemed in Part.................................29
Section 3.07 Optional Redemption.........................................29
Section 3.08 Designated Event Offer......................................29
i
<PAGE>
ARTICLE IV
COVENANTS
Section 4.01 Payment of Securities.......................................33
Section 4.02 SEC Reports.................................................33
Section 4.03 Compliance Certificate......................................34
Section 4.04 Stay, Extension and Usury Law...............................35
Section 4.05 Corporate Existence.........................................35
Section 4.06 Taxes.......................................................36
Section 4.07 Designated Event............................................36
ARTICLE V
CONVERSION
Section 5.01 Conversion Privilege........................................36
Section 5.02 Conversion Procedure........................................37
Section 5.03 Fractional Shares...........................................38
Section 5.04 Taxes on Conversion.........................................38
Section 5.05 Company to Provide..........................................39
Section 5.06 Adjustment of Conversion Price..............................39
Section 5.07 No Adjustment...............................................45
Section 5.08 Other Adjustments...........................................45
Section 5.09 Adjustments for Tax.........................................45
Section 5.10 Adjustments by the Company..................................46
Section 5.11 Notice of Adjustment........................................46
Section 5.12 Notice of Certain Transactions..............................46
Section 5.13 Effect of Reclassifications, Consolidations, Mergers,
Continuances or Sales on Conversion Privilege...............46
Section 5.14 Trustee's Disclaimer........................................48
Section 5.15 Cancellation of Converted Securities........................48
Section 5.16 Restriction on Common Stock Issuable Upon
Conversion..................................................48
ARTICLE VI
SUBORDINATION
Section 6.01 Agreement to Subordinate....................................49
Section 6.02 No Payment on Securities if Senior Debt in Default..........50
Section 6.03 Distribution on Acceleration of Securities; Dissolution ....
and Reorganization; Subrogation of Securities...............51
Section 6.04 Reliance by Senior Debt on Subordination....................55
Section 6.05 No Waiver of Subordination..................................55
Section 6.06 Trustee's Relation to Senior................................56
Section 6.07 Other Provisions Subject Hereto.............................57
ii
<PAGE>
ARTICLE VII
SUCCESSORS
Section 7.01 Merger, Consolidation or Sale of Assets.....................57
Section 7.02 Successor Corporation.......................................58
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.01 Events of Default...........................................59
Section 8.02 Acceleration................................................61
Section 8.03 Other Remedies..............................................61
Section 8.04 Waiver of Defaults..........................................62
Section 8.05 Control by Majority.........................................62
Section 8.06 Limitation on Suits.........................................62
Section 8.07 Rights of Noteholders to Receive Payment....................63
Section 8.08 Collection Suit by Trustee..................................63
Section 8.09 Trustee May File Proofs of Claim............................63
Section 8.10 Priorities..................................................65
Section 8.11 Undertaking for Costs.......................................65
Section 8.12 Restoration of Rights and Remedies..........................66
Section 8.13 Rights and Remedies Cumulative..............................66
Section 8.14 Delay or Omission Not Waiver................................66
ARTICLE IX
TRUSTEE
Section 9.01 Duties of Trustee...........................................66
Section 9.02 Rights of Trustee...........................................68
Section 9.03 Individual Rights of Trustee................................69
Section 9.04 Trustee's Disclaimer........................................69
Section 9.05 Notice of Defaults..........................................70
Section 9.06 Reports by Trustee to Noteholders...........................70
Section 9.07 Compensation and Indemnity..................................70
Section 9.08 Replacement of Trustee......................................71
Section 9.09 Successor Trustee by Merger, Etc............................73
Section 9.10 Eligibility; Disqualification...............................73
Section 9.11 Preferential Collection of Claims Against Company...........73
ARTICLE X
DISCHARGE OF INDENTURE
Section 10.01 Termination of the Company's Obligations....................73
Section 10.02 Repayment to Company........................................75
iii
<PAGE>
Section 10.03 Reinstatement...............................................76
ARTICLE XI
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 11.01 Without Consent of Noteholders..............................76
Section 11.02 With Consent of Noteholders.................................77
Section 11.03 Compliance with Trust Indenture Act.........................79
Section 11.04 Revocation and Effect of Consents...........................79
Section 11.05 Notation on or Exchange of Securities.......................80
Section 11.06 Trustee Protected...........................................80
Section 11.07 Trustee to Sign Supplemental Indentures.....................80
Section 11.08 Payment for Consent.........................................81
ARTICLE XII
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls................................82
Section 12.02 Notices.....................................................82
Section 12.04 Certificate and Opinion as to Conditions Precedent..........83
Section 12.05 Statements Required in Certificate or Opinion...............84
Section 12.06 Rules by Trustee and Agents.................................85
Section 12.07 Legal Holidays..............................................85
Section 12.08 No Recourse Against Others..................................85
Section 12.09 Counterparts................................................85
Section 12.10 Variable Provisions.........................................85
Section 12.11 GOVERNING LAW...............................................87
Section 12.12 No Adverse Interpretation of Other Agreements...............87
Section 12.13 Successors..................................................87
Section 12.14 Severability................................................87
Section 12.15 Table of Contents, Headings, Etc............................88
iv
<PAGE>
INDENTURE dated as of January 20, 2000 between Young & Rubicam Inc., a
Delaware corporation (the "Company"), and The Bank of New York, a New York
banking corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the holders of the Company's 3% Convertible
Subordinated Notes due 2005 (the "Securities"):
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions.
"Additional Amounts" has the meaning specified in paragraph 11 of the form
of Security which is attached as Exhibit A hereto.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such person,
whether through the ownership of voting securities or by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or Conversion Agent.
"Board of Directors" means the board of directors of the Company or any
authorized committee of such board of directors.
"Board Resolution" means a copy of a resolution of the Board of Directors
certified by the Secretary or an Assistant Secretary of the Company to have been
duly adopted by the Board of Directors and to be in full force and effect on the
date of such certification and delivery to the Trustee.
"Business Day" means any day that is not a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of equity interests in any entity,
including, without limitation, corporate stock and partnership interests.
1
<PAGE>
"Change of Control" means any event where: (i) any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) of shares representing more than 50% of the combined voting power
of the then outstanding securities entitled to vote generally in elections of
directors of the Company ("Voting Stock"), (ii) the Company consolidates with or
merges into any other person, or any other person merges into the Company, and,
in the case of any such transaction, the outstanding Common Stock of the Company
is reclassified into or exchanged for any other property or securities, unless
the stockholders of the Company immediately before such transaction own,
directly or indirectly immediately following such transaction, at least a
majority of the combined voting power of the then outstanding voting securities
entitled to vote generally in elections of directors of the corporation
resulting from such transaction in substantially the same respective proportions
as their ownership of the Voting Stock immediately before such transaction,
(iii) the Company or the Company and its Subsidiaries, taken as a whole, sells,
assigns, conveys, transfers or leases all or substantially all the assets of the
Company or of the Company and its Subsidiaries, taken as a whole, as applicable,
(other than to one or more whollyowned Subsidiaries of the Company) or (iv) any
time the Continuing Directors do not constitute a majority of the board of
directors of the Company (or, if applicable, a successor corporation to the
Company); provided, however, that (a) a Change of Control under clause (i), (ii)
or (iii) above shall not be deemed to have occurred if the Daily Market Price
per share of Common Stock for any five Trading Days within the period of 10
consecutive Trading Days ending immediately after the later of the Change of
Control or the public announcement of the Change of Control (in the case of a
Change of Control under clause (i) above) or the period of 10 consecutive
Trading Days ending immediately before the Change of Control (in the case of a
Change of Control under clause (ii) or (iii) above) shall equal or exceed 105%
of the Conversion Price of the Securities in effect on the date of such Change
of Control or the public announcement of such Change of Control, as applicable,
or (b) a Change of Control under clause (i), (ii) or (iii) above shall not be
deemed to have occurred if at least 90% of the consideration in the Change of
Control transaction consists of shares of capital stock traded on a U.S.
national securities exchange or quoted on the NNM, and as a result of such
transaction, the Securities become convertible solely into such capital stock.
"Closing Date" means January 20, 2000.
2
<PAGE>
"Common Stock" means the common stock of the Company as the same exists at
the date of this Indenture or as such stock may be constituted from time to
time.
"Company" means the party named as such above until a successor replaces it
in accordance with Article VII and thereafter means the successor.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of the Company who (i) was a member of such board of
directors on the date of this Indenture or (ii) was nominated for election or
elected to such board of directors with the approval of a majority of the
Continuing Directors who were members of such board of directors at the time of
such nomination or election.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Indenture is located at 101
Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate
Trust Trustee Administration.
"Daily Market Price" means the price of a share of Common Stock on the
relevant date, determined (a) on the basis of the last reported sale price
regular way of the Common Stock as reported on the New York Stock Exchange (the
"NYSE"), or if the Common Stock is not then listed on the NYSE, as reported on
the principal national securities exchange upon which the Common Stock is
listed, or (b) if there is no such reported sale on the day in question, on the
basis of the average of the closing bid and asked quotations regular way as so
reported, or (c) if the Common Stock is not listed on the NYSE or on any
national securities exchange, on the basis of the average of the high bid and
low asked quotations regular way on the day in question in the overthecounter
market as reported by the National Association of Securities Dealers Automated
Quotation System, or if not so quoted, as reported by National Quotation Bureau,
Incorporated, or a similar organization.
"Damages Payment Date" has the meaning set forth in the Registration
Agreement.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an Event of Default.
3
<PAGE>
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Designated Event" means the occurrence of a Change of Control or a
Termination of Trading.
"Designated Senior Debt" means any Senior Debt which, at the date of
determination, has an aggregate principal amount outstanding of, or commitments
to lend up to, at least $15,000,000 and is specifically designated by the
Company in the instrument evidencing or governing such Senior Debt as
"Designated Senior Debt" for purposes of this Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession
of the United States, which are in effect from time to time.
"Global Securities Legend" means the legend labeled as such and that is set
forth in Exhibit A hereto.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness; and such term, when used as a verb, shall have correlative
meaning.
"Indebtedness" means, with respect to any Person, all Obligations, whether
or not contingent, of such Person (i)(a) for borrowed money (including, but not
limited to, any indebtedness secured by a security interest, mortgage or other
lien on the assets of such Person which is (1) given to secure all or part of
the purchase price of property subject thereto, whether given to the vendor of
such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that such Person is contractually obligated
to purchase or to cause a third party to purchase such leased
4
<PAGE>
property, (d) in respect of letters of credit, bank guarantees or bankers'
acceptances (including reimbursement obligations with respect to any of the
foregoing), (e) with respect to Indebtedness secured by a mortgage, pledge,
lien, encumbrance, charge or adverse claim affecting title or resulting in an
encumbrance to which the property or assets of such Person are subject, whether
or not the Obligation secured thereby shall have been assumed or Guaranteed by
or shall otherwise be such Person's legal liability, (f) in respect of the
balance of the deferred and unpaid purchase price of any property or assets, and
(g) under interest rate or currency swap agreements, cap, floor and collar
agreements, spot and forward contracts and similar agreements and arrangements;
(ii) with respect to any Obligation of others of the type described in the
preceding clause (i) or under clause (iii) below assumed by or Guaranteed in any
manner by such Person or in effect Guaranteed by such Person through an
agreement to purchase (including, without limitation, "take or pay" and similar
arrangements), contingent or otherwise (and the Obligations of such Person under
any such assumptions, Guarantees or other such arrangements); and (iii) any and
all deferrals, renewals, extensions, refinancings and refundings of, or
amendments, modifications or supplements to, any of the foregoing.
"Indenture" means this Indenture, as amended or supplemented from time to
time by one or more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof, including for all purposes of this Indenture any
supplemental indenture and the provisions of the TIA that are deemed to be a
part of and govern this Indenture and any supplemental indenture.
"Initial Purchasers" means Salomon Smith Barney Inc., Bear, Stearns & Co.
Inc, Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Thomas Weisel
Partners LLC.
"interest payment date" means, when used with respect to the Securities,
each January 15 and July 15.
"Issuance Date" means January 20, 2000.
"Junior Securities" means securities of the Company as reorganized or
readjusted or any other corporation provided for by a plan or reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided for in this Indenture with respect to Securities, to the payment in
full without diminution or modification by such plan of all Senior Debt.
5
<PAGE>
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are not required to be open.
"Material Subsidiary" means any Subsidiary of the Company which at the date
of determination is a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act.
"maturity date" and "final maturity date" mean, when used with respect to
the Securities, January 15, 2005.
"NNM" means the electronic interdealer quotation system operated by NASDAQ,
Inc., a subsidiary of the National Association of Securities Dealers, Inc.
"Noteholder" or "holder" means a person in whose name a Security is
registered.
"NYSE" means the New York Stock Exchange.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Memorandum" means the offering memorandum relating to the
Securities dated January 14, 2000.
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer, Senior Vice President - Tax and
Treasury, Senior Vice President - Finance or the Treasurer of the Company, and
delivered to the Trustee that meets the requirements of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee that meets the requirements of Sections 12.04 and
12.05 hereof. The counsel may be an employee of or counsel to the Company or the
Trustee unless otherwise expressly stated herein.
"Person" and "person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
limited liability company or government or any agency or political subdivision
thereof.
6
<PAGE>
"Registration Agreement" means the Registration Agreement relating to the
Securities and Common Stock issuable upon conversion of such Securities dated
January 20, 2000, between the Company and the Initial Purchasers, as such
agreement may be amended, modified or supplemented from time to time.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Debt.
"Restricted Common Stock Legend" means the legend labeled as such and that
is set forth in Exhibit D hereto.
"Restricted Definitive Securities Legend" means the legend labeled as such
and that is set forth in Exhibit A hereto.
"Restricted Global Securities Legend" means the legend labeled as such and
that is set forth in Exhibit A hereto.
"Restricted Securities Legend" means the Restricted Definitive Securities
Legend or the Restricted Global Securities Legend or both, as the context may
require.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described in the preamble above that are
issued, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means the principal of, premium, if any, on, interest on and
other amounts due on Indebtedness of the Company, whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed or Guaranteed by
the Company (including all deferrals, renewals, extensions, refinancings and
refundings of, or amendments, modifications or supplements to, any of the
foregoing), unless, in the instrument creating or evidencing or pursuant to
which such Indebtedness is outstanding, it is expressly provided that such
Indebtedness is not senior in right of payment to, or ranks pari passu in right
of payment with, the Securities. Senior Debt includes, with respect to the
obligations described above, interest accruing, pursuant to the terms of such
Senior Debt, on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company, whether or not post-filing interest is
allowed in such proceeding, at the rate specified in the instrument governing
the
7
<PAGE>
relevant obligation. Notwithstanding anything to the contrary in the foregoing,
Senior Debt shall not include: (a) Indebtedness of or amounts owed by the
Company for compensation to employees, or for goods, services or materials
purchased in the ordinary course of business; (b) Indebtedness of the Company to
a Subsidiary of the Company; or (c) any liability for federal, state, local or
other taxes owed or owing by the Company.
"Shelf Registration Statement" shall have the meaning set forth in the
Registration Agreement.
"Subsidiary" of a Person means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of
the other Subsidiaries of that Person or a combination thereof.
"Termination of Trading" means an event where the Common Stock (or other
securities into which the Securities are then convertible) is neither listed for
trading on a United States national securities exchange nor approved for trading
on the NASDAQ National Market (the "NNM") or other established automated
overthecounter trading market in the United States.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb) and the rules and regulations thereunder as in effect on the date
on which this Indenture is qualified under the Trust Indenture Act of 1939
except as required by Section 11.03 hereof, provided that if the Trust Indenture
Act of 1939 or the rules and regulations thereunder are amended after such date,
"TIA" means, if so required by such amendment, the Trust Indenture Act of 1939,
as so amended.
"Trading Day" shall mean (A) if the applicable security is listed or
admitted for trading on the New York Stock Exchange or another national
securities exchange, a day on which the New York Stock Exchange or such other
national securities exchange is open for business, (B) if the applicable
security is quoted on the NNM, a day on which trades may be made thereon or (C)
if the applicable security is not so listed, admitted for trading or quoted, any
day other than a Legal Holiday.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
8
<PAGE>
"Trust Officer" means any officer within the corporate trust department of
the Trustee, including any vice president, assistant vice president, assistant
secretary, assistant treasurer, trust officer or any other officer of the
Trustee who customarily performs functions similar to those performed by the
persons who at the time shall be such officers, respectively, and who shall have
direct responsibility for the administration of this Indenture or to whom any
corporate trust matter is referred because of such person's knowledge of and
familiarity with the particular subject.
Section 1.02 Other Definitions.
Term Defined in
- - ---- Section
-------
"Agent Members".................................................... 2.01
"Bankruptcy Law"................................................... 8.01
"Cedel Bank"....................................................... 2.01
"Commencement Date"................................................ 3.08
"Conversion Agent"................................................. 2.03
"Conversion Date".................................................. 5.02
"Conversion Price"................................................. 5.01
"Conversion Shares"................................................ 5.06
"Current Market Price"............................................. 5.06
"Custodian"........................................................ 8.01
"Default Rate"..................................................... 2.13
"Defaulted Interest................................................ 2.12
"Definitive Securities"............................................ 2.01
"Designated Event Offer"........................................... 4.07
"Designated Event Payment"......................................... 4.07
"Designated Event Payment Date".................................... 3.08
"Distribution Date"................................................ 5.06
"Distribution Record Date"......................................... 5.06
"Excess Payment"................................................... 5.06
"Euroclear"........................................................ 2.01
"Event of Default"................................................. 8.01
"Global Security".................................................. 2.01
"Legal Holiday".................................................... 12.07
"Non-Global Purchasers"............................................ 2.01
"Officer".......................................................... 12.10
9
<PAGE>
"Paying Agent"..................................................... 2.03
"Payment Blockage Notice".......................................... 6.02
"Payment Blockage Period".......................................... 6.02
"Payment Default".................................................. 8.01
"Purchase Agreement"............................................... 2.01
"Purchase Date".................................................... 5.06
"QIBs"............................................................. 2.01
"Registrar"........................................................ 2.03
"Regulation S"..................................................... 2.01
"Rights"........................................................... 5.06
"Rule 144A"........................................................ 2.01
"Tender Period".................................................... 3.08
Section 1.03 Incorporation by Reference of Trust Indenture Act. Whenever this
Indenture refers to a provision of the TIA, the provision is incorporated by
reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Securities means the Company or any other obligor on the
Securities.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
Section 1.04 Rules of Construction. Unless the context otherwise requires:
10
<PAGE>
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in
accordance with GAAP consistently applied;
(b) "or" is not exclusive;
(d) words in the singular include the plural, and words in the plural include
the singular; and
(e) provisions apply to successive events and transactions.
ARTICLE II
THE SECURITIES
Section 2.01 Form and Dating. The Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A which is hereby
incorporated in and expressly made a part of this Indenture.
The Securities may have notations, legends or endorsements required by law,
stock exchange rule, agreements to which the Company is subject, if any, or
usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Company). The Company shall furnish any such legend not
contained in Exhibit A to the Trustee in writing. Each Security shall be dated
the date of its authentication. The terms and provisions of the Securities set
forth in Exhibit A are part of the terms of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
(a) Global Securities. The Securities are being offered and sold by the Company
pursuant to a Purchase Agreement relating to the Securities, dated January
14, 2000, among the Company and the Initial Purchasers (the "Purchase
Agreement").
Securities offered and sold (i) in reliance on Regulation S under the
Securities Act ("Regulation S") or (ii) to "qualified institutional buyers" as
defined in Rule 144A ("QIBs") in reliance on Rule 144A under the Securities Act
("Rule 144A"), each as provided in the Purchase Agreement, shall be issued in
the form of one or more permanent global Securities in definitive, fully
registered form without interest
11
<PAGE>
coupons with the Global Securities Legend and Restricted Global Securities
Legend set forth in Exhibit A hereto (each, a "Global Security"). Any Global
Security shall be deposited on behalf of the purchasers of the Securities
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or a nominee of the
Depositary for the accounts of participants in the Depositary (and, in the case
of Securities held in accordance with Regulation S, registered with the
Depositary for the accounts of designated agents holding on behalf of the
Euroclear System ("Euroclear") or Cedel Bank, societe anonyme ("Cedel Bank")),
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of a Global Security may from time to
time be increased or decreased by adjustments made on the records of the Trustee
and the Depositary or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.01(b) shall apply only to a Global
Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(b) and the written order of the Company, authenticate and deliver
initially one or more Global Securities that (i) shall be registered in the name
of Cede & Co. or other nominee of such Depositary and (ii) shall be delivered by
the Trustee to such Depositary or pursuant to such Depositary's instructions or
held by the Trustee as custodian for the Depositary pursuant to a FAST Balance
Certificate Agreement between the Depositary and the Trustee.
Members of, or participants in, the Depositary ("Agent Members") shall have
no rights under this Indenture with respect to any Global Security held on their
behalf by the Depositary or by the Trustee as the custodian of the Depositary or
under such Global Security, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices of such
Depositary governing the exercise of the rights of a holder of a beneficial
interest in any Global Security.
The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations and Instructions to Participants" of Cedel Bank shall be applicable
to interests in any Global Securities that are held by participants through
Euroclear or
12
<PAGE>
Cedel Bank. The Trustee shall have no obligation to notify holders of any such
procedures or to monitor or enforce compliance with the same.
(c) Definitive Securities. Except as provided in Section 2.06 and 2.10, owners
of beneficial interests in Global Securities will not be entitled to
receive physical delivery of certificated Securities in definitive form.
Purchasers of Securities who are not QIBs and did not purchase Securities
sold in reliance on Regulation S under the Securities Act (referred to
herein as the "Non-Global Purchasers") will receive certificated Securities
in definitive form bearing the Restricted Definitive Securities Legend set
forth in Exhibit A hereto ("Definitive Securities"). Definitive Securities
will bear the Restricted Definitive Securities Legend set forth on Exhibit
A unless removed in accordance with Section 2.06(b).
Section 2.02 Execution, Authentication and Delivery. Two Officers shall sign the
Securities for the Company by manual or facsimile signature. The Company's seal
or a facsimile thereof shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be entitled to any benefits under this Indenture or
the Registration Agreement or otherwise be valid until authenticated by the
manual signature of an authorized signatory of the Trustee. The signature shall
be conclusive evidence that the Security has been authenticated under this
Indenture.
Upon a written order of the Company signed by two Officers, the Trustee
shall authenticate the Securities for original issue up to an aggregate
principal amount of $250,000,000 (plus up to an additional $37,500,000 aggregate
principal amount which may be issued from time to time upon exercise by the
Initial Purchasers of the over-allotment option set forth in the Purchase
Agreement) and deliver such authenticated Securities as directed in such order.
The aggregate principal amount of Securities outstanding at any time shall not
exceed such amount except as provided in Section 2.07.
The Trustee may appoint one or more authenticating agents acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
13
<PAGE>
Section 2.03 Registrar, Paying Agent and Conversion Agent. The Company shall
maintain in the Borough of Manhattan, The City of New York, State of New York
(i) an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar"), (ii) an office or agency where
Securities may be presented for payment (the "Paying Agent"), (iii) an office or
agency where Securities may be presented for conversion (the "Conversion Agent")
and (iv) an office or agency where notices to or demands upon the Company in
respect of the Securities and this Indenture may be sent. The Registrar shall
keep a register of the Securities and of their transfer and exchange. The
Company has initially appointed the Trustee (at 101 Barclay Street, Floor 21
West, New York, New York 10286) as its Registrar, Paying Agent and Conversion
Agent in New York. The Company may appoint one or more co-registrars, one or
more additional paying agents and one or more additional conversion agents in
such other locations as it shall determine. The term "Registrar" includes any
co-registrar, the term "Paying Agent" includes any additional paying agent and
the term "Conversion Agent" includes any additional conversion agent. The
Company may change any Paying Agent, Registrar or Conversion Agent, provided
that it will give notice to the Noteholders in accordance with Section 12.02
hereof. The Company shall notify the Trustee of the name and address of any
newly-appointed Agent not a party to this Indenture. If the Company fails to
appoint or maintain another entity as Registrar, Paying Agent or Conversion
Agent, the Trustee shall act as such.
Section 2.04 Paying Agent to Hold Money in Trust. The Company shall require each
Paying Agent other than the Trustee to agree in writing that the Paying Agent
will hold in trust for the benefit of Noteholders or the Trustee all money held
by the Paying Agent for the payment of principal of, premium, if any, on,
interest and Additional Amounts, if any, on, the Securities, and will notify the
Trustee of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and to account for any money disbursed by
it. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or an Affiliate of the Company) shall have no further liability for the
money. If the Company or an Affiliate of the Company acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the
Noteholders all money held by it as Paying Agent.
14
<PAGE>
Section 2.05 Noteholder Lists. The Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available to it of the names
and addresses of Noteholders and shall otherwise comply with TIA ss.312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Noteholders, and the Company shall otherwise comply with TIA ss.312(a).
Section 2.06 Transfer and Exchange. Where Securities are presented to the
Registrar with a request to register a transfer or to exchange them for an equal
principal amount of Securities of other denominations, such Registrar shall
register the transfer or make the exchange if the requirements set forth in this
Indenture and as otherwise may be reasonably required by the Registrar with
respect to such transactions are met. To permit registrations of transfers and
exchanges, the Company shall issue and the Trustee shall authenticate Securities
at the Registrar's request. No service charge shall be made for any registration
of transfer or exchange (except as otherwise expressly permitted herein), but
the Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.10, 3.06, 3.08, 5.02 or 11.05 hereof not involving any transfer of
the Securities).
The Company shall not be required (i) to issue, register the transfer of,
or exchange Securities during a period beginning at the opening of business 15
days before the day of mailing of notice of redemption of Securities under
Section 3.03 hereof and ending at the close of business on the day of such
mailing, or (ii) to exchange or register the transfer of any Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part.
(a) Notwithstanding any provision to the contrary herein, so long as a Global
Security remains outstanding and is held by or on behalf of the Depositary,
transfers of a Global Security, in whole or in part, or of any beneficial
interest therein, shall only be made in accordance with Sections 2.01(b)
and 2.10 and this Section 2.06(a); provided, however, that beneficial
interests in a Global Security may be transferred to persons who take
delivery thereof in the form of a beneficial interest in the Global
Security in accordance with the transfer restrictions set forth under the
heading "Notice to Investors" in the Offering Memorandum and, if
applicable, in the Restricted Global Securities Legend.
15
<PAGE>
(i) Except for transfers or exchanges made in accordance with any of clauses
(ii) through (v) of this Section 2.06(a) and Section 2.10, transfers of a
Global Security shall be limited to transfers of such Global Security in
whole, but not in part, to nominees of the Depositary or to a successor of
the Depositary or such successor's nominee.
(ii) Global Security to Definitive Security. If an owner of a beneficial
interest in a Global Security deposited with the Depositary or with the
Trustee as custodian for the Depositary wishes at any time to transfer its
interest in such Global Security to a Person who is required to take
delivery thereof in the form of a Definitive Security, such owner may,
subject to the rules and procedures of Euroclear or Cedel Bank, if
applicable, and the Depositary, cause the exchange of such interest for one
or more Definitive Securities of any authorized denomination or
denominations and of the same aggregate principal amount. Upon receipt by
the Registrar of (1) instructions from Euroclear or Cedel Bank, if
applicable, and the Depositary directing the Trustee to authenticate and
deliver one or more Definitive Securities of the same aggregate principal
amount as the beneficial interest in the Global Security to be exchanged,
such instructions to contain the name or names of the designated transferee
or transferees, the authorized denomination or denominations of the
Definitive Securities to be so issued and appropriate delivery
instructions, (2) a certificate substantially in the form of Exhibit B
attached hereto given by the owner of such beneficial interest, (3) a
certificate substantially in the form of Exhibit C attached hereto given by
the person acquiring the Definitive Securities for which such interest is
being exchanged, to the effect set forth therein, and (4) such other
certifications or other information and, in the case of transfers pursuant
to Rule 144 under the Securities Act, legal opinions as the Company may
reasonably require to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, then Euroclear or Cedel Bank, if
applicable, or the Registrar, as the case may be, will instruct the
Depositary to reduce or cause to be reduced such Global Security by the
aggregate principal amount of the beneficial interest therein to be
exchanged and to debit or cause to be debited from the account of the
Person making such transfer the beneficial interest in the Global Security
that is being transferred, and concurrently with such reduction and debit
the Company shall execute, and the Trustee shall authenticate and deliver,
one or more Definitive Securities of the same aggregate principal amount in
accordance with the instructions referred to above.
16
<PAGE>
(iii)Definitive Security to Definitive Security. If a holder of a Definitive
Security wishes at any time to transfer such Definitive Security (or
portion thereof) to a Person who is required to take delivery thereof in
the form of a Definitive Security, such holder may, subject to the
restrictions on transfer set forth herein and in such Definitive Security,
cause the transfer of such Definitive Security (or any portion thereof in a
principal amount equal to an authorized denomination) to such transferee.
Upon receipt by the Registrar of (1) such Definitive Security, duly
endorsed as provided herein, (2) instructions from such holder directing
the Trustee to authenticate and deliver one or more Definitive Securities
of the same aggregate principal amount as the Definitive Security (or
portion thereof) to be transferred, such instructions to contain the name
or names of the designated transferee or transferees, the authorized
denomination or denominations of the Definitive Securities to be so issued
and appropriate delivery instructions, (3) a certificate from the holder of
the Definitive Security to be transferred in substantially the form of
Exhibit B attached hereto, (4) a certificate substantially in the form of
Exhibit C attached hereto given by the person acquiring the Definitive
Securities (or portion thereof), to the effect set forth therein, and (5)
such other certifications or other information and, in the case of
transfers pursuant to Rule 144 under the Securities Act, legal opinions as
the Company may reasonably require to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then the Registrar, shall
cancel or cause to be canceled such Definitive Security and concurrently
therewith, the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Definitive Securities in the appropriate aggregate
principal amount, in accordance with the instructions referred to above
and, if only a portion of a Definitive Security is transferred as
aforesaid, concurrently therewith Company shall execute and the Trustee
shall execute and deliver to the transferor a Definitive Security in a
principal amount equal to the principal amount which has not been
transferred. A holder of a Definitive Security may at any time exchange
such Definitive Security for one or more Definitive Securities of other
authorized denominations and in the same aggregate principal amount and
registered in the same name by delivering such Definitive Security, duly
endorsed as provided herein, to the Registrar together with instructions
directing the Trustee to authenticate and deliver one or more Definitive
Securities in the same aggregate principal amount and registered in the
same name as the Definitive Security to be exchanged, and the Registrar
thereupon shall cancel or caused to be cancelled such Definitive Security
and concurrently therewith
17
<PAGE>
the Company shall execute and Trustee shall authenticate and deliver, one
or more Definitive Securities in the same aggregate principal amount and
registered in the same name as the Definitive Security being exchanged.
(iv) Definitive Security to Global Security. If a holder of a Definitive
Security wishes at any time to transfer such Definitive Security (or
portion thereof) to a Person who is not required to take delivery thereof
in the form of a Definitive Security, such holder shall, subject to the
restrictions on transfer set forth herein and in such Definitive Security
and the rules of the Depositary and Euroclear and Cedel Bank, as
applicable, cause the exchange of such Definitive Security for a beneficial
interest in the Global Security. Upon receipt by the Registrar of (1) such
Definitive Security, duly endorsed as provided herein, (2) instructions
from such holder directing the Trustee to increase the aggregate principal
amount of the Global Security deposited with the Depository or with the
Trustee as custodian for the Depository by the same aggregate principal
amount at maturity as the Definitive Security to be exchanged, such
instructions to contain the name or names of a member of, or participant
in, the Depository that is designated as the transferee, the account of
such member or participant and other appropriate delivery instructions, (3)
the assignment form on the back of the Definitive Security completed in
full (certifying in effect that such transfer complies with Rule 144A or
Regulation S under the Securities Act or is otherwise being made to a
Person who is not required to take delivery of such Security in the form of
a Definitive Security) and (4) such other certifications or other
information and, in the case of transfers pursuant to Rule 144 under the
Securities Act, legal opinions as the Company may reasonably require to
confirm that such transfer is being made pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the
Securities Act, then the Registrar, shall cancel or cause to be canceled
such Definitive Security and concurrently therewith shall increase the
aggregate principal amount of the Global Security by the same aggregate
principal amount as the Definitive Security canceled.
(v) Other Exchanges. In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.10, prior to
the effectiveness of a Shelf Registration Statement with respect to such
Securities, such Securities may be exchanged only in accordance with such
procedures as are substantially consistent with the provisions of clauses
(ii) and (iii) above (including the certification requirements intended to
ensure that such transfers comply with Rule 144A or Regulation S under the
Securities Act, as the case
18
<PAGE>
may be) and such other procedures as may from time to time be adopted by
the Company.
(b) Except in connection with a Shelf Registration Statement contemplated by
and in accordance with the terms of the Registration Agreement, if
Securities are issued upon the registration of transfer, exchange or
replacement of Securities bearing a Restricted Securities Legend, or if a
request is made to remove such a Definitive Securities Legend on
Securities, the Securities so issued shall bear the Restricted Securities
Legend, or a Restricted Securities Legend shall not be removed, as the case
may be, unless there is delivered to the Company such satisfactory
evidence, which, in the case of a transfer made pursuant to Rule 144 under
the Securities Act, may include an opinion of counsel licensed to practice
law in the State of New York, as may be reasonably required by the Company,
that neither the legend nor the restrictions on transfer set forth therein
are required to ensure that transfers thereof comply with the provisions of
Rule 144A, Rule 144 or Regulation S under the Securities Act or that such
Securities are not "restricted" within the meaning of Rule 144 under the
Securities Act. Upon provision to the Company of such satisfactory
evidence, the Trustee, at the written direction of the Company, shall
authenticate and deliver Securities that do not bear the legend. The
Company shall not otherwise be entitled to require the delivery of a legal
opinion in connection with any transfer or exchange of Securities.
(c) Neither the Trustee nor any Agent shall have any responsibility for any
actions taken or not taken by the Depositary.
(d) The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under
this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among
Depositary's participants or beneficial owners of interests in any Global
Security) other than to require delivery of such certificates and other
documentation as is expressly required by, and to do so if and when
expressly required by, the terms of this Indenture and to examine the same
to determine substantial compliance as to form with the express
requirements hereof.
Section 2.07 Replacement Securities. If the holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken or if such Security is
mutilated and is surrendered to the Registrar, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's and the
19
<PAGE>
Company's requirements (as shall have been previously communicated to the
Trustee in a written letter of standing instruction) are met. An indemnity bond
must be sufficient in the judgment of the Trustee, the Registrar and the Company
to protect the Company, the Trustee, any Agent or any authenticating agent from
any loss which any of them may suffer if a Security is replaced. The Company may
charge for its expenses in replacing a Security.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, or is about to be redeemed or purchased
by the Company pursuant to Article III hereof or converted into shares of Common
Stock pursuant to Article V hereof, the Company in its discretion may, instead
of issuing a new Security, pay, redeem or convert such Security, as the case may
be.
Every replacement Security is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder. The provisions
of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all
other rights and remedies with respect to the replacement of mutilated,
destroyed, lost or stolen Securities.
Section 2.08 Outstanding Securities. The Securities outstanding at any time are
all the Securities authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation, those paid pursuant to Section 2.07 and
those described in this Section as not outstanding.
If a Security is replaced, paid, redeemed or converted, it ceases to be
outstanding unless, in the case of a replaced Security, the Trustee receives
proof satisfactory to it that the replaced Security is held by a bona fide
purchaser.
If Securities are considered paid under Section 4.01 hereof, they cease to
be outstanding and interest (and Additional Amounts, if any) on them ceases to
accrue.
Except as set forth in Section 2.09 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
Section 2.09 Treasury Securities. In determining whether the Noteholders of the
required principal amount of Securities have concurred in any direction, waiver
or consent, Securities owned by the Company or an Affiliate of the Company shall
be considered as though they are not outstanding, except that for the purposes
of determining whether the Trustee shall be protected in relying on
20
<PAGE>
any such direction, waiver or consent, only Securities which a Trust Officer
actually knows are so owned shall be so disregarded.
Section 2.10 Temporary Securities; Exchange of Global Security for Definitive
Securities.
(a) Until definitive Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but
may have variations that the Company considers appropriate for temporary
Securities and shall be reasonably acceptable to the Trustee. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
(b) Except for transfers made in accordance with Section 2.06 (a), a Global
Security deposited with the Depositary or with the Trustee as custodian for
the Depositary pursuant to Section 2.01 shall be transferred to the
beneficial owners thereof in the form of certificated Securities in
definitive form only if such transfer complies with Section 2.06 and (i)
the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such Global Security or if at any time such
Depositary ceases to be a "clearing agency" registered under the Exchange
Act and a successor Depositary is not appointed by the Company within 90
days of such notice, or (ii) an Event of Default has occurred and is
continuing.
(c) Any Global Security or interest thereon that is transferable to the
beneficial owners thereof in the form of certificated Securities in
definitive form shall, if held by the Depository, be surrendered by the
Depositary to the Trustee, without charge, and the Trustee shall
authenticate and deliver, upon such transfer of each portion of such Global
Security, an equal aggregate principal amount of Securities of authorized
denominations in the form of certificated Securities in definitive form.
Any portion of a Global Security transferred pursuant to this Section shall
be executed, authenticated and delivered only in denominations of $1,000
and any integral multiple thereof and registered in such names as the
Depositary shall direct. Any Securities in the form of certificated
Securities in definitive form delivered in exchange for an interest in the
Global Security shall, except as otherwise provided by Section 2.06(b),
bear the Restricted Definitive Securities Legend set forth in Exhibit A
hereto.
21
<PAGE>
(d) Prior to any transfer pursuant to Section 2.10(b), the registered holder of
a Global Security may grant proxies and otherwise authorize any Person,
including Agent Members and Persons that may hold interests through Agent
Members, to take any action which a holder is entitled to take under this
Indenture or the Securities.
(e) The Company will make available to the Trustee a reasonable supply of
certificated Securities in definitive form without interest coupons.
Section 2.11 Cancellation. The Company at any time may deliver Securities to the
Registrar for cancellation. The Registrar, Paying Agent and Conversion Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, redemption, conversion, exchange or payment. The Trustee shall
promptly cancel all Securities surrendered for registration of transfer,
redemption, conversion, exchange, payment, replacement or cancellation and shall
dispose of all such canceled Securities in accordance with its customary
procedures. The Company may not issue new Securities to replace Securities that
it has paid or that have been delivered to the Registrar for cancellation or
that any holder has converted.
All Securities which are redeemed, purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates prior to the final maturity
date of the Securities shall be delivered to the Trustee for cancellation and
the Company may not hold or resell any such Securities or issue any new
Securities to replace any such Securities or any Securities that any holder has
converted pursuant to this Indenture.
Section 2.12 Payment of Interest: Interest Rights. Interest (including
Additional Amounts, if any) on any Security which is payable, and is punctually
paid or duly provided for on any January 15 or July 15 shall be paid to the
Person in whose name such Security (or one or more predecessor Securities) is
registered at the close of business on the record date for such interest
payment, which shall be the January 1 or July 1 (whether or not a Business Day)
immediately preceding such interest payment date.
Any interest and Additional Amounts, if any, on any Security which is
payable, but is not punctually paid or duly provided for, on any interest
payment date (herein collectively called "Defaulted Interest") shall forthwith
cease to be payable to the registered holder on the relevant record date, and,
except as hereinafter provided, such Defaulted Interest and any interest payable
on such Defaulted Interest may be paid by the Company, at its election, as
provided in subsection (a) or (b) below:
22
<PAGE>
(a) The Company may elect to make payment of any Defaulted Interest, and any
interest payable on such Defaulted Interest, to the Persons in whose names
the Securities are registered at the close of business on a special record
date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on the Securities and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest (including
Additional Amounts, if any) or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as provided in this subsection (a).
Thereupon, the Trustee shall fix a special record date for the payment of
such Defaulted Interest which shall be not more than 15 calendar days and
not less than 10 calendar days prior to the date of the proposed payment
and not less than 10 calendar days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such special record date and, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be sent, first class mail,
postage prepaid, to each holder at such holder's address as it appears in
the register for the Securities, not less than 10 calendar days prior to
such special record date. Notice of the proposed payment of such Defaulted
Interest and the special record date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names the Securities are registered at the close of business on such
special record date and shall no longer be payable pursuant to the
following subsection (b).
(b) The Company may make payment of any Defaulted Interest and any interest
payable on such Defaulted Interest, on the Securities in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause, such manner of payment shall
be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.12, each Security
delivered under this Indenture upon registration of transfer of, or in exchange
for, or in lieu of, or in substitution for, any other Security, shall carry the
rights to interest
23
<PAGE>
(and Additional Amounts, if any) accrued and unpaid, and to accrue, which were
carried by such other Security.
Section 2.13 Computation of Interest. Interest on the Securities shall be
computed on the basis of a 360day year consisting of twelve 30-day months. In
the event that any principal of or premium, if any, or interest or Additional
Amounts, if any, on the Securities is not paid when due, then except to the
extent permitted by law, such overdue principal, premium, if any, interest and
Additional Amounts, if any, shall bear interest until paid at the Default Rate,
compounded semi-annually. As used herein, the term "Default Rate" means, as of
any date and whether or not any Securities are outstanding on such date, a rate
per annum equal to (i) 3% per annum plus (ii) if a Registration Default (as
defined in the Registration Agreement) has occurred and is continuing on such
date, the per annum rate of interest at which Additional Amounts on the
Securities are being computed on such date or, if no Securities are outstanding
on such date, the per annum rate of interest at which Additional Amounts on the
Securities would have been computed on such date if the Securities were
outstanding.
Section 2.14 CUSIP Number. The Company in issuing the Securities may use a
"CUSIP" number in notices of redemption or exchange as a convenience to holders;
provided that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Securities and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company shall promptly notify the Trustee
of any change in the CUSIP number.
Section 2.15 Regulation S. The Company agrees that it will refuse to register
any transfer of Securities or any shares of Common Stock issued upon conversion
of Securities that is not made in accordance with the provisions of Regulation S
under the Securities Act, pursuant to a registration statement which has been
declared effective under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities Act; provided
that the provisions of this paragraph shall not be applicable to any Securities
which do not bear a Restricted Securities Legend or to any shares of Common
Stock evidenced by certificates which do not bear a Restricted Common Stock
Legend.
Section 2.16 Persons Deemed Owners. Prior to due presentment of a Security for
registration of transfer, the Company, the Trustee and any Agent of the Company
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of
24
<PAGE>
and premium, if any, and (subject to Sections 2.06 and 2.13 above) interest and
Additional Amounts, if any, on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any Agent shall be affected by notice to the contrary.
ARTICLE III
REDEMPTION
Section 3.01 Notices to Trustee. If the Company elects to redeem Securities
pursuant to Section 3.07 hereof, it shall notify the Trustee in writing of the
redemption date and the principal amount of Securities to be redeemed. The
Company shall give each notice provided for in this Section 3.01 at least 45
days before the redemption date (unless a shorter notice period shall be
satisfactory to the Trustee).
Section 3.02 Selection of Securities to be. If less than all the Securities are
to be redeemed, the Trustee shall select the Securities to be redeemed by a
method that complies with the requirements of the principal national securities
exchange, if any, on which the Securities are listed, or, if the Securities are
not so listed, on a pro rata basis, by lot or by such other method as the
Trustee considers fair and appropriate. The Trustee shall make the selection not
more than 60 days and not less than 30 days before the redemption date from
Securities outstanding not previously called for redemption. The Trustee may
select for redemption portions of the principal of Securities that have
denominations larger than $1,000. Securities and portions of them it selects
shall be in principal amounts of $1,000 or integral multiples of $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall notify
the Company promptly of the Securities or portions of Securities to be called
for redemption.
If any Security selected for partial redemption is converted in part after
such selection, the converted portion of such Security shall be deemed (so far
as may be) to be the portion to be selected for redemption. The Securities (or
portions thereof) so selected shall be deemed duly selected for redemption for
all purposes hereof, notwithstanding that any such Security is converted in
whole or in part before the mailing of the notice of redemption. Upon any
redemption of less than all the Securities, the Company and the Trustee may
treat as outstanding any Securities surrendered for conversion during the period
15 days next preceding the mailing of a notice of redemption and need not treat
as outstanding any Security authenticated and
25
<PAGE>
delivered during such period in exchange for the unconverted portion of any
Security converted in part during such period.
Section 3.03 Notice of Redemption. At least 30 days but not more than 60 days
before a redemption date, the Company shall mail a notice of redemption to each
holder whose Securities are to be redeemed at such holder's registered address.
The notice shall identify the Securities to be redeemed (including the
CUSIP number) and shall state:
(a) the redemption date;
(b) the redemption price and the amount accrued and unpaid interest and
Additional Amounts, if any, to be paid;
(c) if any Security is being redeemed in part, the portion of the principal
amount of such Security to be redeemed and that, after the redemption date,
upon cancellation of such Security, a new Security or Securities in
principal amount equal to the unredeemed portion will be issued in the name
of the holder thereof;
(d) the name and address of the Paying Agent;
(e) that Securities called for redemption must be surrendered to the Paying
Agent to collect the redemption price plus accrued interest and Additional
Amounts, if any;
(f) that, unless the Company defaults in making such redemption payment or the
Paying Agent is prohibited from making such payment pursuant to the terms
of this Indenture, by law or otherwise, interest and Additional Amounts, if
applicable, on Securities called for redemption cease to accrue on and
after the redemption date;
(g) the paragraph of the Securities pursuant to which the Securities called for
redemption are being redeemed; and
(h) any other information necessary to enable holders to comply with the notice
of redemption.
26
<PAGE>
Such notice shall also state the current Conversion Price and the date on
which the right to convert such Securities or portions thereof into Common Stock
of the Company will expire.
At the Company's request, the Trustee shall give notice of redemption in
the Company's name and at the Company's expense. In such event, the Company
shall provide the Trustee with the information required by this Section 3.03 in
a timely manner; provided that the Company shall give the Trustee not less than
60 days' written notice unless the Trustee consents to a shorter period.
Section 3.04 Effect of Notice of Redemption. Once notice of redemption is
mailed, Securities called for redemption become due and payable on the
redemption date at the price set forth in the Security plus interest and
Additional Amounts, if any, accrued and unpaid to the redemption date; provided
that accrued interest and Additional Amounts which are due and payable on any
interest payment date which is on or prior to the redemption date shall be
payable to the holders of such Securities, or one or more predecessor
Securities, registered as such at the close of business on the relevant record
date; and provided, further, that if a redemption date is not a Business Day,
payment shall be made on that next succeeding Business Day and no interest shall
accrue for the period from such redemption date to such succeeding Business Day
unless the Company shall default in the payment due on such Business Day. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in such notice. Failure to give notice or any defect in the notice
to any holder shall not affect the validity of the notice to any other holder.
The notice if mailed in the manner herein provided shall be conclusively
presumed to have been given. In any case, failure to give such notice to any
holder or any defect in the notice to any holder of any Security designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Securities.
Section 3.05 Deposit of Redemption Price. Prior to 10:00 a.m. (New York City
time) on the redemption date, the Company shall deposit with the Trustee or the
Paying Agent in immediately available funds, money sufficient to pay the
redemption price of and accrued and unpaid interest and Additional Amounts, if
applicable, to but not including the redemption date on all Securities to be
redeemed on that date (subject to the right of holders of record on the relevant
record date to receive interest (and Additional Amounts, if applicable) due on
an interest payment date) unless theretofore converted into Common Stock
pursuant
27
<PAGE>
to the provisions hereof. The Trustee or such Paying Agent shall return to the
Company any money not required for that purpose.
So long as the Company complies with the preceding paragraph and the other
provisions of this Article III and unless the Paying Agent is prohibited from
making such payment pursuant to the terms of this Indenture, by law or
otherwise, interest (and Additional Amounts, if any) on the Securities to be
redeemed on the applicable redemption date shall cease to accrue from and after
such redemption date and such Securities or portions thereof shall be deemed not
to be entitled to any benefit under this Indenture except to receive payment on
the redemption date of the redemption price plus interest and Additional
Amounts, if any, accrued and unpaid to the redemption date. If any Security
called for redemption shall not be so paid upon surrender for redemption, then,
from the redemption date until such redemption price (including, without
limitation, accrued interest and Additional Amounts, if any) is paid in full,
the Company shall pay interest, to the extent permitted by law, on the unpaid
principal of and premium, if any, interest and Additional Amounts, if any, on
such Security at the Default Rate, compounded semiannually.
Section 3.06 Securities Redeemed in Part. Upon surrender of a Security that is
redeemed in part, the Company shall issue and the Trustee shall authenticate for
the holder at the expense of the Company a new Security equal in principal
amount to the unredeemed portion of the Security surrendered.
Section 3.07 Optional Redemption. The Company may redeem all or any portion of
the Securities, upon the terms and at he redemption prices set forth in each of
the Securities. Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08 Designated Event Offer.
(a) In the event that, pursuant to Section 4.07 hereof, the Company shall
commence a Designated Event Offer, the Company shall follow the procedures
in this Section 3.08.
(b) The Designated Event Offer shall remain open for a period specified by the
Company which shall be no less than 30 days and no more than 60 days from
and including the date of the mailing of notice in accordance with Section
3.08(d) hereof (the "Commencement Date"), except to the extent that a
longer period is required by applicable law (the "Tender Period"). On the
day (the "Designated Event Payment Date") immediately following the last
day of the
28
<PAGE>
Tender Period, the Company shall purchase the principal amount of
Securities duly surrendered for repurchase and not withdrawn.
(c) If a Designated Event Payment Date is after a record date and before the
related interest payment date, accrued interest and Additional Amounts, if
any, to the related interest payment date will be paid to the persons in
whose names the Securities (or one or more predecessor Securities) are
registered at the close of business on such record date, notwithstanding
the repurchase of any such Securities on such Designated Event Payment
Date, and no additional interest or Additional Amounts, if any, will be
payable to Noteholders who tender Securities for purchase on such
Designated Event Payment Date.
(d) The Company shall provide the Trustee with written notice of the Designated
Event Offer at least 10 Business Days before the Commencement Date.
(e) Within 30 days following any Designated Event, unless the Company is
entitled to and has previously elected to redeem all of the outstanding
Securities at its option and has previously given holders notice of its
intention to redeem all of the outstanding Securities in accordance with
Article III of this Indenture, the Company or the Trustee (at the request
and expense of the Company) shall send, by first class mail, a notice to
each of the Noteholders, which shall govern the terms of the Designated
Event Offer and shall state:
(i) that the Designated Event Offer is being made pursuant to this Section
3.08 and Section 4.07 hereof and that all Securities validly tendered
will be accepted for payment;
(ii) the purchase price (as determined in accordance with Section 4.07
hereof, subject to Section 3.08(c) hereof), the length of time the
Designated Event Offer will remain open and the Designated Event
Payment Date;
(iii)that any Security or portion thereof not validly tendered or accepted
for payment will continue to accrue interest and Additional Amounts,
if applicable, and will continue to have conversion rights;
(iv) that, unless the Company defaults in the payment of the Designated
Event Payment, any Security or portion thereof accepted for payment
pursuant to the Designated Event Offer shall cease to accrue interest
and Additional Amounts, if applicable, from and after the Designated
Event Payment Date
29
<PAGE>
and will cease to have conversion rights after the Designated Event
Payment Date;
(v) that Noteholders electing to have a Security or portion thereof
purchased pursuant to any Designated Event Offer will be required to
surrender the Security, with the form entitled "Option of Noteholder
To Elect Purchase", that is set forth in Exhibit A hereto, on the
reverse of the Security completed, to a Paying Agent at the address
specified in the notice (which shall include an address in the Borough
of Manhattan, The City of New York) prior to the close of business on
the third Business Day preceding the Designated Event Payment Date;
(vi) that Noteholders will be entitled to withdraw their election if a
Paying Agent receives, not later than the close of business on the
second Business Day preceding the Designated Event Payment Date, a
letter or facsimile transmission setting forth the name of the
Noteholder, the principal amount of the Securities or portion thereof
delivered for purchase and a statement that such Noteholder is
withdrawing his election to have such Securities or portions thereof
purchased; and
(vii)that Noteholders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral
multiple thereof.
In addition, the notice shall contain all instructions, other information
and materials that the Company shall reasonably deem necessary to enable such
Noteholders to tender Securities pursuant to the Designated Event Offer or to
withdraw tendered Securities. If the Company is not required to mail such notice
because, as provided above, it has previously given notice of its intention to
redeem the Securities in whole but the Company thereafter defaults in the
payment of the redemption price (including accrued interest and Additional
Amounts, if any) on any of the Securities on the relevant redemption date, then
the Company shall be required to give notice pursuant to this Section 3.08(e) no
later than the second Business Day following such redemption date, in which case
the Tender Period shall be 30 days except to the extent that a longer period is
required by applicable law. In the event that the Company is required by
applicable law to extend the Tender Period beyond the Designated Event Payment
Date set forth in such notice, the Company will, as promptly as possible, issue
a press release and send notice to holders announcing such
30
<PAGE>
extension and the new Designated Event Payment Date, which press release and
notice shall state the new deadlines for surrendering and withdrawing
Securities.
(f) Prior to 10:00 A.M. (New York City Time) on the Designated Event Payment
Date, the Company shall irrevocably deposit with the Trustee or the Paying
Agent in immediately available funds an amount equal to the Designated
Event Payment in respect of all Securities or portions thereof validly
tendered and not withdrawn, such funds to be held for payment in accordance
with the terms of this Section 3.08. On the Designated Event Payment Date,
the Company shall, to the extent lawful, (i) accept for payment the
Securities or portions thereof validly tendered pursuant to the Designated
Event Offer, (ii) deliver or cause to be delivered to the Trustee the
Securities so accepted and (iii) deliver to the Trustee an Officers'
Certificate identifying the Securities or portions thereof tendered and not
withdrawn to the Company and stating that such Securities have been
accepted for payment by the Company in accordance with the terms of this
Section 3.08. The Paying Agent shall promptly (but in any case not later
than five calendar days after the Designated Event Payment Date) mail or
deliver to each holder of Notes so accepted for payment an amount equal to
the Designated Event Payment for such Securities, and the Trustee shall
promptly authenticate and mail or otherwise deliver to each such Noteholder
a new Security equal in principal amount to any unpurchased portion of the
Security surrendered; provided that each new Security shall be in a
principal amount of $1,000 or an integral multiple thereof. Any Securities
not so accepted shall be promptly mailed or otherwise delivered by or on
behalf of the Company to the holders thereof. The Company will publicly
announce the results of the Designated Event Offer on, or as soon as
practicable after, the Designated Event Payment Date.
(g) The Designated Event Offer shall be made by the Company in compliance with
all applicable provisions of the Exchange Act and any other securities laws
and regulations (including, without limitation, Rules 13e-4 and 14e-1 under
the Exchange Act) to the extent such laws and regulations are applicable in
connection with the repurchase of the Securities in connection with a
Designated Event.
ARTICLE IV
COVENANTS
Section 4.01 Payment of Securities. The Company shall pay the principal of,
premium, if any, and interest (and Additional Amounts, if applicable) on the
31
<PAGE>
Securities on the dates and in the manner provided in the Securities and this
Indenture. Principal, premium, if any, and interest (and Additional Amounts, if
applicable) shall be considered paid on the date due if the Paying Agent (other
than the Company or an Affiliate of the Company) holds on that date money
designated for and sufficient to pay all principal, premium, if any and interest
(and Additional Amounts, if any) then due and such Paying Agent is not
prohibited from paying such money to the Noteholders on that date pursuant to
the terms of this Indenture. To the extent lawful, the Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest (and on overdue principal,
premium, if any, and Additional Amounts, if applicable (in each case without
regard to any applicable grace period)), at the Default Rate, compounded
semiannually.
Section 4.02 SEC Reports. The Company will comply with the requirements of TIA
Section 314(a). In addition, whether or not required by the rules and
regulations of the SEC, so long as any Securities are outstanding, the Company
will file with the SEC and furnish (without exhibits) to the Trustee and to the
holders of Securities all quarterly and annual financial information required to
be contained in a filing with the SEC on Forms 10-Q and 10-K, including a
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and, with respect to annual consolidated financial statements only,
a report on the annual consolidated financial statements by the Company's
independent accountants. The Company shall not be required to file any report or
other information with the SEC if the SEC does not permit such filing. Delivery
of such reports, information and documents to the Trustee is for informational
purposes only and the Trustee's receipt thereof shall not constitute
constructive notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any of
its covenants hereunder.
In addition, if the Company at any time is not subject to either Section 13
or 15(d) of the Exchange Act, the Company will provide to each holder and
beneficial owner of Securities and shares of Common Stock issued upon conversion
of Securities, and to any prospective purchaser designated by any such holder or
beneficial owner, upon request, the information required pursuant to Rule
144A(d)(4) of the Securities Act.
Section 4.03 Compliance Certificate. The Company shall deliver to the Trustee,
within 120 days after the end of each fiscal year of the Company, an Officers'
Certificate stating that a review of the activities of the Company and its
32
<PAGE>
subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under, and
complied with the covenants and conditions contained in, this Indenture, and
further stating, as to each such Officer signing such certificate, that to the
best of such Officer's knowledge the Company has kept, observed, performed and
fulfilled each and every covenant, and complied with the covenants and
conditions contained in this Indenture and is not in default (without regard to
periods of grace or notice requirements) in the performance or observance of any
of the terms, provisions and conditions hereof (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which such Officer may have knowledge) and that to the best of such Officer's
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of, or premium, if any, interest or
Additional Amounts, if any, on, the Securities are prohibited.
One of the Officers signing such Officers' Certificate shall be either the
Company's principal executive officer, principal financial officer or principal
accounting officer.
The Company will, so long as any of the Securities are outstanding, deliver
to the Trustee, forthwith upon, but in any event within five Business Days
after, becoming aware of:
(a) any Default, Event of Default or default in the performance of any
covenant, agreement or condition contained in this Indenture; or
(b) any default under any other mortgage, indenture or instrument of the nature
described in Section 8.01(e),
an Officers' Certificate specifying such Default, Event of Default or default
and what action the Company is taking or proposing to take with respect thereto.
Immediately upon the occurrence of any event giving rise to an obligation
of the Company to pay Additional Amounts with respect to the Securities in
accordance with paragraph 11 of the form thereof and the Registration Agreement
or the termination of any such obligation, the Company shall give the Trustee
notice of such commencement or termination, of the obligation to pay Additional
Amounts with regard to the Securities and the amount thereof and of the event
giving rise to such commencement or termination (such notice to be contained in
an Officers'
33
<PAGE>
Certificate), and prior to receipt of such Officers' Certificate the Trustee
shall be entitled to assume that no such commencement or termination has
occurred, as the case may be.
Section 4.04 Stay, Extension and Usury Law. The Company covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of this Indenture; and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law has been enacted.
Section 4.05 Corporate Existence. Except as provided in Article VII hereof, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any Subsidiary, if the Board
of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries
taken as a whole and that the loss thereof is not adverse in any material
respect to the Noteholders.
Section 4.06 Taxes. The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all taxes, assessments and
governmental levies, the non-payment of which would have a material adverse
effect on the business, financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole, except such as are contested in
good faith and by appropriate proceedings and for which adequate reserves in
accordance with GAAP or other appropriate provisions have been made.
Section 4.07 Designated Event. Upon the occurrence of a Designated Event, each
holder of Securities shall have the right, in accordance with this Section 4.07
and Section 3.08 hereof, to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such holder's Securities
pursuant to the terms of an offer made as provided in Section 3.08 (the
"Designated Event Offer") at a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest and Additional Amounts, if any,
34
<PAGE>
thereon to the Designated Event Payment Date (the "Designated Event Payment").
ARTICLE V
CONVERSION
Section 5.01 Conversion Privilege. A holder of any Security may convert the
principal amount thereof (or any portion thereof that is an integral multiple of
$1,000) into fully paid and nonassessable shares of Common Stock of the Company
at any time after 90 days following the Issuance Date and prior to the close of
business on the Business Day immediately preceding the final maturity date of
the Security at the Conversion Price then in effect, except that, with respect
to any Security called for redemption, such conversion right shall terminate at
the close of business on the Business Day immediately preceding the redemption
date (unless the Company shall default in making the redemption payment when it
becomes due, in which case the conversion right shall terminate at the close of
business on the date on which such default is cured). The number of shares of
Common Stock issuable upon conversion of a Security is determined by dividing
the principal amount of the Security converted by the Conversion Price in effect
on the Conversion Date.
"Conversion Price" means $73.36, as the same may be adjusted from time to
time as provided in this Article V.
Provisions of this Indenture that apply to conversion of all of a Security
also apply to conversion of a portion of it. A holder of Securities is not
entitled to any rights of a holder of Common Stock until such holder of
Securities has converted such Securities into Common Stock, and only to the
extent that such Securities are deemed to have been converted into Common Stock
under this Article V.
Section 5.02 Conversion Procedure. To convert a Security, a holder must satisfy
the requirements in paragraph 10 of the Securities. The date on which the holder
satisfies all of those requirements is the conversion date (the "Conversion
Date"). As promptly as practicable on or after the Conversion Date, the Company
shall issue and deliver to the Trustee a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion and a check
or other payment for any fractional share in an amount determined pursuant to
Section 5.03. Such certificate or certificates will be sent by the Trustee to
the Conversion Agent for delivery to the holder. The Person in whose name the
certificate is
35
<PAGE>
registered shall become the stockholder of record on the Conversion Date and, as
of such date, such Person's rights as a Noteholder with respect to the converted
Security shall cease; provided, however, that, except as otherwise provided in
this Section 5.02, no surrender of a Security on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the Person entitled to receive the shares of Common Stock upon such conversion
as the stockholder of record of such shares of Common Stock on such date, but
such surrender shall be effective to constitute the Person entitled to receive
such shares of Common Stock as the stockholder of record thereof for all
purposes at the close of business on the next succeeding day on which such stock
transfer books are open; provided, further, however, that such conversion shall
be at the Conversion Price in effect on the date that such Security shall have
been surrendered for conversion, as if the stock transfer books of the Company
had not been closed.
No payment or adjustment will be made for accrued and unpaid interest or
Additional Amounts on a converted Security or for dividends or distributions on,
or Additional Amounts, if any, attributable to, shares of Common Stock issued
upon conversion of a Security, except that, if any holder surrenders a Security
for conversion after the close of business on any record date for the payment of
an installment of interest and prior to the opening of business on the next
succeeding interest payment date, then, notwithstanding such conversion, accrued
and unpaid interest and Additional Amounts, if applicable, payable on such
Security on such interest payment date shall be paid on such interest payment
date to the person who was the holder of such Security (or one or more
predecessor Securities) at the close of business on such record date. In the
case of any Security surrendered for conversion after the close of business on a
record date for the payment of an installment of interest and prior to the
opening of business on the next succeeding interest payment date, then, unless
such Security has been called for redemption on a redemption date or is to be
repurchased on a Designated Event Payment Date after such record date and prior
to such interest payment date, such Security, when surrendered for conversion,
must be accompanied by payment in an amount equal to the interest and Additional
Amounts, if any, payable on such interest payment date on the principal amount
of such Security so converted. Holders of Common Stock issued upon conversion
will not be entitled to receive any dividends payable to holders of Common Stock
as of any record time before the close of business on the Conversion Date.
36
<PAGE>
If a holder converts more than one Security at the same time, the number of
whole shares of Common Stock issuable upon the conversion shall be based on the
total principal amount of Securities converted.
Upon surrender of a Security that is converted in part, the Trustee shall
authenticate for the holder a new Security equal in principal amount to the
unconverted portion of the Security surrendered.
Section 5.03 Fractional Shares. The Company will not issue fractional shares of
Common Stock upon conversion of a Security. In lieu thereof, the Company will
pay an amount in cash based upon the Daily Market Price of the Common Stock on
the Trading Day prior to the Conversion Date.
Section 5.04 Taxes on Conversion. The issuance of certificates for shares of
Common Stock upon the conversion of any Security shall be made without charge to
the converting Noteholder for such certificates or for any tax in respect of the
issuance of such certificates, and such certificates shall be issued in the
respective names of, or in such names as may be directed by, the holder or
holders of the converted Security; provided, however, that in the event that
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of the Security converted, such Security, when
surrendered for conversion, shall be accompanied by an instrument of assignment
or transfer, in form satisfactory to the Company, duly executed by the
registered holder thereof or his duly authorized attorney; and provided,
further, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the holder of the
converted Security, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid or is
not applicable.
Section 5.05 Company to Provide. The Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, solely for the purpose of issuance upon conversion of Securities
as herein provided, a sufficient number of shares of Common Stock to permit the
conversion of all outstanding Securities for shares of Common Stock.
All shares of Common Stock which may be issued upon conversion of the
Securities shall be duly authorized, validly issued, fully paid and
nonassessable when
37
<PAGE>
so issued. The Company shall take such action from time to time as shall be
necessary so that par value of the Common Stock shall at all times be equal to
or less than the Conversion Price then in effect.
The Company shall from time to time take all action necessary so that the
Common Stock which may be issued upon conversion of Securities, immediately upon
their issuance (or, if such Common Stock is subject to restrictions on transfer
under the Securities Act, upon their resale pursuant to an effective Shelf
Registration Statement or in a transaction pursuant to which the certificate
evidencing such Common Stock shall no longer bear the Restricted Common Stock
Legend), will be listed on the principal securities exchanges, interdealer
quotation systems (including the NNM) and markets, if any, on which other shares
of Common Stock of the Company are then listed or quoted.
Section 5.06 Adjustment of Conversion Price. The Conversion Price shall be
subject to adjustment from time to time as follows:
(a) In case the Company shall (1) pay a dividend in shares of Common Stock to
holders of Common Stock, (2) make a distribution in shares of Common Stock
to holders of Common Stock, (3) subdivide its outstanding shares of Common
Stock into a greater number of shares of Common Stock or (4) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock, the Conversion Price in effect immediately prior to such
action shall be adjusted so that the holder of any Security thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock which he would have owned immediately following such
action had such Securities been converted immediately prior thereto. Any
adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend or distribution
and shall become effective immediately after the effective date in the case
of a subdivision or combination. In the event such dividend or distribution
is not paid or made, or such subdivision or combination is not effected,
the Conversion Price shall be adjusted immediately to be the Conversion
Price which would then be in effect if such dividend, distribution,
subdivision or combination had not occurred.
(b) In case the Company shall issue rights or warrants to all holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock
(or securities convertible into Common Stock) at a price per share (or
having a conversion price per share) less than the Current Market Price per
share (as determined pursuant to subsection (f) below) of the Common Stock
on the
38
<PAGE>
record date for determining the holders of the Common Stock entitled to
receive such rights or warrants, the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to such record date by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding as of the close of business on such record date plus the
number of shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for subscription or
purchase (or the aggregate conversion price of the convertible securities
so offered) would purchase at such Current Market Price, and of which the
denominator shall be the number of shares of Common Stock outstanding on
such record date plus the number of additional shares of Common Stock so
offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustments shall become
effective immediately after such record date. For the purposes of this
subsection (b), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued
in lieu of fractions of shares of such Common Stock. The Company shall not
issue any rights, options or warrants in respect of shares of Common Stock
held in the treasury of the Company.
(c) In case the Company shall distribute to all holders of Common Stock shares
of Capital Stock of the Company (other than Common Stock), evidences of
indebtedness, cash, rights or warrants entitling the holders thereof to
subscribe for or purchase securities (other than rights or warrants
described in subsection (b) above) or other assets (including securities of
Persons other than the Company but excluding (i) dividends or distributions
paid exclusively in cash, (ii) dividends and distributions described in
subsection (b) above and (iii) distributions in connection with the
consolidation, merger or transfer of assets covered by Section 5.13), then
in each such case the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the record date for the determination of the
holders of Common Stock entitled to receive such distribution by a fraction
of which the numerator shall be the Current Market Price (determined as
provided in subsection (f) below) of the Common Stock on the record date
mentioned below less the fair market value on such record date (as
determined by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value and described in a Board
Resolution delivered to the Trustee) of the portion of the evidences of
indebtedness, shares of Capital Stock, cash, rights, warrants or other
assets so distributed applicable to one share of Common Stock (determined
39
<PAGE>
on the basis of the number of shares of the Common Stock outstanding on the
record date), and of which the denominator shall be such Current Market
Price of the Common Stock. Such adjustment shall become effective
immediately after the record date for the determination of the holders of
Common Stock entitled to receive such distribution. In the event such
distribution is not paid or made, the Conversion Price shall be adjusted
immediately to be the Conversion Price which would then be in effect if
such distribution had not occured. Notwithstanding the foregoing, in case
the Company shall distribute rights or warrants to subscribe for additional
shares of the Company's Capital Stock (other than rights or warrants
referred to in subsection (b) above) ("Rights") to all holders of Common
Stock, the Company may, in lieu of making any adjustment pursuant to the
foregoing provisions of this Section 5.06(c), make proper provision so that
each holder of a Security who converts such Security (or any portion
thereof) after the record date for such distribution and prior to the
expiration or redemption of the Rights shall be entitled to receive upon
such conversion, in addition to the shares of Common Stock issuable upon
such conversion (the "Conversion Shares"), a number of Rights to be
determined as follows: (i) if such conversion occurs on or prior to the
date for the distribution to the holders of Rights of separate certificates
evidencing such Rights (the "Distribution Date"), the same number of Rights
to which a holder of a number of shares of Common Stock equal to the number
of Conversion Shares is entitled at the time of such conversion in
accordance with the terms and provisions of the Rights; and (ii) if such
conversion occurs after the Distribution Date, the same number of Rights to
which a holder of the number of shares of Common Stock into which the
principal amount of the Security so converted was convertible immediately
prior to the Distribution Date would have been entitled on the Distribution
Date in accordance with the terms and provisions of the Rights.
(d) In case the Company shall, by dividend or otherwise, at any time make a
distribution to all holders of its Common Stock exclusively in cash
(including any distributions of cash out of current or retained earnings of
the Company but excluding any cash that is distributed as part of a
distribution requiring a Conversion Price adjustment pursuant to paragraph
(c) of this Section) in an aggregate amount that, together with the sum of
(x) the aggregate amount of any other distributions made exclusively in
cash to all holders of Common Stock within the 12 months preceding the date
fixed for determining the stockholders entitled to such distribution (the
"Distribution Record Date") and in respect of which no Conversion Price
adjustment pursuant to paragraph (c) or (e) of this Section or this
paragraph (d) has been made plus (y) the aggregate amount of all
40
<PAGE>
Excess Payments in respect of any tender offers or other negotiated
transactions by the Company or any of its Subsidiaries for Common Stock
concluded within the 12 months preceding the Distribution Record Date and
in respect of which no Conversion Price adjustment pursuant to paragraphs
(c) or (e) of this Section or this paragraph (d) has been made, exceeds 12
1/2% of the product of the Current Market Price per share (determined as
provided in paragraph (f) of this Section) of the Common Stock on the
Distribution Record Date multiplied by the number of shares of Common Stock
outstanding on the Distribution Record Date (excluding shares held in the
treasury of the Company), the Conversion Price shall be reduced so that the
same shall equal the price determined by multiplying such Conversion Price
in effect immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this paragraph (d) by a fraction of which the
numerator shall be the Current Market Price per share (determined as
provided in paragraph (f) of this Section) of the Common Stock on the
Distribution Record Date less the sum of the aggregate amount of cash and
the aggregate Excess Payments so distributed or paid within such 12 month
period (including, without limitation, the distribution in respect of which
such adjustment is being made) applicable to one share of Common Stock
(which shall be determined by dividing the sum of the aggregate amount of
cash and the aggregate Excess Payments so distributed or paid within such
12 months (including, without limitation, the distribution in respect of
which such adjustment is being made) by the number of shares of Common
Stock outstanding on the Distribution Record Date) and the denominator
shall be such Current Market Price per share (determined as provided in
paragraph (f) of this Section) of the Common Stock on the Distribution
Record Date, such reduction to become effective immediately prior to the
opening of business on the day following the Distribution Record Date. In
the event such distribution is not paid or made, the Conversion Price shall
be adjusted immediately to be the Conversion Price which would then be in
effect if such distribution had not occurred.
(e) In case a tender offer or other negotiated transaction made by the Company
or any Subsidiary of the Company for all or any portion of the Common Stock
shall be consummated, if an Excess Payment is made in respect of such
tender offer or other negotiated transaction and the aggregate amount of
such Excess Payment, together with the sum of (x) the aggregate amount of
any distributions, by dividend or otherwise, to all holders of the Common
Stock made in cash (including any distributions of cash out of current or
retained earnings of the Company, but excluding any cash that is
distributed as part of a distribution requiring a Conversion Price
adjustment pursuant to paragraph (c) of this Section)
41
<PAGE>
within the 12 months preceding the date of payment of such current
negotiated transaction consideration or expiration of such current tender
offer, as the case may be (the "Purchase Date"), and as to which no
adjustment in the Conversion Price pursuant to paragraph (c) or paragraph
(d) of this Section or this paragraph (e) has been made plus (y) the
aggregate amount of all Excess Payments in respect of any other tender
offers or other negotiated transactions by the Company or any of its
Subsidiaries for Common Stock concluded within the 12 months preceding the
Purchase Date and in respect of which no adjustment in the Conversion Price
pursuant to paragraph (c) or (d) of this Section or this paragraph (e) has
been made, exceeds 12 1/2% of the product of the Current Market Price per
share (determined as provided in paragraph (f) of this Section) of the
Common Stock on the Purchase Date multiplied by the number of shares of
Common Stock outstanding on the Purchase Date (including any tendered
shares but excluding any shares held in the treasury of the Company), the
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying such Conversion Price in effect immediately prior
to the effectiveness of the Conversion Price reduction contemplated by this
paragraph (e) by a fraction of which the numerator shall be the Current
Market Price per share (determined as provided in paragraph (f) of this
Section) of the Common Stock on the Purchase Date less the sum of the
aggregate amount of cash and the aggregate Excess Payments so distributed
or paid within such 12 month period (including, without limitation, the
Excess Payment in respect of which such adjustment is being made)
applicable to one share of Common Stock (which shall be determined by
dividing the sum of the aggregate amount of cash and the aggregate Excess
Payments so distributed or paid within such 12 months (including, without
limitation, the Excess Payment in respect of which such adjustment is being
made) by the number of shares of Common Stock outstanding on the Purchase
Date and the denominator shall be such Current Market Price per share
(determined as provided in paragraph (f) of this Section) of the Common
Stock on the Purchase Date, such reduction to become effective immediately
prior to the opening of business on the day following the Purchase Date.
(f) The "Current Market Price" per share of Common Stock on any date shall be
deemed to be the average of the Daily Market Prices for the shorter of (i)
30 consecutive Business Days ending on the last full Trading Day on the
exchange or market referred to in determining such Daily Market Prices
prior to the time of determination or (ii) the period commencing on the
date next succeeding the first public announcement of the issuance of such
rights or such warrants or such other distribution or such tender offer or
other negotiated
42
<PAGE>
transaction through such last full Trading Day on the exchange or market
referred to in determining such Daily Market Prices prior to the time of
determination.
(g) "Excess Payment" means the excess of (A) the aggregate of the cash and fair
market value (as determined by the Board of Directors, whose determination
shall be conclusive evidence of such fair market value and described in a
Board Resolution delivered to the Trustee) of other consideration paid by
the Company or any of its Subsidiaries with respect to the shares of Common
Stock acquired in a tender offer or other negotiated transaction over (B)
the Daily Market Price on the Trading Day immediately following the
completion of the tender offer or other negotiated transaction multiplied
by the number of acquired shares of Common Stock.
(h) In any case in which this Section 5.06 shall require that an adjustment be
made immediately following a record date for an event, the Company may
elect to defer, until such event, issuing to the holder of any Security
converted after such record date the shares of Common Stock and other
Capital Stock of the Company issuable upon such conversion over and above
the shares of Common Stock and other Capital Stock of the Company issuable
upon such conversion on the basis of the Conversion Price prior to
adjustment; and, in lieu of the shares the issuance of which is so
deferred, the Company shall issue or cause its transfer agents to issue due
bills or other appropriate evidence of the right to receive such shares.
Section 5.07 No Adjustment. No adjustment in the Conversion Price shall be
required until cumulative adjustments amount to 1% or more of the Conversion
Price as last adjusted; provided, however, that any adjustments which by reason
of this Section 5.07 are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Article V shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. No adjustment need be made for rights to purchase
Common Stock pursuant to a Company plan for reinvestment of dividends or
interest. No adjustment need be made for a change in the par value or no par
value of the Common Stock.
Section 5.08 Other Adjustments.
(a) In the event that, as a result of an adjustment made pursuant to Section
5.06 above, the holder of any Security thereafter surrendered for
conversion shall become entitled to receive any shares of Capital Stock of
the Company other than
43
<PAGE>
shares of its Common Stock, thereafter the Conversion Price of such other
shares so receivable upon conversion of any Securities shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to Common Stock contained in
this Article V.
(b) In the event that any shares of Common Stock (or securities convertible
into Common Stock) issuable upon exercise of any of the rights, options or
warrants referred to in Section 5.06(b) and Section 5.06(c) hereof are not
delivered prior to the expiration of such rights, options, or warrants, the
Conversion Price shall be readjusted to the Conversion Price which would
otherwise have been in effect had the adjustment made upon the issuance of
such rights, options or warrants been made on the basis of delivery of only
the number of such rights, options and warrants which were actually
exercised.
Section 5.09 Adjustments for Tax. The Company may, at its option, make such
reductions in the Conversion Price, in addition to those required by Section
5.06 above, as the Board of Directors deems advisable to avoid or diminish any
income tax to holders of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for federal income tax purposes.
Section 5.10 Adjustments by the Company. The Company from time to time may, to
the extent permitted by law, reduce the Conversion Price by any amount for any
period of at least 20 days, in which case the Company shall give at least 15
days' notice of such reduction in accordance with Section 5.11, if the Board of
Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive.
Section 5.11 Notice of Adjustment. Whenever the Conversion Price is adjusted,
the Company shall promptly mail to Noteholders at the addresses appearing on the
Registrar's books a notice of the adjustment and file with the Trustee an
Officers' Certificate briefly stating the facts requiring the adjustment and the
manner of computing it.
Section 5.12 Notice of Certain Transactions. In the event that:
(a) the Company takes any action which would require an adjustment in the
Conversion Price;
44
<PAGE>
(b) the Company takes any action that would require a supplemental indenture
pursuant to Section 5.13; or
(c) there is a dissolution or liquidation of the Company;
the Company shall mail to Noteholders at the addresses appearing on the
Registrar's books and the Trustee a notice stating the proposed record or
effective date, as the case may be. The Company shall mail the notice at least
15 days before such date; however, failure to mail such notice or any defect
therein shall not affect the validity of any transaction referred to in clause
(a), (b), (c), (d) or (e) of this Section 5.12.
Section 5.13 Effect of Reclassifications, Consolidations, Mergers, Continuances
or Sales on Conversion Privilege. If any of the following shall occur, namely:
(i) any reclassification or change of outstanding shares of Common Stock
issuable upon conversion of Securities (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger to
which the Company is a party other than a merger in which the Company is the
continuing corporation and which does not result in any reclassification of, or
change (other than a change in name, or par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination) in, outstanding shares of Common Stock, (iii) any continuance in a
new jurisdiction which results in a reclassification of, or change (other than a
change in name, or par value, or from par value to no par value, or from no par
value to par value) in, outstanding shares of Common Stock, or (iv) any sale or
conveyance of all or substantially all of the property of the Company
(determined on a consolidated basis), then the Company, or such successor or
purchasing corporation, as the case may be, shall, as a condition precedent to
such reclassification, change, consolidation, merger, continuance, sale or
conveyance, execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee providing that the holder of each
Security then outstanding shall have the right to convert such Security into the
kind and amount of shares of stock and other securities and property (including
cash) receivable upon such reclassification, change, consolidation, merger,
continuance, sale or conveyance by a holder of the number of shares of Common
Stock deliverable upon conversion of such Security immediately prior to such
reclassification, change, consolidation, merger, continuance, sale or
conveyance. Such supplemental indenture shall provide for adjustments of the
Conversion Price which shall be as nearly equivalent as may be practicable to
the adjustments of the Conversion Price provided for in this Article V. The
foregoing, however, shall
45
<PAGE>
not in any way affect the right a holder of a Security may otherwise have,
pursuant to clause (ii) of the last sentence of subsection (c) of Section 5.06,
to receive Rights upon conversion of a Security. If, in the case of any such
consolidation, merger, continuance, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a holder of
Common Stock includes shares of stock or other securities and property of a
corporation or other business entity other than the successor or purchasing
corporation, as the case may be, in such consolidation, merger, continuance,
sale or conveyance, then such supplemental indenture shall also be executed by
such other corporation or other business entity and shall contain such
additional provisions to protect the interests of the holders of the Securities
as the Board of Directors of the Company shall reasonably consider necessary by
reason of the foregoing. The provision of this Section 5.13 shall similarly
apply to successive consolidations, mergers, continuances, sales or conveyances.
In the event the Company shall execute a supplemental indenture pursuant to this
Section 5.13, the Company shall promptly file with the Trustee (x) an Officers'
Certificate briefly stating the reasons therefor, the kind or amount of shares
of stock or securities or property (including cash) receivable by holders of the
Securities upon the conversion of their Securities after any such
reclassification, change, consolidation, merger, continuance, sale or conveyance
and any adjustment to be made with respect thereto and (y) an Opinion of Counsel
stating that all conditions precedent relating to such transaction have been
complied with, and shall promptly mail notice thereof to all holders.
Section 5.14 Trustee's Disclaimer. The Trustee has no duty to determine when an
adjustment under this Article V should be made, how it should be made or what
such adjustment should be or whether a supplemental indenture is required by
this Article V, but may accept as conclusive evidence of the correctness of any
such adjustment, and shall be protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 5.11. The Trustee makes no representation as to the
validity or value of any securities or assets issued upon conversion of
Securities, and the Trustee shall not be responsible for the Company's failure
to comply with any provisions of this Article V.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 5.13, but may accept as conclusive evidence of the
correctness thereof, and
46
<PAGE>
shall be protected in relying upon, the Officers' Certificate with respect
thereto which the Company is obligated to file with the Trustee pursuant to
Section 5.13.
Section 5.15 Cancellation of Converted Securities. All Securities delivered for
conversion shall be delivered to the Trustee to be canceled by or at the
direction of the Trustee, which shall dispose of the same as provided in Section
2.11.
Section 5.16 Restriction on Common Stock Issuable Upon Conversion.
(a) Shares of Common Stock to be issued upon conversion of Securities prior to
the effectiveness of a Shelf Registration Statement shall be physically
delivered in certificated form to the holders converting such Securities
and the certificate representing such shares of Common Stock shall bear the
Restricted Common Stock Legend unless removed in accordance with Section
5.16(c).
(b) If (i) shares of Common Stock to be issued upon conversion of a Security
prior to the effectiveness of a Shelf Registration Statement are to be
registered in a name other than that of the holder of such Security or (ii)
shares of Common Stock represented by a certificate bearing the Restricted
Common Stock Legend are transferred subsequently by such holder, then,
unless the Shelf Registration Statement has become effective and such
shares are being transferred pursuant to the Shelf Registration Statement,
the holder must deliver to the transfer agent for the Common Stock a
certificate in substantially the form of Exhibit E as to compliance with
the restrictions on transfer applicable to such shares of Common Stock and
neither the transfer agent nor the registrar for the Common Stock shall be
required to register any transfer of such Common Stock not so accompanied
by a properly completed certificate.
(c) Except in connection with a Shelf Registration Statement, if certificates
representing shares of Common Stock are issued upon the registration of
transfer, exchange or replacement of any other certificate representing
shares of Common Stock bearing the Restricted Common Stock Legend, or if a
request is made to remove such Restricted Common Stock Legend from
certificates representing shares of Common Stock, the certificates so
issued shall bear the Restricted Common Stock Legend, or the Restricted
Common Stock Legend shall not be removed, as the case may be, unless there
is delivered to the Company such satisfactory evidence, which, in the case
of a transfer made pursuant to Rule 144 under the Securities Act, may
include an opinion of counsel licensed to practice law in the State of New
York, as may be reasonably required by the Company, that neither the legend
nor the restrictions on transfer set forth therein
47
<PAGE>
are required to ensure that transfers thereof comply with the provisions of
Rule 144A, Rule 144 or Regulation S under the Securities Act or that such
shares of Common Stock are securities that are not "restricted" within the
meaning of Rule 144 under the Securities Act. Upon provision to the Company
of such reasonably satisfactory evidence, the Company shall cause the
transfer agent for the Common Stock to countersign and deliver certificates
representing shares of Common Stock that do not bear the legend.
ARTICLE VI
SUBORDINATION
Section 6.01 Agreement to Subordinate. The Company, for itself and its
successors, and each Noteholder, by his acceptance of Securities, agree that the
payment of the principal of and premium, if any, interest, Additional Amounts,
if any, and any other amounts due on the Securities is subordinated in right of
payment, to the extent and in the manner stated in this Article VI, to the prior
payment in full of all existing and future Senior Debt.
Section 6.02 No Payment on Securities if Senior Debt in Default. Anything in
this Indenture to the contrary notwithstanding, no payment on account of
principal of or premium, if any, interest or Additional Amounts, if any on or
other amounts due on the Securities (including the making of a deposit pursuant
to Section 3.05 or 3.08(f)), and no redemption, purchase, or other acquisition
of the Securities, shall be made by or on behalf of the Company unless (i) full
payment of all amounts then due for principal of and interest on, and of all
other amounts then due on, all Senior Debt has been made or duly provided for
pursuant to the terms of the instruments governing such Senior Debt and (ii) at
the time for, and immediately after giving effect to, such payment, redemption,
purchase or other acquisition, there shall not exist under any Senior Debt, or
any agreement pursuant to which any Senior Debt is issued, any default which
shall not have been cured or waived and which default shall have resulted in the
full amount of such Senior Debt being declared due and payable. In addition, if
the Trustee shall receive written notice from any of the holders of any
Designated Senior Debt or their Representative (a "Payment Blockage Notice")
that there has occurred and is continuing under such Designated Senior Debt, or
any agreement pursuant to which such Designated Senior Debt is issued, any
default, which default shall not have been cured or waived, giving the holders
of such Designated Senior Debt the right to declare such Designated Senior Debt
immediately due and payable, then, anything in this Indenture to the contrary
notwithstanding, no payment on account
48
<PAGE>
of the principal of or premium, if any, interest or Additional Amounts, if any,
on or any other amounts due on the Securities (including, without limitation,
the making of a deposit pursuant to Section 3.05 or 3.08(f)), and no redemption,
purchase or other acquisition of the Securities, shall be made by or on behalf
of the Company during the period (the "Payment Blockage Period") commencing on
the date of receipt of the Payment Blockage Notice and ending (unless earlier
terminated by notice given to the Trustee by the holders or the Representative
of the holders of such Designated Senior Debt) on the earlier of (a) the date on
which such default shall have been cured or waived or (b) 180 days from the
receipt of the Payment Blockage Notice. Notwithstanding the provisions described
in the immediately preceding sentence (but subject to the provisions contained
in Section 6.01 and the first sentence of this Section 6.02), unless the holders
of such Designated Senior Debt or the Representative of such holders shall have
accelerated the maturity of such Designated Senior Debt, the Company may resume
payments on the Securities after the end of such Payment Blockage Period. Not
more than one Payment Blockage Notice may be given in any consecutive 365-day
period, irrespective of the number of defaults with respect to Senior Debt
during such period.
In the event that, notwithstanding the provisions of this Section 6.02,
payments are made by or on behalf of the Company in contravention of the
provisions of this Section 6.02, such payments shall be held by the Trustee, any
Paying Agent or the holders, as applicable, in trust for the benefit of, and
shall be paid over to and delivered to, the Representative of the holders of
Senior Debt or the trustee under the indenture or other agreement (if any),
pursuant to which any instruments evidencing any Senior Debt may have been
issued for application to the payment of all Senior Debt ratably according to
the aggregate amounts remaining unpaid to the extent necessary to pay all Senior
Debt in full in accordance with the terms of such Senior Debt, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
The Company shall give prompt written notice to the Trustee and any Paying
Agent of any default or event of default under any Senior Debt or under any
agreement pursuant to which any Senior Debt may have been issued.
Section 6.03 Distribution on Acceleration of Securities; Dissolution and
Reorganization; Subrogation of Securities.
(a) If the Securities are declared due and payable because of the occurrence of
an Event of Default, the Company shall give prompt written notice
49
<PAGE>
to the holders of all Senior Debt or to the trustee(s) for such Senior Debt
of such acceleration. The Company may not pay the principal of, or premium,
if any, interest or Additional Amounts, if any, on, or any other amounts
due on, the Securities until five Business Days after such holders or
trustee(s) of Senior Debt receive such notice and, thereafter, the Company
may pay the principal of, and premium, if any, interest and Additional
Amounts, if any, on, and any other amounts due on, the Securities only if
the provisions of this Article VI permit such payment.
(b) Upon (i) any acceleration of the principal amount due on the Securities
because of an Event of Default or (ii) any direct or indirect distribution
of assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors
or any other dissolution, winding up, liquidation or reorganization of the
Company):
(1) the holders of all Senior Debt shall first be entitled to
receive payment in full of the principal thereof, the interest thereon
and any other amounts due thereon before the holders are entitled to
receive payment on account of the principal of, or premium, if any,
interest or Additional Amounts, if any, on, or any other amounts due
on, the Securities (other than payments in the form of Junior
Securities);
(2) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
Junior Securities), to which the holders or the Trustee would be
entitled (other than in respect of amounts payable to the Trustee
pursuant to Section 9.07) except for the provisions of this Article,
shall be paid by the liquidating trustee or agent or other Person
making such a payment or distribution, directly to the holders of
Senior Debt (or their representative(s) or trustee(s) acting on their
behalf), ratably according to the aggregate amounts remaining unpaid
on account of the principal of and interest on and all other amounts
due on the Senior Debt held or represented by each, to the extent
necessary to make payment in full of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt; and
(3) in the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (other than Junior
Securities), shall be received by the Trustee (other than in respect
of amounts payable to the Trustee pursuant
50
<PAGE>
to Section 9.07) or the holders before all Senior Debt is paid in
full, such payment or distribution shall be held in trust for the
benefit of, and be paid over to upon request by a holder of Senior
Debt, to the holders of the Senior Debt remaining unpaid or their
representatives or trustee(s) acting on their behalf, ratably as
aforesaid, for application to the payment of such Senior Debt until
all such Senior Debt shall have been paid in full, after giving effect
to any concurrent payment or distribution to the holders of such
Senior Debt.
Subject to the payment in full of all Senior Debt, the holders shall be
subrogated to the rights of the holders of Senior Debt to receive payments and
distributions of cash, property or securities of the Company applicable to the
Senior Debt until the principal of, and premium, if any, interest and Additional
Amounts, if any on, and all other amounts payable in respect of the Securities
shall be paid in full and, for purposes of such subrogation, no such payments or
distributions to the holders of Senior Debt of cash, property or securities
which otherwise would have been payable or distributable to holders shall, as
between the Company, its creditors other than the holders of Senior Debt, and
the holders, be deemed to be a payment by the Company to or on account of the
Senior Debt, it being understood that the provisions of this Article are and are
intended solely for the purpose of defining the relative rights of the holders,
on the one hand, and the holders of Senior Debt, on the other hand.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall (i) impair, as between the Company and its
creditors other than the holders of Senior Debt, the obligation of the Company,
which is absolute and unconditional, to pay to the holders the principal of,
premium, if any, on, and interest and Additional Amounts, if any, on, the
Securities as and when the same shall become due and payable in accordance with
the terms of the Securities, (ii) affect the relative rights of the holders and
creditors of the Company other than holders of Senior Debt or, as between the
Company and the Trustee, the obligations of the Company to the Trustee, or (iii)
prevent the Trustee or the holders from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Debt in respect of
cash, property and securities of the Company received upon the exercise of any
such remedy.
Upon distribution of assets of the Company referred to in this Article, the
Trustee, subject to the provisions of Section 9.01 hereof, and the holders shall
be entitled to rely upon a certificate of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the holders for the
purpose of
51
<PAGE>
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article. The Trustee, however,
shall not be deemed to owe any fiduciary duty to the holders of Senior Debt.
Nothing contained in this Article or elsewhere in this Indenture, or in any of
the Securities, shall prevent the good faith application by the Trustee of any
moneys which were deposited with it hereunder, prior to its receipt of written
notice of facts which would prohibit such application, for the purpose of the
payment of or on account of the principal of, premium, if any, on, interest or
Additional Amounts, if any, on, the Securities unless, prior to the date on
which such application is made by the Trustee, the Trustee shall be charged with
actual notice under Section 6.03(d) hereof of the facts which would prohibit the
making of such application.
(c) The provisions of this Article shall not be applicable to any cash,
properties or securities received by the Trustee or by any holder when
received as a holder of Senior Debt and nothing in Section 9.11 hereof or
elsewhere in this Indenture shall deprive the Trustee or such holder of
Senior Debt of any of its rights as such holder of Senior Debt.
(d) The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment of
money to or by the Trustee in respect of the Securities pursuant to the
provisions of this Article. The Trustee, subject to the provisions of
Section 9.01 hereof, shall be entitled to assume that no such fact exists
unless the Company or any holder of Senior Debt or any trustee or
Representative therefor has given actual notice thereof to the Trustee.
Notwithstanding the provisions of this Article or any other provisions of
this Indenture, the Trustee shall not be charged with knowledge of the
existence of any fact which would prohibit the making of any payment of
moneys to or by the Trustee in respect of the Securities pursuant to the
provisions in this Article, unless, and until three Business Days after,
the Trustee shall have received written notice thereof from the Company or
any holder or holders of Senior Debt or from any trustee or Representative
therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to the provisions of Section 9.01 hereof, shall be
entitled in all respects conclusively to assume that no such facts exist;
provided that if on a date not less than three Business Days immediately
preceding the date upon which, by the terms hereof, any such moneys may
become payable for any purpose (including, without limitation, to pay the
principal of, premium, if any, on, interest or Additional Amounts, if any,
52
<PAGE>
on, any Security), the Trustee shall not have received with respect to such
moneys the notice provided for in this Section 6.03(d), then anything
herein contained to the contrary notwithstanding, the Trustee shall have
full power and authority to receive such moneys and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such prior
date.
The Trustee shall be entitled to rely conclusively on the delivery to
it of a written notice by a Person representing himself to be a holder of Senior
Debt (or a trustee or Representative on behalf of such holder) to establish that
such notice has been given by a holder of Senior Debt (or a trustee or
Representative on behalf of any such holder or holders). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Senior Debt to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Debt held by such Person, the extent to which such person
is entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and, if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment;
nor shall the Trustee be charged with knowledge or the curing or waiving of any
default of the character specified in Section 6.02 hereof or that any event or
any condition preventing any payment in respect of the Securities shall have
ceased to exist, unless and until the Trustee shall have received written notice
to such effect.
(e) The provisions of this Section 6.03 applicable to the Trustee shall (unless
the context requires otherwise) also apply to any Paying Agent for the
Company.
Section 6.04 Reliance by Senior Debt on Subordination. Each holder of any
Security by his acceptance thereof acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration for each holder of any Senior Debt, whether such Senior Debt was
created or acquired before or after the issuance of the Securities, to acquire
and continue to hold, or to continue to hold, such Senior Debt, and such holder
of Senior Debt shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Debt. Notice of any default in the payment of any Senior Debt, except as
expressly stated in this Article, and notice of acceptance of the provisions
hereof are, to the extent permitted by law, hereby expressly waived. Except as
otherwise
53
<PAGE>
expressly provided herein, no waiver, forbearance or release by any holder of
Senior Debt under such Senior Debt or under this Article shall constitute a
release of any of the obligations or liabilities of the Trustee or holders of
the Securities provided in this Article.
Section 6.05 No Waiver of Subordination. Except as otherwise expressly provided
herein, no right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt may, at any time and from time to time, without the
consent of, or notice to, the Trustee or the holders of the Securities, without
incurring responsibility to the holders of the Securities and without impairing
or releasing the subordination provided in this Article VI or the obligations
hereunder of the holders of the Securities to the holders of Senior Debt, do any
one or more of the following: (i) change the manner, place or terms of payment
of, or renew or alter, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise
dispose of any property pledged, mortgaged or otherwise securing Senior Debt;
(iii) release any person liable in any manner for the collection of Senior Debt
and (iv) exercise or refrain from exercising any rights against the Company or
any other Person.
Section 6.06 Trustee's Relation to Senior. The Trustee in its individual
capacity shall be entitled to all the rights set forth in this Article in
respect of any Senior Debt at any time held by it, to the same extent as any
holder of Senior Debt, and nothing in Section 9.11 hereof or elsewhere in this
Indenture shall deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligations, as are
specifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Debt shall be read into this Indenture
against the Trustee. The Trustee shall not owe any fiduciary duty to the holders
of Senior Debt but shall have only such obligations to such holders as are
expressly set forth in this Article.
54
<PAGE>
Each holder of a Security by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article and appoints the
Trustee his attorney-in-fact for any and all such purposes, including, in the
event of any dissolution, winding up or liquidation or reorganization under any
applicable bankruptcy law of the Company (whether in bankruptcy, insolvency or
receivership proceedings or otherwise), the timely filing of a claim for the
unpaid balance of such holder's Securities in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee does
not file a claim or proof of debt in the form required in such proceedings prior
to 30 days before the expiration of the time to file such claims or proofs, then
any holder or holders of Senior Debt or their Representative or Representatives
shall have the right to demand, sue for, collect, receive and receipt for the
payments and distributions in respect of the Securities which are required to be
paid or delivered to the holders of Senior Debt as provided in this Article and
to file and prove all claims therefor and to take all such other action in the
name of the holders or otherwise, as such holders of Senior Debt or
Representative thereof may determine to be necessary or appropriate for the
enforcement of the provisions of this Article.
Section 6.07 Other Provisions Subject Hereto. Except as expressly stated in this
Article, notwithstanding anything contained in this Indenture to the contrary,
all the provisions of this Indenture and the Securities are subject to the
provisions of this Article VI. However, nothing in this Article shall apply to
or adversely affect the claims of, or payment to, the Trustee pursuant to
Section 9.07. Notwithstanding the foregoing, the failure to make a payment on
account of principal of, premium, if any, on, or interest or Additional Amounts,
if any, on, the Securities by reason of any provision of this Article VI shall
not be construed as preventing the occurrence of an Event of Default under
Section 8.01.
ARTICLE VII
SUCCESSORS
Section 7.1. Merger, Consolidation or Sale of Assets. The Company will not
consolidate or merge with or into any person (whether or not the Company is the
surviving corporation), continue in a new jurisdiction or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets unless:
55
<PAGE>
(a) the Company is the surviving corporation (in the case of a merger) or the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or the Person which acquires by sale, assignment,
transfer, lease, conveyance or other disposition the properties and assets
of the Company is a corporation organized and existing under the laws of
the United States, any state thereof or the District of Columbia; provided
that in the event of the continuation of the Company in the new
jurisdiction, the Company must remain a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia;
(b) the corporation formed by or surviving any such consolidation or merger (if
other than the Company) or the corporation to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made
assumes all the obligations of the Company, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the
Securities, the Registration Agreement and the Indenture;
(c) such sale, assignment, transfer, lease, conveyance or other disposition of
all or substantially all of the Company's properties or assets shall be as
an entirety or virtually as an entirety to one corporation and such
corporation shall have assumed all the obligations of the Company, pursuant
to a supplemental indenture in form reasonably satisfactory to the Trustee,
under the Securities, the Registration Agreement and the Indenture;
(d) immediately after such transaction no Default or Event of Default exists;
and
(e) the Company or such corporation shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if required, comply with the
Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
Section 7.02 Successor Corporation. Upon any consolidation or merger or any
sale, assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the assets of the Company in accordance with Section 7.01
hereof, the successor corporation (if other than the Company) formed by such
consolidation or into or with which the Company is merged or the corporation to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for and may exercise every right and
56
<PAGE>
power of, the Company under this Indenture with the same effect as if such
successor Person has been named as the Company herein.
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.01 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of any interest or Additional Amounts
on any Security when the same becomes due and payable and the default
continues for a period of 30 days; or
(b) the Company defaults in the payment of any principal of or premium, if any,
on any Security when the same becomes due and payable, whether at maturity,
upon redemption or otherwise (including, without limitation, failure by the
Company to purchase Securities tendered for purchase pursuant to a
Designated Event Offer as and when required pursuant to Section 3.08 or
Section 4.07 hereof); or
(c) the Company fails to observe or perform any other covenant or agreement
contained in this Indenture or the Securities required by it to be
performed and the failure continues for a period of 60 days after the
receipt of written notice by the Company from the Trustee or by the Company
and the Trustee from the holders of at least 25% in aggregate principal
amount of the then outstanding Securities stating that such notice is a
"Notice of Default"; or
(d) a default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by the Company or any Material Subsidiary of the Company
(or the payment of which is Guaranteed by the Company or any of its
Material Subsidiaries), whether such Indebtedness or Guarantee exists on
the date of this Indenture or is created thereafter, which default (i) is
caused by a failure to pay when due any principal of or interest on such
Indebtedness within the grace period provided for in such Indebtedness
(which failure continues beyond any applicable grace period) (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness prior to
its express maturity (without such acceleration being rescinded or
annulled) and, in each case, the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there is a Payment Default or the maturity of which has
57
<PAGE>
been so accelerated, aggregates $15,000,000 or more and which Payment
Default is not cured or which acceleration is not annulled within 30 days
after receipt of written notice by the Company from the Trustee or by the
Company and the Trustee from any holder of Securities stating that such
notice is a "Notice of Default"; or
(e) a final, non-appealable judgment or final non-appealable judgments (other
than any judgment as to which a reputable insurance company has accepted
full liability) for the payment of money are entered by a court or courts
of competent jurisdiction against the Company or any Material Subsidiaries
of the Company and remain unstayed, unbonded or undischarged for a period
(during which execution shall not be effectively stayed) of 60 days,
provided that the aggregate of all such judgments exceeds $15,000,000; or
(f) the Company or any Material Subsidiary pursuant to or within the meaning of
any Bankruptcy Law:
(A) commences a voluntary case or proceeding; or
(B) consents to the entry of an order for relief against the Company or
any Material Subsidiary in an involuntary case or proceeding; or
(C) consents to the appointment of a Custodian of the Company or any
Material Subsidiary or for all or any substantial part of its
property; or
(D) makes a general assignment for the benefit of its creditors; or
(E) takes corporate or similar action in respect of any of the foregoing;
or
(g) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary in an
involuntary case or proceeding; or
(B) appoints a Custodian of the Company or any Material Subsidiary or for
all or any substantial part of the property of the Company or any
Material Subsidiary; or
(C) orders the liquidation of the Company or any Material Subsidiary;
58
<PAGE>
and in each case referred to in this paragraph (h) the order or decree
remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal,
state or foreign bankruptcy, insolvency or similar law. The term "Custodian"
means any custodian, receiver, trustee, assignee, sequestor, liquidator or
similar official under any Bankruptcy Law.
Section 8.02 Acceleration. If an Event of Default (other than an Event of
Default specified in clauses (g) and (h) of Section 8.01 hereof) occurs and is
continuing, the Trustee by notice to the Company, or the Noteholders of at least
25% in aggregate principal amount of the then outstanding Securities by notice
to the Company and the Trustee, may declare all the Securities to be due and
payable. Upon such declaration, the principal of, premium, if any, on and
accrued and unpaid interest and Additional Amounts, if any , on the Securities
shall be due and payable immediately. If an Event of Default specified in clause
(g) or (h) of Section 8.01 hereof occurs, the principal of, premium, if any, on
and accrued and unpaid interest and Additional Amounts, if any, on the
Securities shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Noteholder. The
Noteholders of a majority in aggregate principal amount of the then outstanding
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree,
if all amounts payable to the Trustee pursuant to Section 9.07 hereof have been
paid and if all existing Events of Default have been cured or waived as provided
for herein except nonpayment of principal, premium, if any, interest or
Additional Amounts, if any, that has become due solely because of the
acceleration.
Section 8.03 Other Remedies. If an Event of Default occurs and is continuing,
the Trustee may pursue any available remedy to collect the payment of principal
of, premium, if any, on or interest and Additional Amounts, if any, on, the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
59
<PAGE>
Section 8.04 Waiver of Defaults. Subject to Section 8.07 hereof, the Noteholders
of a majority in aggregate principal amount of the then outstanding Securities
by notice to the Trustee may waive an existing Default or Event of Default and
its consequences except a continuing Default or Event of Default in the payment
of the Designated Event Payment or the principal of, premium, if any, on, or
interest or Additional Amounts, if any, on, any Security or in respect of a
covenant in or other provision of this Indenture or the Securities which cannot
be amended or waived without the consent of each Noteholder affected. When a
Default or Event of Default is waived, it is cured and ceases; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
Section 8.05 Control by Majority. The Noteholders of a majority in aggregate
principal amount of the then outstanding Securities may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture, that
may be unduly prejudicial to the rights of other Noteholders, or that may
involve the Trustee in personal liability; provided that the Trustee may take
any other action deemed by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
Section 8.06 Limitation on Suits. A Noteholder may pursue a remedy with respect
to this Indenture or the Securities only if:
(a) the Noteholder gives to the Trustee a written notice of a continuing Event
of Default;
(b) the Noteholders of at least 25% in aggregate principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(c) such Noteholder or Noteholders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(d) the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and
60
<PAGE>
(e) during such 60-day period the Noteholders of a majority in aggregate
principal amount of the then outstanding Securities do not give the Trustee
a direction inconsistent with the request.
A Noteholder may not use this Indenture to prejudice the rights of another
Noteholder or to obtain a preference or priority over another Noteholder.
Section 8.07 Rights of Noteholders to Receive Payment. Notwithstanding any other
provision of this Indenture, the right of any Noteholder of a Security to
receive payment of principal of, premium, if any on, and interest and Additional
Amounts, if any, on the Security, on or after the respective due dates expressed
in the Security and this Indenture, or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired or
affected without the consent of the Noteholder made pursuant to this Section.
Section 8.08 Collection Suit by Trustee. If an Event of Default specified in
Section 8.01(a) or (b) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
for the whole amount of principal, premium, if any, interest and Additional
Amounts, if any, remaining unpaid on the Securities and, to the extent permitted
by law, interest on overdue principal, premium, if any, interest and Additional
Amounts, if any and such further amount as shall be sufficient to cover the
costs and, to the extent lawful, expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due under Section 9.07 hereof.
Section 8.09 Trustee May File Proofs of Claim. The Trustee shall be entitled and
empowered, without regard to whether the Trustee or any holder shall have made
any demand or performed any other act pursuant to the provisions of this Article
and without regard to whether the principal of the Securities shall then be due
and payable as therein expressed or by declaration or otherwise, by intervention
in any proceedings relative to the Company or any other obligor upon the
Securities, or to the creditors or property or assets of the Company or any such
other obligor or otherwise, to take any and all actions authorized under the TIA
in order to have claims of the holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be entitled and empowered in such
instances:
(a) to file and prove a claim or claims for the whole amount of principal and
premium, if any, interest, Additional Amounts, if any, and any other
amounts
61
<PAGE>
owing and unpaid in respect of the Securities, and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including all amounts owing to the Trustee and each
predecessor Trustee pursuant to Section 9.07 hereof) and of the holders
allowed in any judicial proceedings relating to the Company or other
obligor upon the Securities property of the Company or any such other
obligor,
(b) unless prohibited by applicable law and regulations, to vote on behalf of
the holders of the Securities in any election of a trustee or a standby
trustee in arrangement, reorganization, liquidation or other bankruptcy or
insolvency proceedings or Person performing similar functions in comparable
proceedings, and
(c) to collect and receive any moneys or other property or assets payable or
deliverable on any such claims, and to distribute all amounts received with
respect to the claims of the holders and of the Trustee on their behalf;
and any trustee, receiver, or liquidator, custodian or other similar
official is hereby authorized by each of the holders to make payments to
the Trustee, and, in the event that the Trustee shall consent to the making
of payments directly to the holders, to pay to the Trustee such amounts as
shall be sufficient to cover all amounts owing to the Trustee and each
predecessor Trustee pursuant to Section 9.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any holder thereof, or to authorize the Trustee to
vote in respect of the claim of any holder of any such proceeding except, as
aforesaid, to vote for the election of a trustee in bankruptcy or similar
person.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
holders of the Securities, and it shall not be necessary to make any holders of
the Securities parties to any such proceedings.
Section 8.10 Priorities. If the Trustee collects any money pursuant to this
Article, it shall pay out the money in the following order:
62
<PAGE>
First: to the Trustee for amounts due under Section 9.07 hereof,
including payment of all compensation, expense and liabilities incurred,
and all advances made, by the Trustee and the costs and expenses of
collection;
Second: to the holders of Senior Debt to the extent required by
Article VI;
Third: to the Noteholders, for amounts due and unpaid on the
Securities for principal, premium, if any, interest and Additional Amounts,
if any, ratably, without preference or priority of any kind, according to
the amounts due and payable on the Securities for principal, premium, if
any, interest and Additional Amounts, if any; and
Fourth: to the Company or to such other party as a court of competent
jurisdiction shall direct.
Except as otherwise provided in Section 2.12 hereof, the Trustee may fix a
record date and payment date for any payment to Noteholders made pursuant to
this Section 8.10. At least 15 days before such record date, the Company shall
mail to each holder and the Trustee a notice that states the record date, the
payment date and amount to be paid. The Trustee may mail such notice in the name
and at the expense of the Company.
Section 8.11 Undertaking for Costs. In any suit for the enforcement of any right
or remedy under this Indenture or in any suit against the Trustee for any action
taken or omitted by it as a Trustee, a court in its discretion may require the
filing by any party litigant in the suit of an undertaking to pay the costs of
the suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section does not apply to a suit by the Trustee, a suit
by a holder pursuant to Section 8.07 hereof, or a suit by Noteholders of more
than 10% in principal amount of the then outstanding Securities.
Section 8.12 Restoration of Rights and Remedies. If the Trustee or any holder of
Securities has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such holder, then
and in every such case the Company, the Trustee and the holders shall, subject
to any determination in such proceeding, be restored severally and
63
<PAGE>
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the holders shall continue as though no such
proceeding has been instituted.
Section 8.13 Rights and Remedies Cumulative. Except as otherwise provided in
Section 2.07 hereof, no right or remedy conferred herein, upon or reserved to
the Trustee or to the holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent (to
the extent permitted by law) the concurrent assertion or employment of any other
appropriate right or remedy.
Section 8.14 Delay or Omission Not Waiver. No delay or omission of the Trustee
or of any holder of any Security to exercise any right or remedy accruing upon
any Event of Default shall (to the extent permitted by law) impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article VIII or by
law to the Trustee or to the holders may (to the extent permitted by law) be
exercised from time to time and as often as may be deemed expedient, by the
Trustee or by the holders, as the case may be.
ARTICLE IX
TRUSTEE
Section 9.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent
Person would exercise or use under the circumstances in the conduct of such
Person's own affairs.
(b) Except during the continuance of an Event of Default: (i) the Trustee need
perform only those duties that are specifically set forth in this Indenture
and no others; and (ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and, if required by the terms hereof,
conforming to the requirements of this
64
<PAGE>
Indenture. However, in the case of any such certificates or opinions which
by any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the applicable requirements, if
any, of this Indenture. During the continuance of an Event of Default, the
Trustee may consult with its legal counsel and rely upon advice from such
counsel with respect to legal matters.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct,
except that: (i) this paragraph does not limit the effect of paragraph (b)
of this Section 9.01; (ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts and (iii) the
Trustee shall not be liable with respect to any action it takes or omits to
take in good faith in accordance with a direction received by it pursuant
to Section 8.05 hereof.
(d) Every provision of this Indenture that in any way relates to the Trustee is
subject to paragraphs (a), (b) and (c) of this Section 9.01.
(e) No provision of this Indenture shall require the Trustee to expend or risk
its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at
the request of any holders, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 9.02 Rights of Trustee. Subject to the provisions of Section 9.01(a)
hereof, the Trustee may conclusively rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(a) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such
65
<PAGE>
Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel of its choice and the advice of such counsel or any Opinion of
Counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the advice or opinion of
such counsel.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in
good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute
willful misconduct or negligence.
(e) The Trustee shall not be charged with knowledge of any Event of Default
under subsection (c), (d), (e), (f), (g) or (h) of Section 8.01 unless
either (1) a Trust Officer assigned to its corporate trust department shall
have actual knowledge thereof, or (2) the Trustee shall have received
notice thereof in accordance with Section 12.02 hereof from the Company or
any holder; provided that the Trustee shall comply with the "automatic
stay" provisions contained in U.S. Bankruptcy Law, if applicable.
(f) Prior to the occurrence of an Event of Default hereunder and after the
curing and waiving of all Events of Default, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debentures, note, other evidence
of indebtedness or other paper or document unless requested in writing to
do so by the holders of not less than a majority in aggregate principal
amount of the Securities then outstanding; provided that if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation
is, in the opinion of the Trustee, not reasonably assured to the Trustee by
the security afforded to it by the terms of this Indenture, the Trustee may
require reasonable indemnity against expenses or liabilities as a condition
to proceeding; the reasonable expenses of every such examination shall be
paid by the Company or, if advanced by the Trustee, shall be repaid by the
Company upon demand. The Trustee shall not be bound to ascertain or inquire
as to the performance or observance of any covenants, conditions, or
agreements on the part of the Company, except as otherwise set forth
herein, but the Trustee may, in
66
<PAGE>
its discretion, make such further inquiry or investigation into such facts
or matters as it may see fit and if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company personally or by agent or
attorney at the sole cost of the Company.
(g) The Trustee shall not be required to give any bond or surety in respect of
the performance of its powers and duties hereunder.
(h) The rights, privileges, protections, immunities and benefits given to the
Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its
capacities hereunder and to each Agent employed to act hereunder.
Section 9.03 Individual Rights of Trustee. The Trustee in its individual or any
other capacity may become the owner or pledgee of Securities and may otherwise
deal with the Company or an Affiliate with the same rights it would have if it
were not Trustee. Any Agent may do the same with like rights. However, in the
event that the Trustee acquires any conflicting interest (as defined in the TIA)
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue as Trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 9.10 and 9.11 hereof.
Section 9.04 Trustee's Disclaimer. The Trustee makes no representation as to the
validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
any statement in the Securities (other than its certificate of authentication)
or for compliance by the Company with the Registration Agreement.
Section 9.05 Notice of Defaults. If a Default or Event of Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to
Noteholders a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default relating to the
failure to pay any principal of or premium, if any, interest or Additional
Amounts, if any, on any Security, the Trustee may withhold the notice if and so
long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
67
<PAGE>
Section 9.06 Reports by Trustee to Noteholders. Within 60 days after the
reporting date stated in Section 12.10, the Trustee shall mail to Noteholders a
brief report dated as of such reporting date that complies with TIA ss. 313(a)
if and to the extent required by such ss. 313(a). The Trustee also shall comply
with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all reports as
required by TIA ss. 313(c).
A copy of each report at the time of its mailing to Noteholders shall
be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Trustee when the Securities are listed on
any stock exchange and of any delisting thereof.
Section 9.07 Compensation and Indemnity. The Company shall pay to the Trustee
from time to time such compensation for its services hereunder as shall be
agreed upon from time to time in writing by the Company and the Trustee. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable disbursements, expenses and advances incurred or made
by it in connection with the performance of its duties hereunder. Such
disbursements and expenses may include the reasonable disbursements,
compensation and expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and each predecessor
Trustee against any and all loss, damage, claim, liability or expense, including
taxes (other than taxes based on the income of the Trustee) incurred by it in
connection with the performance of its duties hereunder except as set forth in
the next paragraph. The Trustee shall notify the Company promptly of any claim
for which it may seek indemnity. Failure by the Trustee to notify the Company
shall not release the Company of its obligations hereunder. The Company shall
defend the claim and the Trustee shall cooperate in the defense. If in the
reasonable opinion of Trustee's counsel, a conflict of interest exists between
the Trustee and the Company with respect to such claim, the Trustee may have
separate counsel and the Company shall pay the reasonable fees, disbursements
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through the Trustee's negligence or
bad faith.
68
<PAGE>
The obligations of the Company under this Section 9.07 shall survive
the resignation or removal of the Trustee and the satisfaction and discharge of
the Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien on all money or property held or collected by the
Trustee, except money or property held in trust to pay principal of, or premium,
if any, interest or Additional Amounts, if any, on, particular Securities. Such
lien shall survive the satisfaction or discharge of the indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 8.01(g) or (h) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 9.08 Replacement of Trustee. A resignation or removal of the Trustee and
appointment of a successor Trustee shall become effective only upon the
successor Trustee's acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Noteholders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 9.10 hereof, unless the Trustee's
duty to resign is stayed as provided in TIAss.310(b);
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief
is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its property;
or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the
Noteholders of a majority
69
<PAGE>
in principal amount of the then outstanding Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Noteholders of at least 10% in principal amount of the then outstanding
Securities may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 9.10 hereof, unless the
Trustee's duty to resign is stayed as provided in TIA ss. 310(b), any Noteholder
who has been a bona fide holder of a Security for at least six months may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Noteholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 9.07 hereof. Notwithstanding the resignation or
replacement of the Trustee pursuant to this Section 9.08, the Company's
obligations under Section 9.07 hereof shall continue for the benefit of the
retiring trustee with respect to expenses and liabilities incurred by it prior
to such resignation or replacement.
Section 9.09 Successor Trustee by Merger, Etc. If the Trustee consolidates,
merges or converts into, or transfers all or substantially all of its corporate
trust business to, another corporation, the successor corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have
70
<PAGE>
the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
Section 9.10 Eligibility; Disqualification. This Indenture shall always have a
Trustee who satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The
Trustee shall always have a combined capital and surplus as stated in Section
12.10 hereof. The Trustee is subject to TIA ss. 310(b); provided, however, that
there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or
indentures under which other securities or certificates of interest or
participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA ss. 310(b)(1) are met.
Section 9.11. Preferential Collection of Claims Against Company. The Trustee is
subject to TIAss. 311(a), excluding any creditor relationship listed in TIAss.
311(b). A Trustee who has resigned or been removed shall be subject to TIAss.
311(a) to the extent indicated therein.
ARTICLE IX
DISCHARGE OF INDENTURE
Section 10.01 Termination of the Company's Obligations. This Indenture shall
cease to be of further effect (except as to any surviving rights of conversion,
registration of transfer or exchange of Securities herein expressly provided for
and except as further provided below), and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) either
(i) all Securities theretofore authenticated and delivered (other than (i)
Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.07 and (ii) Securities
for whose payment money has theretofore been deposited in trust and
thereafter repaid to the Company as provided in Section 10.02) have
been delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the Trustee for
cancellation
(A) have become due and payable, or
71
<PAGE>
(B) will become due and payable at the final maturity date within one
year, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of clause (A), (B) or (C) above, has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee as trust funds in trust for the purpose cash in an amount
sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation,
for principal, premium, if any, interest and Additional Amounts, if
any, to the date of such deposit (in the case of Securities which have
become due and payable) or to the final maturity date or redemption
date, as the case may be, in all other cases;
(b) the Company has paid or caused to be paid all other sums payable hereunder
by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 9.07, the obligations of
the Company to pay Additional Amounts under this Indenture, the Securities and
the Registration Agreement and, if money shall have been deposited with the
Trustee pursuant to subclause (ii) of clause (a) of this Section, the provisions
of Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.11 (second paragraph only),
2.13, 2.15, 3.08, 4.02 (second paragraph only), 4.04, 4.07 and 4.08, Article V
and this Article X, shall survive; and, notwithstanding the satisfaction and
discharge of this Indenture, the Company agrees to reimburse the Trustee for any
costs or expenses thereafter reasonably and properly incurred by the Trustee and
to compensate the Trustee for any services thereafter reasonably and properly
rendered by the Trustee in connection with this Indenture, the Registration
Agreement or the Securities. Thereupon, the Trustee upon request of the Company,
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture, except for those surviving obligations specified above.
72
<PAGE>
Subject to the provisions of Section 10.02, the Trustee shall hold in
trust, for the benefit of the holders, all money deposited with it pursuant to
this Section 10.01 and shall apply the deposited money in accordance with this
Indenture and the Securities to the payment of the principal of, and premium, if
any, interest and Additional Amounts, if any, on the Securities. Money so held
in trust shall not be subject to the subordination provisions of Article VI.
Section 10.02 Repayment to Company. The Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess money or securities held by
them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due; provided, however, that the Company shall have first caused
notice of such payment to the Company to be mailed to each Noteholder entitled
thereto no less than 30 days prior to such payment or within such period shall
have published such notice in a financial newspaper of widespread circulation
published in The City of New York, including, without limitation, The Wall
Street Journal (national edition). After payment to the Company, the Trustee and
the Paying Agent shall have no further liability with respect to such money and
Noteholders entitled to the money must look to the Company for payment as
general creditors unless any applicable abandoned property law designates
another person.
Section 10.03. Reinstatement. If the Trustee or any Paying Agent is unable to
apply any money in accordance with the second paragraph of Section 10.01 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 10.01 until such time as the Trustee or such Paying Agent is
permitted to apply all such money in accordance with Section 10.01; provided,
however, that if the Company has made any payment of the principal of or
premium, if any, interest or Additional Amounts, if any, on any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the holders of such Securities to receive any such payment from
the money held by the Trustee or such Paying Agent.
73
<PAGE>
ARTICLE XI
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 11.01 Without Consent of Noteholders. The Company and the Trustee may
amend or supplement this Indenture or the Securities without the consent of any
Noteholder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Sections 5.13 and 7.01 hereof;
(c) to provide for uncertificated Securities in addition to certificated
Securities;
(d) to make any change that does not adversely affect the legal rights
hereunder of any Noteholder;
(e) to qualify this Indenture under the TIA or to comply with the requirements
of the SEC in order to maintain the qualification of the Indenture under
the TIA;
(f) to make any change that provides any additional rights or benefits to the
holders of Securities; or
(g) to evidence and provide for the acceptance under the Indenture of a
successor Trustee.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 11.07 hereof,
the Trustee shall join with the Company in the execution of any amended or
supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
An amendment under this Section may not make any change that adversely
affects the rights under Article VI of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or any group or
representative thereof authorized to give a consent) consent to such change.
74
<PAGE>
Section 11.02 With Consent of Noteholders. Except as provided below in this
Section 11.02, the Company and the Trustee may amend or supplement this
Indenture or the Securities with the written consent (including consents
obtained in connection with any tender or exchange offer for Securities) of the
Noteholders of at least a majority in aggregate principal amount of the then
outstanding Securities. Subject to Sections 8.04 and 8.07 hereof, the
Noteholders of a majority in aggregate principal amount of the Securities then
outstanding may also by their written consent (including consents obtained in
connection with any tender offer or exchange offer for Securities) waive any
existing Default or Event of Default as provided in Section 8.04 or waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Securities. However, without the consent of each Noteholder
affected, an amendment, supplement or waiver under this Section may not (with
respect to any Securities held by a nonconsenting Noteholder):
(a) reduce the amount of Securities whose Noteholders must consent to an
amendment, supplement or waiver;
(b) reduce the rate of, or change the time for payment of, interest or
Additional Amounts on any Security;
(c) reduce the principal of or change the fixed maturity of any Security or
alter the redemption provisions with respect thereto (including, without
limitation, the amount of any premium payable upon redemption);
(d) make any Security payable in money other than that stated in the Security;
(e) make any change in Section 8.04, 8.07 or 11.02 hereof (this sentence);
(f) waive a default in the payment of the Designated Event Payment or any
principal of, or premium, if any, or interest or Additional Amounts, if
any, on, any Security (other than a rescission of acceleration pursuant to
Section 8.02 hereof and a waiver of nonpayment of principal, premium, if
any, interest or Additional Amounts, if any, that have become due solely
because of such acceleration of the Securities);
(g) waive a redemption payment payable on any Security; or
75
<PAGE>
(h) make any change in the rights of holders of Securities to receive payment
of principal of, or premium, if any, or interest or Additional Amounts, if
any, on, the Securities;
(i) modify the conversion or subordination provisions in a manner adverse to
the holders of the Securities; or
(j) impair the right of Noteholders to convert Securities into Common Stock of
the Company or otherwise to receive any cash, securities or other property
receivable by a holder upon conversion of Securities.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Securities as aforesaid, and upon receipt by the
Trustee of the documents described in Section 11.07 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into such
amended or supplemental Indenture.
To secure a consent of the Noteholders under this Section 11.02, it
shall not be necessary for the Noteholders to approve the particular form of any
proposed amendment, supplement or waiver, but it shall be sufficient if such
consent approves the substance thereof.
Section 11.03 Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities shall be set forth in a supplemental indenture that
complies with the TIA as then in effect.
Section 11.04 Revocation and Effect of Consents. Until an amendment, supplement
or waiver becomes effective, a consent to it by a Noteholder of a Security is a
continuing consent by the Noteholder and every subsequent Noteholder of a
Security or portion of a Security that evidences the same debt as the consenting
Noteholder's Security, even if notation of the consent is not made on any
Security. However, any such Noteholder or subsequent Noteholder may revoke the
consent as to such Noteholder's Security or portion of a Security if the Trustee
receives the notice of revocation before the date on which the Trustee receives
an Officers' Certificate certifying that the Noteholders of the requisite
76
<PAGE>
principal amount of Securities have consented to the amendment, supplement or
waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Noteholders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those persons who were
Noteholders at such record date (or their duly designated proxies), and only
those persons, shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such persons
continue to be Noteholders after such record date. No consent shall be valid or
effective for more than 90 days after such record date unless consents from
Noteholders of the principal amount of Securities required hereunder for such
amendment, supplement or waiver to be effective shall have also been given and
not revoked within such 90-day period.
After an amendment, supplement or waiver becomes effective it shall
bind every Noteholder, unless it is of the type described in any of clauses (a)
through (j) of Section 11.02 hereof. In such case, the amendment, supplement or
waiver shall bind each Noteholder who has consented to it and every subsequent
Noteholder that evidences the same debt as the consenting Noteholder's Security.
Upon the execution of any supplemental indenture under this Article XI,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. After a supplemental indenture becomes effective, the
Company shall mail to holders a notice briefly describing such amendment. The
failure to give such notice to all holders, or any defect therein, shall not
impair or affect the validity of an amendment under this Article.
Section 11.05. Notation on or Exchange of Securities. The Trustee may place an
appropriate notation about an amendment, supplement or waiver on any Security
thereafter authenticated. The Company in exchange for all Securities may issue
and the Trustee shall authenticate new Securities that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new security shall
not affect the validity and effect of such amendment, supplement or waiver.
77
<PAGE>
Section 11.06 Trustee Protected. The Trustee shall sign all supplemental
indentures, except that the Trustee may, but need not, sign any supplemental
indenture that adversely affects its rights.
Section 11.07 Trustee to Sign Supplemental Indentures. The Company may not sign
a supplemental Indenture until the Board of Directors approves it. In executing
any supplemental indenture, the Trustee shall be entitled to receive indemnity
reasonably satisfactory to it and to receive and (subject to Section 9.01) shall
be fully protected in relying upon, in addition to the documents required by
Section 12.04, an Officers' Certificate and an Opinion of Counsel stating that:
(a) such supplemental indenture is authorized or permitted by this Indenture
and that all conditions precedent to the execution, delivery and
performance of such supplemental indenture have been satisfied;
(b) the Company has all necessary corporate power and authority to execute and
deliver the supplemental indenture and that the execution, delivery and
performance of such supplemental indenture has been duly authorized by all
necessary corporate action of the Company;
(c) the execution, delivery and performance of the supplemental indenture do
not conflict with, or result in the breach of or constitute a default under
any of the terms, conditions or provisions of (i) this Indenture, (ii) the
charter documents or by-laws of the Company, or (iii) any material
agreement or instrument to which the Company is subject and of which such
counsel is aware;
(d) to the knowledge of legal counsel writing such Opinion of Counsel, the
execution, delivery and performance of the supplemental indenture do not
conflict with, or result in the breach of any of the terms, conditions or
provisions of (i) any law or regulation applicable to the Company, or (ii)
any material order, writ, injunction or decree of any court or governmental
instrumentality applicable to the Company;
(e) such supplemental indenture has been duly and validly executed and
delivered by the Company, and this Indenture together with such
supplemental indenture constitutes a legal, valid and binding obligation of
the Company enforceable against the Company, in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium
or similar laws
78
<PAGE>
affecting the enforcement of creditors' rights generally and general
equitable principles (whether considered in a proceeding at law or in
equity); and
(a) this Indenture together with such amendment or supplement complies with the
TIA.
(b) Payment for Consent. Neither the Company nor any Affiliate of the Company
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all holders that so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Trust Indenture Act Controls. If any provision of this Indenture
limits, qualifies, or conflicts with another provision which is automatically
deemed to be incorporated in this Indenture by the TIA, the incorporated
provision shall control. If any provision of this Indenture modifies or excludes
any provision of the TIA that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or excluded,
as the case may be.
Section 12.02 Notices. Any notice or communication by the Company or the Trustee
to the other is duly given if in writing and delivered in person or mailed by
first-class mail (registered or certified, return receipt requested), telecopier
(promptly confirmed in writing) or overnight air courier guaranteeing next day
delivery to the other's address stated in Section 12.10 hereof. The Company or
the Trustee by notice to the other may designate additional or different
addresses for subsequent notices or communications.
Any notice or communication to a Noteholder shall be mailed by
first-class mail, postage prepaid to his address shown on the register kept by
the Registrar. Any notice or communication shall also be so mailed to any Person
described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail
a notice or
79
<PAGE>
communication to a Noteholder or any defect in it shall not affect its
sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it; a notice or communication, however, shall not be effective unless,
in the case of the Trustee, actually received.
If the Company mails a notice or communication to Noteholders, it shall
mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
In case by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impossible to mail any notice as required
by the Indenture, then such method of notification as shall be made with the
approval of the Trustee shall constitute a sufficient mailing of such notice.
Section 12.03 Communication by Noteholders with Other Noteholders. Noteholders
may communicate pursuant to TIA ss. 312(b) with other Noteholders with respect
to their rights under this Indenture or the Securities. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
Section 12.04 Certificate and Opinion as to Conditions Precedent. Upon any
request or application by the Company to the Trustee to take any action under
this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to
the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to the
Trustee (which shall include the statements set forth in Section 12.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
80
<PAGE>
In any case where several matters are required by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more such Persons as
to other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based insofar as it
relates to factual matters upon a certificate or opinion of, or representations
by, an Officer or Officer of the Company stating that the information with
respect to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Any Officers' Certificate, statement or Opinion of Counsel may be
based, insofar as it relates to accounting matters, upon a certificate or
opinion of or representation by an accountant (who may be an employee of the
Company), or firm of accountants, unless such Officer or counsel, as the case
may be, knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representation with respect to the accounting matters
upon which his or her certificate, statement or opinion may be based as
aforesaid is erroneous.
Section 12.05 Statements Required in Certificate or Opinion. Each certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Indenture (other than pursuant to Section 4.03) shall include:
(a) a statement that the Persons signing such certificate or rendering such
opinion has read such covenant or condition;
81
<PAGE>
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, such Person has made such
examination or investigation as is necessary to enable such Person to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been complied with.
Section 12.06 Rules by Trustee and Agents. The Trustee may make reasonable rules
for action by, or a meeting of, Noteholders. The Registrar or Paying Agent may
make reasonable rules and set reasonable requirements for its functions.
Section 12.07 Legal Holidays. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest or Additional Amounts shall accrue for the
intervening period unless the Company shall default in making the payment due on
such next succeeding day. If any other operative date for purposes of this
Indenture shall occur on a Legal Holiday then for all purposes the next
succeeding day that is not a Legal Holiday shall be such operative date.
Section 12.08 No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or this Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Noteholder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the issue of
the Securities.
Section 12.09 Counterparts. This Indenture may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
Section 12.10 Variable Provisions. "Officer" means the Chairman of the Board,
the Chief Executive Officer, the President, any Senior Vice-President or
Vice-President, the Chief Financial Officer, the Treasurer, the Secretary, any
Assistant Treasurer, any Assistant Secretary, the Controller of the Company or
the Assistant Controller of the Company.
82
<PAGE>
The Company initially appoints the Trustee as Paying Agent, Registrar
and Conversion Agent, and the Trustee hereby accepts such appointments.
The first certificate pursuant to Section 4.03 hereof shall be for the
fiscal year ending on December 31, 2001.
The reporting date for Section 9.06 hereof is January 1 of each year.
The first reporting date is January 1, 2001.
The Trustee shall always have a combined capital and surplus of at
least $50,000,000 as set forth in its most recent published annual report of
condition.
The Company's address for purposes of the Indenture is:
Young & Rubicam Inc.
285 Madison Avenue
New York, New York 10017
Attn: Chief Financial Officer
Telephone No.: (212) 210-3022
Telecopier No.: (212) 687-1393
The Trustee's address is:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attn: Corporate Trust Trustee Administration
Telephone No.: (212) 815-2588
Telecopier No.: (212) 815-5915
The Company or the Trustee may change its address for purposes of this
Indenture by written notice to the other.
Section 12.11 GOVERNING LAW. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THIS INDENTURE AND THE SECURITIES, WITHOUT REGARD, TO THE EXTENT
PERMITTED BY LAW, TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
83
<PAGE>
Section 12.12 No Adverse Interpretation of Other Agreements. This Indenture may
not be used to interpret another indenture, loan or debt agreement of the
Company or an Affiliate. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture.
Section 12.13 Successors. All agreements of the Company in this Indenture and
the Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
Section 12.14 Severability. In case any provision in this Indenture or in the
Securities shall be invalid, illegal or unenforceable, then (to the extent
permitted by law) the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Section 12.15 Table of Contents, Headings, Etc. The Table of Contents and
headings of the Articles and Sections of this Indenture and the Securities have
been inserted for convenience of reference only, are not to be considered a part
hereof or thereof, and shall in no way modify or restrict any of the terms or
provisions hereof or thereof.
84
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
Young & Rubicam Inc., as Company,
By
----------------------------------
Name:
Title:
The Bank of New York, as Trustee,
By
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF CONVERTIBLE SUBORDINATED NOTE
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Global Securities Legend--For Inclusion in Global Securities Only]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF
THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY
A-1
<PAGE>
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT ("INSTITUTIONAL
ACCREDITED INVESTOR") (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION AND THAT, PRIOR TO
SUCH TRANSFER, DELIVERS TO THE COMPANY AND THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER IS
ATTACHED TO THIS SECURITY), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT
OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. PRIOR TO A TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE (6) ABOVE), THE HOLDER OF THIS SECURITY MUST FURNISH TO THE
COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY
THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) AN INSTITUTIONAL
ACCREDITED INVESTOR AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES
AND NOT FOR DISTRIBUTION OR (3) NOT A U.S. PERSON AND IS OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF
PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN
ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY
HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT."
[Restricted Definitive Security Legend--For Inclusion in
Definitive Securities Only]
A-2
<PAGE>
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF
THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED
BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO AN INSTITUTION
THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE
OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION AND THAT, PRIOR TO SUCH TRANSFER, DELIVERS TO THE COMPANY
AND THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED
HEREBY (THE FORM OF WHICH LETTER IS ATTACHED TO THIS SECURITY), (5) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES
A-3
<PAGE>
LAWS OF ANY STATE OF THE UNITED STATES. PRIOR TO A TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE (6) ABOVE), THE HOLDER OF THIS
SECURITY MUST FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER
INFORMATION AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT
ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS.
THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE
BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) AN
INSTITUTIONAL ACCREDITED INVESTOR AND THAT IT IS HOLDING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) NOT A U.S. PERSON AND IS
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE
REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE
SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY,
ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE
SECURITIES ACT."
A-4
<PAGE>
No. CUSIP No. Global Security: 987425AA3
Definitive Security: 987425AB1
3% Convertible Subordinated Note due 2005
Young & Rubicam Inc.
Young & Rubicam Inc., a Delaware corporation (the "Company"), promises
to pay to Cede & Co. or its registered assigns, the principal sum [indicated on
Schedule A hereof]1* [of _________ Dollars ($_________)]** on January 15, 2005.
Interest Payment Dates: January 15 and July 15, commencing July 15, 2000.
Record Dates: January 1 and July 1.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof which further provisions shall for all purposes have
the same effect as if set forth at this place.
[Signature Page Follows]
- - --------------------------
1* Applicable to Global Securities only.
2** Applicable to Definitive Securities only.
A-5
<PAGE>
IN WITNESS WHEREOF, Young & Rubicam Inc. has caused this Security to be
signed manually or by facsimile by its duly authorized Officers and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon.
Young & Rubicam Inc.
By
----------------------------------
Name:
Title:
[Seal]
By
----------------------------------
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the Securities described in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee,
by
----------------------------------
Authorized Signatory
A-6
<PAGE>
Young & Rubicam Inc.
3% Convertible Subordinated Note due 2005
1. Interest. Young & Rubicam Inc., a Delaware corporation (the "Company"), is
the issuer of the 3% Convertible Subordinated Notes due 2005 (the
"Securities"), of which this Security is a part. The Company promises to
pay interest on the Securities in cash semiannually on each January 15 and
July 15, commencing on July 15, 2000, to holders of record at the close of
business on the immediately preceding January 1 or July 1, as the case may
be.
Interest on the Securities will accrue from the most recent date to
which interest has been paid, or if no interest has been paid, from January 20,
2000. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
principal of and premium, if any, interest, and Additional Amounts, if any, on
the Securities (in each case without regard to any applicable grace period) at
the Default Rate, compounded semi-annually.
2. Method of Payment. The Company will pay interest and Additional Amounts, if
any, on the Securities (except Defaulted Interest) to the Persons who are
registered holders of the Securities at the close of business on the record
date for the applicable interest payment date even though Securities are
canceled after the record date and on or before the interest payment date.
The Noteholder hereof must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal, premium, if
any, interest and Additional Amounts, if any, in money of the United States
that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay interest by check payable in
such money. It may mail an interest check to a holder's registered address.
3. Paying Agent and Registrar. The Trustee will act as Paying Agent, Registrar
and Conversion Agent. The Company may change any Paying Agent, Registrar,
or Conversion Agent without prior notice.
4. Indenture. The Company issued the Securities under an indenture, dated as
of January 20, 2000 (the "Indenture"), between the Company and The Bank of
New
A-7
<PAGE>
York, as Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by the Trust Indenture Act
of 1939 (15 U.S. Codess.ss. 77aaa-77bbbb) as in effect on the date of the
Indenture. The Securities are subject to, and qualified by, all such terms,
certain of which are summarized hereon, and Noteholders are referred to the
Indenture and such Act for a statement of such terms. The Securities are
general unsecured obligations of the Company limited to an aggregate
principal amount of up to $287,500,000. The Indenture does not limit the
ability of the Company or any of its Subsidiaries to incur indebtedness or
to grant security interests or liens in respect of their assets.
5. Optional Redemption. The Securities are not redeemable at the Company's
option prior to January 20, 2003. On such date and thereafter, the
Securities will be subject to redemption at the option of the Company, in
whole or from time to time in part (in any integral multiple of $1,000), at
the following redemption prices (expressed as percentages of the principal
amount), if redeemed during the 12-month period beginning January 15 of the
years indicated (or January 20 in the case of 2003):
Year Redemption Price
2003 101.20%
2004 100.60%
in each case together with accrued interest and Additional Amounts, if any, to
(but excluding) the redemption date (subject to the right of holders of record
on the relevant record date to receive interest and Additional Amounts, if any,
due on the corresponding interest payment date). On or after the redemption
date, interest and Additional Amounts, if any, will cease to accrue on the
Securities, or portions thereof, called for redemption unless the Company shall
default in the payment of the redemption price and accrued interest and
Additional Amounts, if any, payable on the redemption date on the Securities to
be redeemed.
6. Notice of Redemption. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each holder of the
Securities to be redeemed at his address of record. Securities in
denominations larger than $1,000 may be redeemed in part but only in
integral multiples of $1,000. In the
A-8
<PAGE>
event of a redemption of less than all of the Securities, the Securities
will be chosen for redemption by the Trustee in accordance with the
Indenture. Unless the Company defaults in making such redemption payment
(including accrued interest and Additional Amounts, if any), or a Paying
Agent is prohibited from making such payment pursuant to the Indenture, by
law or otherwise, interest and Additional Amounts, if any, cease to accrue
on the Securities or portions of them called for redemption on and after
the redemption date.
If this Security is redeemed subsequent to a record date with respect
to any interest payment date specified above and on or prior to such interest
payment date, then any accrued interest and Additional Amounts, if any, will be
paid to the person in whose name this Security is registered at the close of
business on such record date.
7. Mandatory Redemption. The Company will not be required to make any
mandatory redemption payment with respect to the Securities. There are no
sinking fund payments with respect to the Securities.
8. Repurchase at Option of Holder. If there is a Designated Event, the Company
shall be required to offer to purchase on the Designated Event Payment Date
all outstanding Securities at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest and Additional
Amounts, if any, to the Designated Event Payment Date; provided that, on
the terms and subject to the conditions set forth in the Indenture, the
Company shall not be required to offer to purchase the Securities as
aforesaid if the Company has given notice of redemption of all of the
outstanding Securities to holders in accordance with the Indenture. If
there is a Designated Event, the Company shall mail a Designated Event
Offer to Holder of Securities prior to any related Designated Event Payment
Date. Holders of Securities that are subject to an offer to purchase may
elect to have such Securities or portions thereof in authorized
denominations purchased by completing the form entitled "Option of
Noteholder To Elect Purchase" appearing below. Noteholders have the right
to withdraw their election by delivering a written notice of withdrawal to
the Company or the Paying Agent in accordance with the terms of the
Indenture.
9. Subordination. The payment of the principal of, premium, if any, on,
interest and Additional Amounts, if any, on and any other amounts due on
the Securities is subordinated in right of payment to all existing and
future Senior Debt of the
A-9
<PAGE>
Company, as described in the Indenture. Each Noteholder, by accepting a
Security, agrees to such subordination and authorizes and directs the
Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the
Trustee as its attorney-in-fact for such purpose.
10. Conversion. The holder of any Security has the right, exercisable at any
time after 90 days following the Issuance Date and prior to the close of
business on the Business Day immediately preceding the final maturity date
of the Security, to convert the principal amount thereof (or any portion
thereof that is an integral multiple of $1,000) into shares of Common Stock
at the initial Conversion Price of $73.36 per share, subject to adjustment
under certain circumstances as provided in the Indenture, except that if a
Security is called for redemption, the conversion right will terminate at
the close of business on the Business Day immediately preceding the date
fixed for redemption (unless the Company shall default in making the
redemption payment, including interest and Additional Amounts, if any, when
it becomes due, in which case the conversion right shall terminate at the
close of business on the date on which such default is cured).
Beneficial owners of interests in Global Securities may exercise their
right of conversion by delivering to the Depositary the appropriate instructions
for conversion pursuant to the Depositary's procedures. To convert a
certificated Security, the holder must (1) complete and sign a notice of
election to convert substantially in the form set forth below (or complete and
manually sign a facsimile thereof) and deliver such notice to a Conversion
Agent, (2) surrender the Security to a Conversion Agent, (3) furnish appropriate
endorsements or transfer documents if required by the Conversion Agent and (4)
pay any transfer or similar tax, if required by the Conversion Agent. Upon
conversion, no adjustment or payment will be made for accrued and unpaid
interest or Additional Amounts, if any, on the Securities so converted or for
dividends or distributions on, or Additional Amounts, if any, attributable to,
any Common Stock issued on conversion of the Securities, except that, if any
Noteholder surrenders a Security for conversion after the close of business on a
record date for the payment of interest and prior to the opening of business on
the next interest payment date, then, notwithstanding such conversion, the
interest payable on such interest payment date will be paid on such interest
payment date to the person who was the registered holder of such Security on
such record date. Any Securities surrendered for conversion during the period
after the close of business on any record date for the payment of interest and
before the
A-10
<PAGE>
opening of business on the next succeeding interest payment date (except
Securities called for redemption on a redemption date or to be repurchased on a
Designated Event Payment Date during such period) must be accompanied by payment
in an amount equal to the interest and Additional Amounts, if any, payable on
such interest payment date on the principal amount of Securities so converted.
The number of shares of Common Stock issuable upon conversion of a Security is
determined by dividing the principal amount of the Security converted by the
Conversion Price in effect on the Conversion Date. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest.
A Security in respect of which a holder has delivered an "Option of
Noteholder to Elect Purchase" form appearing below exercising the option of such
holder to require the Company to purchase such Security may be converted only if
the notice of exercise is withdrawn as provided above and in accordance with the
terms of the Indenture. The above description of conversion of the Securities is
qualified by reference to, and is subject in its entirety to, the more complete
description thereof contained in the Indenture.
11. Registration Agreement. The holder of this Security is entitled to the
benefits of a Registration Agreement, dated January 20, 2000, between the
Company and the Initial Purchasers (the "Registration Agreement"). Pursuant
to the Registration Agreement the Company has agreed for the benefit of the
holders of the Securities and the Common Stock issued and issuable upon
conversion of the Securities, that (i) it will, at its cost, within 90 days
after the Closing Date, file a shelf registration statement (the "Shelf
Registration Statement") with the Securities and Exchange Commission (the
"Commission") with respect to resales of the Securities and the Common
Stock issuable upon conversion thereof, (ii) the Company will use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective by the Commission under the Securities Act within 180
days after the Closing Date and (iii) the Company will keep such Shelf
Registration Statement continuously effective under the Securities Act
until the earliest of (a) the second anniversary of the Closing Date or, if
later, the second anniversary of the last date on which any Securities are
issued upon exercise of the Initial Purchasers' over-allotment option, (b)
the date on which the Securities or the Common Stock issuable upon
conversion thereof may be sold to Persons who are not "affiliates" (as
defined in Rule 144) of the Company pursuant to paragraph (k) of Rule 144
(or any successor provision)
A-11
<PAGE>
promulgated by the Commission under the Securities Act, (c) the date as of
which the Securities or the Common Stock issuable upon conversion thereof
have been (A) transferred pursuant to Rule 144 under the Securities Act (or
any similar provision then in force) or (B) sold pursuant to such Shelf
Registration Statement (in any such case, such period being called the
"Shelf Registration Period").
If (i) the Shelf Registration Statement is not filed with the SEC on or
prior to 90 days after the Closing Date, (ii) the Shelf Registration Statement
has not been declared effective by the SEC within 180 days, after the Closing
Date or (iii) the Shelf Registration Statement is filed and declared effective
but shall thereafter cease to be effective (without being succeeded immediately
by a replacement shelf registration statement filed and declared effective) or
usable (including, as a result of a Suspension Period) for the offer and sale of
Transfer Restricted Securities for a period of time (including any Suspension
Period) which shall exceed 90 days in the aggregate in any 12-month period
during the period beginning on the Closing Date and ending on the second
anniversary of the Closing Date or, if later, the second anniversary of the last
date on which any Securities are issued upon exercise of the Initial Purchasers'
over-allotment option (each such event referred to in clauses (i) through (iii)
being referred to herein as a "Registration Default"), the Company will pay
Additional Amounts ("Additional Amounts") to each holder of Transfer Restricted
Securities who has complied with such Holder's obligations under the
Registration Agreement. The amount of Additional Amounts payable during any
period in which a Registration Default shall have occurred and be continuing is
that amount which is equal to one-quarter of one percent (25 basis points) per
annum per $1,000 principal amount of Securities and $2.50 per annum per 13.6314
shares of Common Stock (subject to adjustment from time to time in the event of
a stock split, stock recombination, stock dividend and the like) constituting
Transfer Restricted Securities for the first 90 days during which a Registration
Default has occurred and is continuing and one-half of one percent (50 basis
points) per annum per $1,000 principal amount of Securities and $5.00 per annum
per 13.6314 shares of Common Stock (subject to adjustment as set forth above)
constituting Transfer Restricted Securities for any additional days during which
such Registration Default has occurred and is continuing; it being understood
that all calculations pursuant to this sentence shall be carried out to five
decimals. Following the cure of a Registration Default, Additional Amounts will
cease to accrue with respect to such Registration Default. All accrued
Additional Amounts by wire transfer of immediately available funds to the
accounts specified by the Record Holders or, if a Record Holder has not
A-12
<PAGE>
specified such an amount, by check mailed by the Company to the registered
address of such Record Holder on each Damages Payment Date, and Additional
Amounts will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
"Transfer Restricted Securities" means each Security and each share of
Common Stock issued on conversion thereof until the earlier of (A) the date on
which such Security or share, as the case may be, (i) has been transferred
pursuant to the Shelf Registration Statement or another registration statement
covering such Security or share which has been filed with the Commission
pursuant to the Securities Act, in either case after such registration statement
has become and while such registration statement is effective under the
Securities Act, (ii) has been transferred pursuant to Rule 144 under the
Securities Act (or any similar provision then in force), or (iii) may be sold or
transferred pursuant to Rule 144(k) under the Securities Act (or any similar
provision then in force) or (B) the second anniversary of the Closing Date, or,
if later, the second anniversary of the last date on which any Securities are
issued upon exercise of the Initial Purchasers' over-allotment option.
Pursuant to the Registration Agreement, the Company may suspend the use
of the prospectus which is a part of the Shelf Registration Statement for a
period not to exceed 30 days in any three-month period or for three periods not
to exceed an aggregate of 90 days in any twelve-month period under certain
circumstances (each, a "Suspension Period"); provided that the existence of a
Suspension Period will not prevent the occurrence of a Registration Default or
otherwise limit the obligation of the Company to pay Additional Amounts.
The above description of certain provisions of the Registration
Agreement is qualified by reference to, and is subject in its entirety to, the
more complete description thereof contained in the Registration Agreement.
12. Denominations, Transfer, Exchange and Replacement. The Securities are in
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered, and
Securities may be exchanged, as provided in the Indenture. The Registrar
may require a Noteholder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required
by law or permitted by the Indenture. The Registrar need not exchange or
register the transfer of any Security or portion of a Security selected for
redemption (except the unredeemed portion of any Security being redeemed in
part). Also, it need not exchange or
A-13
<PAGE>
register the transfer of any Security for a period beginning at the opening
of business 15 days before the day of mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing.
Replacement Securities for lost, stolen or mutilated Securities may be
issued in accordance with the terms of the Indenture.
13. Persons Deemed Owners. The registered Noteholder of a Security may be
treated as its owner for all purposes.
14. Unclaimed Money. If money for the payment of principal of or premium, if
any, interest or Additional Amounts, if any, on Securities remains
unclaimed for two years, the Trustee and the Paying Agent shall pay the
money back to the Company at its written request. After that, Noteholders
of Securities entitled to the money must look to the Company for payment,
unless an abandoned property law designates another person, and all
liability of the Trustee and such Paying Agent with respect to such money
shall cease.
15. Defaults and Remedies. The Securities shall have the Events of Default as
set forth in Section 8.01 of the Indenture. Subject to certain limitations
in the Indenture, if an Event of Default occurs and is continuing, the
Trustee, by notice to the Company, or the Noteholders of at least 25% in
aggregate principal amount of the then outstanding Securities, by notice to
the Company and the Trustee, may declare all the Securities to be due and
payable immediately, except that in the case of an Event of Default arising
from certain events of bankruptcy or insolvency, all unpaid principal,
premium, if any, and accrued and unpaid interest and Additional Amounts, if
any, on the Securities shall become due and payable immediately without
further action or notice. Upon acceleration as described in either of the
preceding sentences, the subordination provisions of the Indenture preclude
any payment being made to Noteholders for at least 5 Business Days except
as otherwise provided in the Indenture.
The Noteholders of a majority in principal amount of the Securities
then outstanding by written notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal, premium, if any, Additional Amounts, if any, and
interest that has become due solely because of the acceleration. Noteholders may
not enforce the Indenture or the Securities except as provided in the Indenture.
Subject to certain limitations,
A-14
<PAGE>
Noteholders of a majority in principal amount of the then outstanding Securities
issued under the Indenture may direct the Trustee in its exercise of any trust
or power. The Company must furnish compliance certificates to the Trustee
annually. The above description of Events of Default and remedies is qualified
by reference to, and subject in its entirety to, the more complete description
thereof contained in the Indenture.
16. Amendments, Supplements and Waivers. Subject to certain exceptions, the
Indenture or the Securities may be amended or supplemented with the consent
of the Noteholders of at least a majority in principal amount of the then
outstanding Securities (including consents obtained in connection with a
tender offer or exchange offer for Securities), and any existing default
may be waived with the consent of the Noteholders of a majority in
principal amount of the then outstanding Securities (including consents
obtained in connection with a tender offer or exchange offer for
Securities). Without the consent of any Noteholder, the Indenture or the
Securities may be amended, among other things, to cure any ambiguity,
defect or inconsistency, to provide for assumption by a successor of the
Company's obligations to Noteholders, to make any change that does not
adversely affect the rights of any Noteholder, to qualify the Indenture
under the TIA, or to comply with the requirements of the SEC in order to
maintain the qualification of the Indenture under the TIA.
17. Trustee Dealings with the Company. The Trustee, in its individual or any
other capacity, may become the owner or pledgee of the Securities and may
otherwise deal with the Company or an Affiliate of the Company with the
same rights it would have, as if it were not Trustee, subject to certain
limitations provided for in the Indenture and in the TIA. Any Agent may do
the same with like rights.
18. No Recourse Against Others. A director, officer, employee or stockholder,
as such, of the Company shall not have any liability for any obligations of
the Company under the Securities or the Indenture or for any claim based
on, in respect of or by reason of such obligations or their creation. Each
Noteholder, by accepting a Security, waives and releases all such
liability. The waiver and release are part of the consideration for the
issue of the Securities.
19. Governing Law; Indenture to Control. THE INTERNAL LAWS OF THE STATE OF NEW
YORK SHALL GOVERN THE INDENTURE AND THE SECURITIES WITHOUT REGARD, TO THE
EXTENT PERMITTED BY
A-15
<PAGE>
LAW, TO CONFLICT OF LAW PROVISIONS THEREOF. IN THE EVENT OF ANY CONFLICT
BETWEEN THE PROVISIONS OF THIS SECURITY ON THE ONE HAND AND THE INDENTURE
OR THE REGISTRATION AGREEMENT, ON THE OTHER HAND, THE PROVISIONS OF THE
INDENTURE OR THE REGISTRATION AGREEMENT, AS THE CASE MAY BE, SHALL CONTROL.
20. Authentication. The Securities shall not be valid until authenticated by
the manual signature of an authorized signatory of the Trustee or an
authenticating agent.
20. Abbreviations. Customary abbreviations may be used in the name of a
Noteholder or an assignee, such as: TEN COM (for tenants in common), TEN
ENT (for tenants by the entireties), JT TEN (for joint tenants with right
of survivorship and not as tenants in common), CUST (for Custodian), and
U/G/M/A (for Uniform Gifts to Minors Act).
21. Definitions. Capitalized terms not defined in this Security have the
meanings given to them in the Indenture.
The Company will furnish to any Noteholder of the Securities upon
written request and without charge a copy of the Indenture and the Registration
Agreement. Request may be made to:
Young & Rubicam Inc.
Attention: Chief Financial Officer
285 Madison Avenue
New York, New York 10017
A-16
<PAGE>
CERTIFICATE OF TRANSFER
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
- - --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. no.)
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Your Signature:
--------------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Date:
-----------------------------------------------
Medallion Signature Guarantee:
[FOR INCLUSION ONLY IF THIS SECURITY BEARS A RESTRICTED SECURITIES LEGEND] In
connection with any transfer of any of the Securities evidenced by this
certificate which are "restricted securities" (as defined in Rule 144 (or any
successor thereto) under the Securities Act of 1933), the undersigned confirms
that such Securities are being transferred:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to and in compliance with Rule 144A under the
Securities Act of 1933; or
A-17
<PAGE>
(3) [ ] pursuant to and in compliance with Regulation S under
the Securities Act of 1933; or
(4) [ ] to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933) that has furnished to the
Trustee a signed letter containing certain
representations and agreements (the form of which
letter can be obtained from the Trustee);
(5) [ ] pursuant to an exemption from registration under the
Securities Act of 1933 provided by Rule 144
thereunder; or
(6) [ ] pursuant to an effective registration statement under
the Securities Act of 1933.
Unless one of the boxes is checked, the Registrar will refuse
to register any of the Securities evidenced by this
certificate in the name of any person other than the
registered holder thereof; provided, however, that if box (3),
(4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such
certifications and other information, and if box (5) is
checked such legal opinions, as the Company has reasonably
requested in writing, by delivery to the Trustee of a standing
letter of instruction, to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities
Act of 1933; provided that this paragraph shall not be
applicable to any Securities which are not "restricted
securities" (as defined in Rule 144 (or any successor thereto)
under the Securities Act of 1933).
Your Signature:---------------------------------
(Sign exactly as your name appears
on the other side of this Security)
Date:
Medallion Signature Guarantee:
A-18
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE A
The initial principal amount of this Global Security shall be $______.
The following increases or decreases in the principal amount of this Global
Security have been made:
<TABLE>
<CAPTION>
======================================================================================================
<S> <C> <C> <C> <C>
Date Made Amount of Amount of Principal Amount of Signature of
Increase in decrease in this Global Security authorized
Principal Principal Amount following such signatory of
Amount of this of this Global decrease or increase. Trustee or
Global Security Security Securities
including upon Custodian
exercise of
over-allotment
option
======================================================================================================
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
======================================================================================================
</TABLE>
A-19
<PAGE>
OPTION OF NOTEHOLDER TO ELECT PURCHASE
If you want to elect to have this Security or a portion thereof
repurchased by the Company pursuant to Section 3.08 or 4.07 of the Indenture,
check the box: [ ]
If the purchase is in part, indicate the portion ($1,000 or any
integral multiple thereof) to be purchased: ____________
Your Signature:
--------------------------------------
(Sign exactly as your name appears on
the other side of this Security)
Date: ____________
Medallion Signature Guarantee: _______________________
A-20
<PAGE>
ELECTION TO CONVERT
To Young & Rubicam Inc.:
The undersigned owner of this Security hereby irrevocably exercises the
option to convert this Security, or the portion below designated, into Common
Stock of Young & Rubicam Inc. in accordance with the terms of the Indenture
referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned, unless a
different name has been indicated below. If shares are to be issued in the name
of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto.
The undersigned agrees to be bound by the terms of the Registration
Agreement relating to the Common Stock issued upon conversion of the Securities.
If you want to convert this Security in whole, check the box below. If
you want to convert this Security in part, indicate the portion of this Security
to be converted in the space provided below.
In whole [ ] or Portion of Security to be
converted ($1,000 or any
integral multiple thereof):
$______________
Date: ______________ Your Signature:
-----------------------------
(Sign exactly as your name
appears on the other side of
this Security)
Medallion Signature Guarantee: --------------------
Please print or typewrite your name and address, including zip code, and social
security or other identifying number:
If the Common Stock is to be issued and delivered to someone other than you,
please print or typewrite the name and address, including zip code, and social
security or other identifying number of that person:
A-21
<PAGE>
EXHIBIT B
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM GLOBAL SECURITY OR DEFINITIVE SECURITY
TO DEFINITIVE SECURITY
(Transfers pursuant toss. 2.06(a)(ii) orss. 2.06(a)(iii) of the Indenture)
The Bank of New York, as Registrar
Attn: Corporate Trust Trustee Administration
Re: Young & Rubicam Inc. 3% Convertible Subordinated Notes
due 2005 (the "Securities")
Reference is hereby made to the Indenture dated as of January 20, 2000
(the "Indenture") between Young & Rubicam Inc. and The Bank of New York, as
Trustee. Capitalized terms used but not defined herein shall have the meanings
given them in the Indenture.
This letter relates to U.S. $ aggregate principal amount of
Securities which are held [in the form of a [Definitive] [Global Security (CUSIP
No. _____________)]* in the name of [name of transferor] (the "Transferor") to
effect the transfer of the Securities.
In connection with such request, and in respect of such Securities, the
Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities and
the Indenture and (ii) to a transferee that is an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the U.S. Securities Act of 1933, as amended) (an "Institutional Accredited
Investor") which is acquiring such Securities for its own account or for one or
more accounts, each of which is an Institutional Accredited Investor, over which
it exercises sole investment discretion and (iii) in accordance with applicable
securities laws of any state of the United States; and further certifies that
the transferee and each such account, if any, is acquiring at least $100,000
principal amount of Securities.
- - --------------------------------
* Insert, if appropriate.
B-1
<PAGE>
[Names of Transferor],
By
---------------------------------
Name:
Title:
Dated:
cc: Young & Rubicam Inc.
Attn: Secretary
B-2
<PAGE>
EXHIBIT C
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers pursuant toss. 2.06(a)(ii) andss. 2.06(a)(iii))
The Bank of New York, as Registrar
Attn: Corporate Trust Trustee Administration
Re: Young & Rubicam Inc. 3% Convertible Subordinated Notes
due 2005 (the "Securities")
Reference is hereby made to the Indenture dated as of January 20, 2000
(the "Indenture") between Young & Rubicam Inc., a Delaware corporation (the
"Company"), and The Bank of New York, as Trustee (the "Trustee"). Capitalized
terms used but not defined herein shall have the meanings given them in the
Indenture.
In connection with our proposed purchase of $ aggregate principal
amount of the Securities, which are convertible into shares of common stock
("Common Stock") of the Company, we confirm that:
1. We understand that the Securities and the Common Stock issuable upon
conversion thereof have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and may not be sold except as
permitted in the following sentence. We understand and agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, (x) that such Securities are being transferred to us in a
transaction not involving any public offering within the meaning of the
Securities Act, (y) that if we should resell, pledge or otherwise transfer
any such Securities or any shares of Common Stock issuable upon conversion
thereof prior to the later of (I) the expiration of the holding period
under Rule 144(k) (or any successor thereto) under the Securities Act which
is applicable to such Securities or shares of Common Stock, as the case may
be, or (II) within three months after we cease to be an affiliate (within
the meaning of Rule 144 under the Securities Act) of the Company, such
Securities or the Common Stock issuable upon
<PAGE>
conversion thereof may be resold, pledged or transferred only (i) to the
Company, (ii) so long as such Securities are eligible for resale pursuant
to Rule 144A under the Securities Act ("Rule 144A"), to a person whom we
reasonably believe is a "qualified institutional buyer" (as defined in Rule
144A) ("QIB") that purchases for its own account or for the account of a
QIB to whom notice is given that the resale, pledge or transfer is being
made in reliance on Rule 144A (as indicated by the box checked by the
transferor on the Certificate of Transfer on the reverse of the certificate
for the Securities), it being understood that the Common Stock is not
eligible for resale pursuant to Rule 144A, (iii) in an offshore transaction
(as defined in Regulation S under the Securities Act) in accordance with
Regulation S under the Securities Act (as indicated by the box checked by
the transferor on the Certificate of Transfer on the reverse of the
certificate for the Securities or on a comparable Certificate of Transfer
for the Common Stock issuable upon conversion thereof), (iv) to an
institution that is an "accredited investor" as defined in Rule 501 (a)
(1), (2), (3) or (7) under the Securities Act (an "Institutional Accredited
Investor") (as indicated by the box checked by the transferor on the
Certificate of Transfer on the reverse of the certificate for the
Securities or on a comparable Certificate of Transfer for the Common Stock
issuable upon conversion thereof) that is acquiring the securities for its
own account or for the account of one or more other Institutional
Accredited Investors over which it exercises sole investment discretion and
that prior to such transfer, delivers a signed letter to the Company and
the Trustee (or the transfer agent in the case of Common Stock issuable
upon conversion thereof) certifying that it and each such account is such
an Institutional Accredited Investor and is acquiring the Securities or the
Common Stock issuable upon conversion thereof for investment purposes and
not for distribution and agreeing to the restrictions on transfer of the
Securities or the Common Stock issuable upon
C-1
<PAGE>
conversion thereof, (v) pursuant to an exemption from registration under
the Securities Act provided by Rule 144 (if applicable) under the
Securities Act (as indicated by the box checked by the transferor on the
Certificate of Transfer on the reverse of the certificate for the
Securities or a comparable Certificate of Transfer for the Common Stock
issuable upon conversion thereof), or (vi) pursuant to an
C-2
<PAGE>
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States, and we will notify any purchaser of the Securities or the Common
Stock issuable upon conversion thereof from us of the above resale
restrictions, if then applicable. We further understand that in connection
with any transfer of the Securities or the Common Stock issuable upon
conversion thereof (other than a transfer pursuant to clause (vi) above) by
us that the Company and the Trustee (or the transfer agent in the case of
Common Stock issuable upon conversion thereof) may request, and if so
requested we will furnish, such certificates and other information and, in
the case of a transfer pursuant to clause (v) above, a legal opinion as
they may reasonably require to confirm that any such transfer complies with
the foregoing restrictions. Finally, we understand that in any case we will
not directly or indirectly engage in any hedging transactions with regard
to the Securities or the Common Stock issuable upon conversion of the
Securities except as permitted by the Securities Act.
2. We are able to fend for ourselves in connection with our purchase of
the Securities, we have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the Securities, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its investment and
can afford the complete loss of such investment.
3. We understand that the minimum principal amount of Securities that
may be purchased by an Institutional Accredited Investor is $100,000 and
also represent that we and any accounts for which we are purchasing
Securities are each purchasing at least such minimum principal amount of
Securities.
4. We understand that the Company and others will rely upon the truth
and accuracy of the foregoing acknowledgments, representations, agreements
and warranties and we agree that if any of the acknowledgments,
representations, agreements or warranties made or deemed to have been made
by us by our purchase of the Securities, for our own account or for one or
more accounts as to each
C-4
<PAGE>
of which we exercise sole investment discretion, are no longer accurate, we
shall promptly notify the Company.
5. With respect to the certificates representing Securities we are
purchasing, we understand that such certificates will be in definitive
registered form and that the notification requirement referred to in (1)
above requires that, until the expiration of the holding period with
respect to sales of the Securities under clause (k) of Rule 144 under the
Securities Act (unless such Securities have been sold pursuant to a
registration statement that has been declared effective under the
Securities Act), that such Securities will bear a legend substantially to
the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF
THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED
BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO AN INSTITUTION
THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED
C-4
<PAGE>
INVESTOR") (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION AND THAT, PRIOR TO SUCH TRANSFER,
DELIVERS TO THE COMPANY AND THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE
SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER IS ATTACHED TO THIS
SECURITY), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT OR (6)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. PRIOR TO A TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE (6) ABOVE), THE HOLDER OF THIS SECURITY MUST FURNISH TO THE
COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY
THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) AN INSTITUTIONAL
ACCREDITED INVESTOR AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES
AND NOT FOR DISTRIBUTION OR (3) NOT A U.S. PERSON AND IS OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF
PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN
ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY
HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT.
6. With respect to certificates representing shares of Common Stock
issuable upon conversion of the Securities, we understand that the
notification requirement referred to in (1) above requires that, until the
expiration of the holding period with respect to
C-5
<PAGE>
sales of such Common Stock under clause (k) of Rule 144 under the
Securities Act (unless such Common Stock has been sold pursuant to a
registration statement that has been declared effective under the
Securities Act), such certificates will bear a legend substantially to the
effect set forth as Exhibit D to the Indenture and that a copy of such
legend may be obtained from the Trustee.
7. We are acquiring the Securities purchased by us for investment
purposes, and not for distribution, for our own account or for one or more
accounts as to each of which we exercise sole investment discretion and we
are and each such account is an Institutional Accredited Investor.
8. You and the Company are entitled to rely on this letter and you and
the Company are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
------------------------------------
(Name of Purchaser)
By:
------------------------------------
Dated:
--------------
cc: Young & Rubicam Inc.
Attn: Chief Financial Officer
285 Madison Avenue
New York, New York 10017
C-6
<PAGE>
EXHIBIT D
FORM OF RESTRICTED COMMON STOCK LEGEND
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF
THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT (RULE 144A), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED
BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO AN INSTITUTION
THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE
OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION, AND THAT, PRIOR TO SUCH TRANSFER, DELIVERS TO THE COMPANY
AND THE TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED
HEREBY (THE FORM OF WHICH LETTER IS ATTACHED TO THIS SECURITY), (5) PURSUANT TO
AN EXEMPTION
D-1
<PAGE>
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE)
UNDER THE SECURITIES ACT OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAW OF ANY STATE OF THE UNITED STATES. PRIOR TO A TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (6) ABOVE), THE HOLDER OF
THIS SECURITY MUST FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH
CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM
THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING
RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND
AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144a OR (2) AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION OR (3) NOT A U.S. PERSON AND IS OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH
(k)(2) OF RULE 902 UNDER) REGULATION 2 UNDER THE SECURITIES ACT. IN ANY CASE THE
HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING
TRANSACTION WITH REGARD TO THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES
ACT.
D-2
<PAGE>
EXHIBIT E
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
OF RESTRICTED COMMON STOCK
(Transfers pursuant toss.5.16(c) of the Indenture)
[NAME AND ADDRESS OF COMMON STOCK TRANSFER AGENT]
Re: Young & Rubicam Inc. 3% Convertible Subordinated Notes
due 2005 (the "Securities")
Reference is hereby made to the Indenture dated as of January 20, 2000
(the "Indenture") between Young & Rubicam Inc. and The Bank of New York, as
Trustee. Capitalized terms used but not defined herein shall have the meanings
given them in the Indenture.
This letter relates to _________ shares of Common Stock represented by
the accompanying certificate(s) that were issued upon conversion of Securities
and which are held in the name of [name of transferor] (the "Transferor") to
effect the transfer of such Common Stock.
In connection with the transfer of such shares of Common Stock, the
undersigned confirms that such shares of Common Stock are being transferred:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to and in compliance with Regulation S
under the Securities Act of 1933; or
(3) [ ] to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act of 1933) that has furnished to
the transfer agent a signed letter containing
certain representations and agreements (the form
of which letter can be obtained from the Company
or transfer agent);
(4) [ ] pursuant to an exemption from registration under
the Securities Act of 1933 provided by Rule 144
thereunder; or
-iii-
<PAGE>
(5) [ ] pursuant to an effective registration statement
under the Securities Act of 1933.
Unless one of the boxes is checked, the transfer agent will
refuse to register any of the Common Stock evidenced by this
certificate in the name of any person other than the
registered holder thereof; provided, however, that if box (2),
(3) or (4) is checked, the transfer agent may require, prior
to registering any such transfer of the Common Stock such
certifications and other information, and if box (4) is
checked such legal opinions, as the Company has reasonably
requested in writing, by delivery to the transfer agent of a
standing letter of instruction, to confirm that such transfer
is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of
the Securities Act of 1933.
[Name of Transferor],
By
------------------------
Name:
Title:
Dated:
cc: Young & Rubicam Inc.
Attn: Secretary
B-4
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of Young & Rubicam Inc. (File No. 333-57605) of our report
dated February 11, 2000 included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 30, 2000
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints MICHAEL J. DOLAN, STEPHANIE W. ABRAMSON and
JACQUES TORTOROLI, and each of them, as true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for him, and in his
name, place and stead, in any and all capacities, to sign the Report on Form
10-K for the year ended December 31, 1999, for Young & Rubicam Inc., S.E.C. File
No. 001-14093, and any and all amendments and supplements thereto and all other
instruments necessary or desirable in connection therewith, and to file the
same, with all exhibits thereto, and all documents in connection therewith, with
the Securities and Exchange Commission and the New York Stock Exchange, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requested and necessary
to be done in and about the premises as fully to all intents and purposes as he
might do or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: March 24, 2000
/s/ Judith Rodin /s/ F. Warren Hellman
- - ------------------------------ -----------------------------
JUDITH RODIN F. WARREN HELLMAN
/s/ Thomas D. Bell, Jr. /s/ John F. McGillicuddy
- - ------------------------------ -----------------------------
THOMAS D. BELL, JR. JOHN F. MCGILLICUDDY
/s/ Richard S. Bodman /s/ Alan D. Schwartz
- - ------------------------------ -----------------------------
RICHARD S. BODMAN ALAN D. SCHWARTZ
/s/ Michael J. Dolan /s/ Edward H. Vick
- - ------------------------------ -----------------------------
MICHAEL J. DOLAN EDWARD H. VICK
/s/ Sir Christopher Lewinton /s/ Michael H. Jordan
- - ------------------------------ -----------------------------
SIR CHRISTOPHER LEWINTON MICHAEL H. JORDAN
<PAGE>
CERTIFIED RESOLUTIONS
I, Stephanie W. Abramson, Secretary of Young & Rubicam (the "Company"),
hereby certify that the resolutions attached hereto were duly adopted on March
21, 2000 by the Board of Directors of the Company and that such resolutions have
not been amended or revoked.
WITNESS my hand on this 24th day of March, 2000.
/s/ STEPHANIE W. ABRAMSON
STEPHANIE W. ABRAMSON
YOUNG & RUBICAM INC.
MEETING OF THE BOARD OF DIRECTORS
RESOLVED, that the form of Annual Report on Form 10-K for the year
ended December 31, 1999, including all exhibits thereto (the "Form
10-K") in the form presented to this meeting, with such changes therein
as the Chief Executive Officer, the Chief Financial Officer and the
Senior Vice President, Controller, in consultation with the General
Counsel, shall approve, be and is hereby approved subject only to
execution of the signature page by a majority of the members of the
Board of Directors; and further
RESOLVED, that the officers and directors of the Company who may be
required to execute the Form 10-K be, and each of them hereby is,
authorized to execute a power of attorney in the form submitted to this
meeting appointing Michael J. Dolan, Stephanie W. Abramson and Jacques
Tortoroli, and each of them, severally, his true and lawful attorneys
and agents to act in his name, place and stead, to execute said Form
10-K and any and all amendments and supplements thereto and all other
instruments necessary or desirable in connection therewith; and further
RESOLVED, that the signature of any officer of the Company required by
law to affix his signature to such Form 10-K or to any amendment or
supplement thereto and such additional documents as they may deem
necessary or advisable in connection therewith, may be affixed by said
officer personally or by any attorney-in-fact duly constituted in
writing by said officer to sign his or her name thereto; and further
RESOLVED, that the officers of the Company be, and each of them hereby
is, authorized to execute such amendments or supplements to the Form
10-K and such additional documents as they may deem necessary or
advisable in connection with any such amendment or supplement; and
further
RESOLVED, that the proper officers of the Company be, and each of them
hereby is, authorized to take any and all other action, including the
execution of any and all documents, agreements and instruments, deemed
by them necessary or desirable in order to carry out the purposes and
intent of the foregoing resolutions; and further
RESOLVED, that the authority granted hereunder by this Board shall be
deemed retroactive and any and all acts relating to the subject matter
of the foregoing resolutions performed prior to the passage of these
resolutions are hereby ratified and approved; and further
RESOLVED, that all actions heretofore taken consistent with the
purposes and intent of the foregoing resolutions and each of them be
and they are hereby ratified.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF YOUNG & RUBICAM AND SUBSIDIARY COMPANIES
FOUND IN THE COMPANY'S FORM 10-K AS OF AND FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001030048
<NAME> Young & Rubicam Inc.
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 144,517,000
<SECURITIES> 0
<RECEIVABLES> 1,056,457,000
<ALLOWANCES> (25,012,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,374,187,000
<PP&E> 442,681,000
<DEPRECIATION> (248,112,000)
<TOTAL-ASSETS> 2,414,281,000
<CURRENT-LIABILITIES> 1,699,606,000
<BONDS> 0
0
0
<COMMON> 730,000
<OTHER-SE> 423,450,000
<TOTAL-LIABILITY-AND-EQUITY> 2,414,281,000
<SALES> 0
<TOTAL-REVENUES> 1,717,186,000
<CGS> 0
<TOTAL-COSTS> 1,509,100,000
<OTHER-EXPENSES> (84,982,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,848,000
<INCOME-PRETAX> 278,220,000
<INCOME-TAX> 111,288,000
<INCOME-CONTINUING> 167,099,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,099,000
<EPS-BASIC> 2.43
<EPS-DILUTED> 2.02
</TABLE>
