-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4UgVj/jEAk24DAI1ctVATyhfhkgjbVzGygoFtGbAVTLwEo2X39kT0viGzlHItga QUP+f4DpZmb93HjQIR3ZCA== 0001005150-00-000463.txt : 20000413 0001005150-00-000463.hdr.sgml : 20000413 ACCESSION NUMBER: 0001005150-00-000463 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 DATE AS OF CHANGE: 20000412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YOUNG & RUBICAM INC CENTRAL INDEX KEY: 0001030048 STANDARD INDUSTRIAL CLASSIFICATION: 7311 IRS NUMBER: 131493710 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14093 FILM NUMBER: 589425 BUSINESS ADDRESS: STREET 1: 285 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10017-6486 MAIL ADDRESS: STREET 1: YOUNG & RUBICAM INC STREET 2: 285 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-K 1 FORM 10-K - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 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) 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)
Registrant's telephone number, including area code: (212) 210-3000 Securities Registered Pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - - ------------------------------------- ------------------------ Common Stock, $.01 Par Value New York Stock Exchange
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. CLASS OUTSTANDING AS OF MARCH 24, 2000 - - ------------------------------------- --------------------------------- Common Stock, $.01 Par Value 72,284,001
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. - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- YOUNG & RUBICAM INC. --------------------------- INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
PAGE ----- 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
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.
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... 21
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 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 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 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 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 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 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 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:
APPROXIMATE SQUARE LEASE LOCATION USE FOOTAGE EXPIRATION - - ---------------------------- --------------------------------------------------------- ------------ ----------- 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
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 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.
DIVIDENDS PAID PER SHARE HIGH LOW OF COMMON STOCK ----------- ----------- ------------------------- 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
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 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:
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------------- -------------- -------------- -------------- -------------- (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 ============ =========== ===========
- - ------------------ (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 SELECTED BALANCE SHEET DATA
DECEMBER 31 ------------------------------------------------------------------------ 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ (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
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.
% OF % OF % OF (IN MILLIONS) 1999 REVENUES 1998 REVENUES 1997 REVENUES -------------- ---------- -------------- ------------ -------------- ----------- 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%) ========== ====== ========== ====== ========== =======
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 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 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 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 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 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 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 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 PART IV ITEM 14. EXHIBITS; FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1. Financial Statements:
PAGE ----- 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
2. Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 1999 ......................................... S-1
All other schedules are omitted because they are not applicable. 3. Exhibits: 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).+
21 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).+
22 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).*
- - ---------- * 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 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.
SIGNATURE TITLE DATE - - ------------------------------ ------------------------------------ ---------------- /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
24 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- 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
F-1 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. Thomas D. Bell, Jr. Michael J. Dolan President and Vice Chairman and Chief Executive Officer Chief Financial Officer
F-2 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 YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 ------------- ------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 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 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------------- 1999 1998 -------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 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 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-5 YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------- 1999 -------------- (IN THOUSANDS) 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 =========== YEAR ENDED DECEMBER 31, ----------------------------- 1998 1997 -------------- -------------- (IN THOUSANDS) 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 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-6 YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
COMMON CAPITAL ACCUMULATED STOCK SURPLUS DEFICIT ----------- ------------- --------------- (IN THOUSANDS) 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) ====== ========== =========== ACCUMULATED COMMON OTHER STOCK IN RESTRICTED COMPREHENSIVE TREASURY STOCK INCOME TOTAL ------------- -------------- -------------- --------------- (IN THOUSANDS) 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 ========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-7 YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EARNINGS (LOSS) PER INCOME (LOSS) SHARE BEFORE OPERATING BEFORE EXTRAORDINARY CHARGE PROFIT EXTRAORDINARY ----------------------- QUARTER REVENUES (LOSS) CHARGE BASIC DILUTED - - --------------------- ------------ ------------- --------------- ----------- ----------- 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) ---------- ----------- ----------- NET COMMON STOCK DIVIDENDS PAID INCOME ----------------------- PER SHARE OF QUARTER (LOSS) HIGH LOW COMMON STOCK - - --------------------- ------------- ----------- ----------- --------------- 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) -----------
- - ---------- (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 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 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 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:
1999 1998 1997 ------------ ------------ ------------- 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 ========== ========== ==========
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 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
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) 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 ======== ======= ======== ======= ======== ========
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.
FINANCIAL INFORMATION 1999 1998 1997 ------------ ------------ ------------ (IN THOUSANDS) 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
F-12 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 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:
AS OF DECEMBER 31, ------------------------- USEFUL LIVES 1999 1998 -------------------------------------- ----------- ----------- (IN THOUSANDS) 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 ========= =========
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 YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED )
1999 1998 1997 ----------- -------------- ---------- (IN THOUSANDS) Domestic ......... $191,920 $ (127,325) $12,304 Foreign .......... 86,300 40,328 24,000 -------- ---------- ------- Total ............ $278,220 $ (86,997) $36,304 ======== ========== =======
The following summarizes the provision (benefit) for income taxes:
1999 1998 1997 ------------ ------------ ----------- (IN THOUSANDS) 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 ========= ========= =========
Y&R's effective income tax rate varied from the statutory federal income tax rate as a result of the following factors:
1999 1998 1997 ---------- ------------- ---------- 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% ==== ===== =====
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 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:
AS OF DECEMBER 31, --------------------------- 1999 1998 ------------ ------------ (IN THOUSANDS) 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 ========== =========
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 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.
UNITED STATES EUROPE OTHER TOTAL --------------- ----------- ----------- ------------- (IN THOUSANDS) 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
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 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:
1999 1998 ------------------------------------ ------------------------------------ U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL ------------ ---------- ------------ ------------ ---------- ------------ (IN THOUSANDS) 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 ========== ======= ========== ========== ====== ========== 1997 -------------------------------- U.S. NON-U.S. TOTAL ---------- ---------- ---------- (IN THOUSANDS) 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 ======== ======= ========
Changes in the benefit obligation and plan assets are as follows:
AS OF DECEMBER 31, ------------------------------------------------------------------------------- 1999 1998 -------------------------------------- ---------------------------------------- U.S. NON-U.S. TOTAL U.S. NON-U.S. TOTAL ------------ ------------ ------------ ------------ -------------- ------------ (IN THOUSANDS) 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 ========= ========= ========= ========= ========== =========
F-18 YOUNG & RUBICAM INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - (CONTINUED ) Assumptions used were:
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. --------- ---------- --------- ---------- ---------- -------------- 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
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 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:
AS OF DECEMBER 31, -------------------------- 1999 1998 ------------ ----------- (IN THOUSANDS) 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 ========= ========
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 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:
COMMON COMMON STOCK STOCK IN TREASURY --------------- --------------- 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 ========== ==========
F-21 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 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:
1999 1998 1997 ---------------- ---------------- ---------------- 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%
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 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:
OPTIONS WEIGHTED-AVERAGE OUTSTANDING EXERCISE PRICE --------------- ----------------- 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 ========== ========
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:
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 - - ------------------------------------ ------------- ------------- ----------- ------------- ---------- $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 ---------- ---- -------- --------- --------
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 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:
(IN THOUSANDS) 2000 ..................... $ 61,831 2001 ..................... 56,600 2002 ..................... 50,672 2003 ..................... 42,891 2004 ..................... 38,092 Thereafter ............... 93,014
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 YOUNG AND RUBICAM INC. AND SUBSIDIARY COMPANIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS) - - --------------------------------------------------------------------------------
ADDITIONS ----------------------------- BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND CHARGED TO AT END OF DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD - - ----------------------------------------- ------------ ------------ ---------------- ------------ ---------- 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 ======== ======== == ======= ========
S-1 EX-10.22 2 EXHIBIT 10.22 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. (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 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 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 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 (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 (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 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 (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 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 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 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 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 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 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 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 (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 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 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 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. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. YOUNG & RUBICAM INC. By: ____________________ ________________________ Participant 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. EX-10.23 3 EXHIBIT 10.23 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: (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 (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 EX-10.24 4 EXHIBIT 10.24 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. (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 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 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 (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 10. Governing Law. To the extent not preempted by federal law, the provisions of this Plan shall be interpreted and construed in accordance with the laws of the State of New York. 11. Effective Date. This Plan shall become effective on March 23, 1999. The Board of Directors may amend, suspend or terminate the plan at any time; provided that no such amendment, suspension or termination shall adversely affect the amounts in any then-existing account. Upon termination of the Plan, the Company shall pay to each Eligible Director in shares of Common Stock the number of whole shares of Common Stock (with any fractional shares to be paid in cash) in his Common Stock Account on the date of such termination or as soon as practicable thereafter. 12. Unfunded Plan. This Plan shall be unfunded. Amounts payable hereunder shall be paid from the general assets of the Company. The Company may establish a trust pursuant to a trust agreement and make contributions thereto for the purpose of assisting the Company in meeting its obligations in respect of benefits payable under the Plan. Any such trust agreement shall contain procedures to the following effect: (a) In the event of the insolvency of the Company, the trust fund will be available to pay the claims of any creditor of the Company to whom a distribution may be made in accordance with state and federal bankruptcy laws. The Company shall be deemed to be "insolvent" if the Company is subject to a pending proceeding as a debtor under the federal Bankruptcy Code (or any successor federal statute) or any state bankruptcy code. In the event the Company becomes insolvent, the Board of Directors and chief executive officer of the Company shall notify the trustee of that event as soon as practicable. Upon receipt of such notice, or if the trustee receives other written allegation of the Company's insolvency, the trustee shall cease making payments of benefits from the trust fund, shall hold the trust fund for the benefit of the Company's creditors, and shall take such steps as are necessary to determine within thirty (30) days whether the Company is insolvent. In the case of the trustee's actual knowledge of or other determination of the Company's insolvency, the trustee will deliver assets of the trust fund to satisfy claims of the Company's creditors as directed by a court of competent jurisdiction; (b) The trustee shall resume payment of benefits under the trust agreement only after the trustee has determined that the Company is not insolvent (or is no longer insolvent, if the trustee had previously determined the Company to be insolvent) or upon receipt of an order of a court of competent jurisdiction requiring such payment. If the trustee discontinues payment of benefits pursuant to paragraph (a) of this Section 12 and subsequently resumes such payment, the first payment on account of a participant following such discontinuance shall include an aggregate amount equal to the difference between the payments which would have been made on account of such participant under the trust agreement and the aggregate payments actually made on account of such participant by the Company during any such period of discontinuance, plus interest on such amount at a rate equivalent to the net rate of return earned by the trust fund during the period of such discontinuance. 6 Amendment 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 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 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 (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 EX-10.25 5 EXHIBIT 10.25 EXHIBIT 10.25 YOUNG & RUBICAM INC. DIRECTORS STOCK OPTION PLAN AS ADOPTED JANUARY 16, 2000 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 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 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 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 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 (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 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 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 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 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. 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] ___________________________ EX-10.28 6 EXHIBIT 10.28 ================================================================================ Young & Rubicam Inc. to The Bank of New York, as Trustee ----------- Indenture Dated as of January 20, 2000 3% Convertible Subordinated Notes due 2005 ================================================================================ 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 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 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 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 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 "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 "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 "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 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 "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 "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 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 "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 "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 (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 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 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 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 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 (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 (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 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 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 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 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 (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 (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 (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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 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 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 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 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 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 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 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 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 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 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 (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 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 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 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 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 (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 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 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 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 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 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 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 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 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 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 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 (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 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 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 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 (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 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 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 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 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 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 (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 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 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 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: 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 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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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 "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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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 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 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 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 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 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 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 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 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 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 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 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 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 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 (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 [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:
====================================================================================================== 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 ====================================================================================================== - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------ ======================================================================================================
A-19 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 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 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 [Names of Transferor], By --------------------------------- Name: Title: Dated: cc: Young & Rubicam Inc. Attn: Secretary B-2 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 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 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 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 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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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 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 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 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 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- (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 EX-23.1 7 EXHIBIT 23.1 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 EX-24.1 8 EXHIBIT 24.1 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 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. EX-27 9 FDS --
5 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. 0001030048 Young & Rubicam Inc. 1 US DOLLAR 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1 144,517,000 0 1,056,457,000 (25,012,000) 0 1,374,187,000 442,681,000 (248,112,000) 2,414,281,000 1,699,606,000 0 0 0 730,000 423,450,000 2,414,281,000 0 1,717,186,000 0 1,509,100,000 (84,982,000) 0 14,848,000 278,220,000 111,288,000 167,099,000 0 0 0 167,099,000 2.43 2.02
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