<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-7898
GREY ADVERTISING INC.
(Exact name of registrant as specified in its charter)
Delaware 13-0802840
------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
777 Third Avenue, New York, New York 10017
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 212-546-2000
including area code ------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1 per share
------------------------------------
(Title of Class)
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 and (2) has been subject to the 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes X No
---- ----
<PAGE> 2
The aggregate market value of the voting stock held by non-affiliates of
registrant was $132,500,023 as at March 1, 1995.
The registrant had 920,932 shares of its Common Stock, par value $1 per share,
and 324,929 shares of its Limited Duration Class B Common Stock, par value $1
per share, outstanding as at March 1, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement to be furnished in connection with the
registrant's 1995 annual meeting of stockholders are incorporated by reference
into Part III.
<PAGE> 3
PART I.
ITEM 1. BUSINESS.
Registrant ("Grey") and its subsidiaries (collectively with Grey, the
"Company") have been engaged in the planning, creation, supervision and placing
of advertising since the Company's formation in 1917. Grey was incorporated in
New York in 1925 and changed its state of incorporation to Delaware in 1974.
The Company's principal business activity consists of providing a full
range of advertising services to its clients. Typically, this involves
developing an advertising and/or marketing plan after study of a client's
business, the distribution or utilization of the client's products or services
and the use of various media (e.g., television, radio, newspapers, magazines,
direct mail, outdoor billboards) by which desired market performance can best be
achieved. The Company then creates advertising, prepares media recommendations
and places advertising in the media. The Company's business also involves it in
allied areas such as marketing consultation, audio-visual production,
cooperative advertising programs, direct marketing, media buying, research,
product publicity, public relations and sales promotion.
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<PAGE> 4
The Company is not engaged in more than one industry segment, and no
separate class of similar services contributed 10% or more of the Company's
gross income or net income during 1994, 1993 or 1992.
The Company serves a diversified client roster in the apparel,
automobile, beverage, chemical, community service, computer, corporate,
electrical appliance, entertainment, food product, home furnishing, houseware,
office product, packaged goods, publishing, restaurant, retailing, toy, travel
and other sectors.
Advertising is a highly competitive business in which agencies of all
sizes and other providers of creative or media services strive to attract new
clients or additional assignments from existing clients. Competition for new
business, however, is restricted from time to time because large agencies (such
as the Company) often are precluded from providing advertising services for
products or services that may be viewed as being competitive with those of an
existing client. Generally, since advertising agencies charge clients
substantially equivalent rates for their services, competitive efforts
principally focus on the skills of the competing agencies.
Published reports indicate that there are over 500 advertising
agencies of all sizes in the United States. In 1994, the Company was the 8th
largest United States advertising agency in terms of domestic gross income
according to statistics published in Adweek, a trade publication.
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Approximately 52% of the Grey's present domestic advertising clients,
representing a significant majority of the Company's 1994 domestic gross income,
have been with the Company since 1990. The agreements between the Company and
most of its clients are generally terminable by either the Company or the client
on 90 days' notice as is the custom in the industry. Clients may also reduce
advertising budgets at any time and for any reason.
During 1994, one client (The Procter & Gamble Company) represented
more than 10% of the Company's consolidated income from commissions and fees. No
other client represented more than 5% of the Company's total consolidated
commissions and fees. The loss of such client or other large clients of the
Company may be expected to have an adverse effect on net income. Losses of
important clients in past years, however, have not had a long-term effect upon
the Company's financial condition or its competitive position.
On December 31, 1994, Grey and its consolidated subsidiaries employed
approximately 5,800 persons, of whom eight were executive officers of Grey.
As is generally the case in the advertising industry, the Company's
business traditionally has been seasonal, with greater revenues generated in the
second and fourth quarters of each year. This reflects, in large degree, the
media placement patterns of the Company's clients.
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<PAGE> 6
Advertising programs created by the Company are placed principally in
media distributed within the United States and overseas through its offices in
the United States and a number of foreign countries. While the Company operates
on a worldwide basis, for the purposes of presenting certain financial
information in accordance with Securities and Exchange Commission rules, its
operations are deemed to be conducted in three geographic areas. Commissions and
fees, and operating profit by each such geographic area for the years ended
December 31, 1994, 1993 and 1992, and related identifiable assets at December 31
of each of the years, are summarized in Note N of the Notes to Consolidated
Financial Statements, which is incorporated herein by reference.
While the Company has no reason to believe that its foreign operations
as a whole are presently jeopardized in any material respect, there are certain
risks of operating which do not affect domestic operations but which may affect
the Company's foreign operations from time to time. Such risks include the
possibility of limitations on repatriation of capital or dividends, political
instability, currency devaluation and restrictions on the percentage of
permitted foreign ownership.
6
<PAGE> 7
EXECUTIVE OFFICERS OF THE REGISTRANT
AS OF MARCH 1, 1995
<TABLE>
<CAPTION>
Year First
became Execu-
Executive Officers (a) Position Age tive Officer
---------------------- -------- --- ------------
<S> <C> <C> <C>
Robert L. Berenson President - Grey, N.Y. 55 1978
Barbara S. Feigin Exec. Vice President 57 1983
Steven G. Felsher Exec. Vice President
Finance - Worldwide,
Secretary & Treasurer 45 1989
William P. Garvey Exec. Vice President,
Chief Financial Officer
- United States 57 1970
John A. Gerster Exec. Vice President 47 1983
Edward H. Meyer Chairman of the Board,
President & Chief
Executive Officer 68 1959
Stephen A. Novick Exec. Vice President 54 1984
O. John C. Shannon President - Grey Int'l. 58 1993
</TABLE>
(a) All executive officers are elected annually by the Board of Directors of
Grey. Each executive officer has been with Grey for a period more than
five years. There exists no family relationship between any of Grey's
directors or executive officers and any other director or executive
officer or person nominated or chosen to become a director or executive
officer.
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<PAGE> 8
ITEM 2. PROPERTIES.
Substantially all offices of the Company are located in
leased premises. The Company's principal office is at 777 Third Avenue, New
York, New York, where it now occupies approximately 357,000 square feet of
space. The main lease covering the bulk of this space expires in 1999. The
Company also has significant leases covering other offices in New York, Los
Angeles, Amsterdam, Brussels, Copenhagen, Dusseldorf, Hong Kong, London, Madrid,
Melbourne, Milan, Paris, Stockholm and Toronto.
The Company considers all space leased by it to be adequate
for the operation of its business and does not foresee any significant
difficulty in meeting its space requirements.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material pending legal
proceedings other than ordinary routine litigation incidental to the business of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders
during the fourth quarter of 1994.
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<PAGE> 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of Grey is traded on The Nasdaq Stock
Market's National Market and quoted on the National Market System of NASDAQ
under the symbol GREY.
As of March 1, 1995, there were 513 holders of record of the
Common Stock and 310 holders of record of the Limited Duration Class B Common
Stock.
The following table sets forth certain information about
dividends paid, and the bid prices on the NASDAQ Stock Market during the periods
indicated with respect to the Common Stock:
<TABLE>
<CAPTION>
BID PRICES*
DOLLARS PER SHARE DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C> <C>
1993 First Quarter 157 132 .775
Second Quarter 165 143 .775
Third Quarter 189 166 .775
Fourth Quarter 187 174 .8125
1994 First Quarter 196 178 .8125
Second Quarter 195 182 .8125
Third Quarter 190 159 .8125
Fourth Quarter 165 144 .875
</TABLE>
* Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
9
<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commissions and fees... $481,282,000 $528,299,000 $564,468,000 $567,243,000 $593,317,000
Expenses...... 449,719,000 490,570,000 522,510,000 526,455,000 552,022,000
Restructuring charges (a) 23,850,000
Goodwill write-off (b) 39,944,000
Income of consolidated
companies before taxes
on income 33,575,000 13,277,000 42,588,000 42,705,000 1,610,000
Taxes on income.... 17,417,000 5,057,000 19,975,000 22,487,000 21,621,000
Net income (loss) 14,558,000 3,807,000 15,904,000 17,681,000 (21,378,000)
Net income (loss) per
common share (c)
Primary... 10.97 3.09 12.68 13.46 (17.51)
Fully diluted...... 10.64 3.08 12.25 13.00 N/A
Weighted average number
of common shares out-
standing......
Primary..... 1,208,093 1,196,908 1,205,241 1,263,900 1,285,506
Fully diluted...... 1,259,599 1,248,815 1,258,799 1,319,349 1,336,829
Working capital...... 5,918,000 8,364,000 12,588,000 25,001,000 33,735,000
Total assets...... 626,522,000 735,831,000 752,364,000 820,633,000 830,076,000
Long-term debt.... 3,025,000 3,025,000 3,025,000 33,025,000 33,025,000
Redeemable preferred
stock at redemption
value...... 6,145,000 6,053,000 6,468,000 6,590,000 7,516,000
Common stockholders'
equity..... 104,000,000 105,153,000 118,741,000 129,077,000 108,705,000
Cash dividend per share
of Common Stock and
Limited Duration
Class B Common Stock 2.83 2.93 3.025 3.1375 3.3125
</TABLE>
(a) In 1991, the Company recognized restructuring charges primarily
related to the absorption of the Company's subsidiary, Levine Huntley
Vick & Beaver, Inc.
(b) In the fourth quarter of 1994, the Company recorded a charge of
$39,944,000 on both a pre-tax and after-tax basis, for a non-cash
write-off which related almost exclusively to write-offs of goodwill.
(c) Gives effect to amounts attributable to (i) redeemable preferred
stock, (ii) the assumed exercise of dilutive stock options, (iii)
shares issuable pursuant to the Company's Senior Management Incentive
Plan and (iv) for fully diluted net income per common share, the
assumed conversion of 8-1/2% Convertible Subordinated Debentures
issued December 1983.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Income from commissions and fees ("gross income") increased 4.6% in
1994 and 0.5% in 1993 as compared to the respective prior years. Absent exchange
rate fluctuations, gross income increased 6.0% in 1994 and 5.9% in 1993 as
compared to the respective prior years. In 1994, 1993 and 1992, respectively,
46.8%, 47.2% and 42.7% of consolidated gross income was attributable to domestic
operations and 53.2%, 52.8% and 57.3%, respectively, to international
operations. The increases in gross income in both years primarily resulted
from expanded activities from existing clients and the continued growth of the
Company's general agency and specialized operations. In 1994, gross income
from domestic operations increased 3.5% versus 1993 and was up 11.1% in 1993
versus 1992. Gross income from international operations increased 5.6% in 1994
when compared to 1993 after a decrease of 7.4% in 1993. The decrease in
international gross income in 1993 was partially attributable to a general
slowdown of advertising activity in certain markets and the relative strength
of the United States dollar.
Salaries and employee-related expenses increased 6.2% in 1994 and less
than 1%, in 1993 as compared to the respective prior years. Office and general
expenses, absent the goodwill write-off (discussed below), increased 3.3% in
1994 and 2.1% in 1993 versus respective prior years. The increases in expenses
are generally in line with the increases in gross income shown for such years.
In the fourth quarter of 1994, the Company wrote-off $39,944,000 of
goodwill. The non-cash write-off related almost exclusively to international
acquisitions made by the Company principally in the 1980's. The carrying value
of the Company's goodwill prior to the write-off was approximately $84,000,000
and the write-off was associated with 34 of the almost 100 investments for
which the Company had unamortized goodwill. The portion of the write-off
relating to advertising agencies was approximately $31,295,000 and $8,649,000
related to public relations agencies. Significant amounts of these write-offs
related to operations in the United Kingdom.
The widely recognized international recession seriously affected the
advertising industry, particularly in Western Europe, where the Company has its
largest and most developed international operations. As the recession abated in
the latter part of 1994, the Company was able to assess more clearly the
long-term prospects of the affected operations. At that point, and in
connection with annual business plan meetings which took place in the
fourth quarter, it became clear that the goodwill associated with a number of
the agencies had become permanently impaired. Management's projections
indicated that anticipated future cash flows for these specific operations
would not, as would be expected in a normal post-recession environment, recover
sufficiently to cover amortization of the associated goodwill. The gross income
of the operations for which permanent impairment of goodwill was recognized in
1994 represented approximately 7%, 9% and 12% of the Company's consolidated
gross income in 1994, 1993 and 1992, respectively.
In reaching its conclusion as to the impairment of goodwill, the
Company took into account certain client-related developments, such as client
losses or major changes in the business circumstances of clients significant to
particular operations, and the departure of key management personnel. In
substantially all of the 34 operations for which there were goodwill
write-offs, the loss of key clients and/or key personnel specific to those
operations were significant factors leading to management's determination that
goodwill was impaired. While indicators of impairment may have been developing
during the course of the year, until the recession abated, business planning
meetings were held and the annual analysis of recoverability of goodwill was
performed, management had not determined whether permanent impairment of
goodwill had occurred.
11
<PAGE> 12
The material portion of the goodwill write-off related to ten agencies
acquired in the United Kingdom as part of a strategy to develop the Company's
representation outside of the London market in the general advertising category
and in certain specialized disciplines (such as retail advertising, promotional
services and public relations). With the revival of the industry, a review of
the Company's local market strategies, and in conjunction with several key
management changes, client losses or the inability of these operations to
maintain revenues with replacement or new clients, after the analysis referred
to above, management concluded that the goodwill associated with these
operations had been permanently impaired. While future client losses and
management changes could affect the Company's operations in the United Kingdom,
the Company has consolidated a number of operations, thereby lessening the
likelihood of a negative impact from any instance of client or management
turnover. In addition, the unimpaired goodwill balances associated with the
United Kingdom operations represents less than 10% of the Company's
consolidated unamortized goodwill as of December 31, 1994.
Several of the operations where permanent impairment of goodwill was
identified will continue to operate as ongoing businesses; however, management
has concluded that such operations will likely continue to experience
difficulties. While the Company has no intention of closing any office or
terminating employees in these operations other than in the normal course of
business, the Company will take prudent and reasonable actions, which may
include expense reductions, consolidation of offices and perhaps making
selected acquisitions to supplement these operations, as may be necessary to
have such operations contribute to the Company's profitable activities.
In 1993 and 1992, respectively, the Company wrote-off $1,939,000 and
$3,065,000 of goodwill in excess of normal amortization schedules.
The Company will continue to assess the carrying value of its goodwill
by analyzing non-discounted cash flows and will recognize additional permanent
impairments, if any, as they arise.
Neither inflation nor changing prices had a material effect on revenue
or expenses in 1992, 1993 or 1994.
The effective tax rate was 1,342.9% in 1994, 52.7% in 1993 and 46.9%
in 1992. The increase in the effective tax rate in 1994 as compared to 1993 is
due to the goodwill write-off in the fourth quarter, which is a non-deductible
expense for tax purposes. Absent the goodwill write-off, the 1994 effective tax
rate would have been 52.0%, approximately the same as 1993. The increase in the
effective tax rate in 1993 as compared to 1992 is primarily related to an
increase in the state and local tax provision which results from a higher
portion of income of consolidated companies before taxes on income being derived
from domestic
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<PAGE> 13
operations in 1993. In addition, the 1993 effective tax rate increased because
the U.S. income tax statutory rate rose to 35% from 34%.
Minority interest decreased $1,468,000 in 1994 and $3,104,000 in 1993
as compared to the respective prior years. The decreases in 1994 and in 1993
were primarily due to changes in the level of profits of majority-owned
companies.
Equity in earnings of nonconsolidated companies decreased $298,000 in
1994 and increased $1,068,000 in 1993 as compared to the respective prior years.
These changes are due primarily to changes in the level of profits attributable
to the nonconsolidated companies.
The Company reported a loss of $21,378,000 for 1994 as compared to
net income of $17,681,000 in 1993; absent the goodwill write-off, net income for
1994 would have been $18,566,000, an increase of 5.0% over 1993. Net income for
1993, increased 11.2% over net income in 1992. Net loss per common share for
1994 was $17.51 as compared to primary earnings per share of $13.46 in 1993.
Absent the goodwill write-off, primary net income per share would have been
$13.50, an increase of .3% over 1993. Primary net income per share increased
6.2% in 1993 over 1992.
13
<PAGE> 14
For purposes of computing primary net income per common share, the
Company's net income was (i) reduced by dividends paid on the Company's
Preferred Stock and (ii) reduced or increased by the increase or decrease,
respectively, in redemption value of the Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a high level of liquidity, as it
continued to have high levels of cash and investments in highly marketable
liquid United States government securities. Cash and cash equivalents were
$170,077,000 and $181,267,000 at December 31, 1994 and 1993, respectively, and
the Company's investment in United States government securities was $22,463,000
and $22,425,000 at December 31, 1994 and 1993, respectively. The high level of
liquidity reflects the Company's attention to the cash management process.
Domestically, the Company maintains committed bank lines of credit
totalling $40,000,000. These lines of credit were partially utilized during both
1994 and 1993 to secure obligations of selected foreign subsidiaries in the
respective year-end amounts of $15,000,000 and $11,100,000.
Other lines of credit are available to the Company in foreign
countries in connection with short-term borrowings and bank overdrafts used in
the normal course of business. There were $49,460,000 and $34,751,000
outstanding under such facilities at December 31, 1994 and 1993, respectively.
14
<PAGE> 15
Historically, funds from operations and short-term bank
borrowings have been sufficient to meet the Company's dividend, capital
expenditure and working capital needs. The Company expects that such sources
shall be sufficient to meet its short-term cash requirements in the future.
While the Company has not had to utilize long-term borrowing to
fund its operating needs, in January 1993, taking advantage of favorable terms
offered, it borrowed $30,000,000, at a fixed interest rate of 7.68%, principal
repayable in equal installments in January 1998, 1999 and 2000. The Company does
not anticipate any material increased requirement for capital or other
expenditures which will adversely affect its liquidity.
The Company's business generally has been seasonal with
greater commissions and fees earned in the second and fourth quarters,
particularly the fourth quarter. As a result, cash, accounts receivable,
accounts payable and accrued expenses are typically higher on the Company's
year-end balance sheet than at the end of any of the preceding three quarters.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is presented in this report
beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
<PAGE> 16
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the directors of the Company is
incorporated herein by reference to the Company's proxy statement (the "Proxy
Statement") to be sent to its stockholders in connection with its 1995 annual
meeting, under the caption "Election of Directors". Information with respect to
the Company's executive officers is set forth in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the caption
"Management Remuneration and Other Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the captions
"Election of Directors" and "Voting Securities".
16
<PAGE> 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by
reference to the Proxy Statement and will be included under the captions
"Election of Directors" and "Voting Securities".
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) (2) The information required by this subsection
of this Item is presented in the index to Financial
Statements on Page F-1.
(3)The information required by this subsection of
this Item is provided in the Index of Exhibits at
Page F-1 of this report. Such index provides a
listing of exhibits filed with this report and those
incorporated herein by reference.
(b) Reports on Form 8-K: The Company filed a report on
Form 8-K dated December 13, 1994 and filed with the
Commission on December 20, 1994 in which the
Company's announcement of a fourth quarter non-cash
write-off of goodwill was disclosed. Further
information about this transaction can be found in
both the Management's Discussion and Analysis of
Financial Condition and Results of Operations (Item
7) and Note M to the Consolidated Financial
Statements.
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<PAGE> 18
The undersigned Registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into Registrant's Registration
Statements on Form S-8, filed with the SEC pursuant to Section 6(a) of the '33
Act:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a director, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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<PAGE> 19
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GREY ADVERTISING INC.
By: /s/ Edward H. Meyer
----------------------------
Edward H. Meyer,
Chairman, Chief Executive
Officer & President
Dated: March 30, 1995
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
registrant and in the capacities and on the dates indicated.
/s/ Mark N. Kaplan Dated: March 30, 1995
------------------------------------
Mark N. Kaplan, Director
/s/ Edward H. Meyer Dated: March 30, 1995
------------------------------------
Edward H. Meyer, Director;
Principal Executive Officer
/s/ O. John C. Shannon Dated: March 30, 1995
------------------------------------
O. John C. Shannon, Director;
President - Grey International
/s/ Richard R. Shinn Dated: March 30, 1995
------------------------------------
Richard R. Shinn, Director
/s/ Steven G. Felsher Dated: March 30, 1995
------------------------------------
Steven G. Felsher,
Principal Financial Officer
/s/ William P. Garvey Dated: March 30, 1995
------------------------------------
William P. Garvey,
Principal Accounting Officer
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Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2) and item 14(d)
Financial Statements and Supplementary Data
List of Financial Statements
Year ended December 31, 1994
GREY ADVERTISING INC.
New York, New York
<PAGE> 21
Form 10-K - Item 8, Item 14(a)(1) and (2)
Grey Advertising Inc. and Consolidated Subsidiary Companies
Index to Financial Statements
The following consolidated financial statements of Grey Advertising Inc. and
consolidated subsidiary companies are included in Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors...................................... F-2
Consolidated Balance Sheets -- December 31, 1994 and 1993........... F-3
Consolidated Statements of Income -- Years Ended
December 31, 1994, 1993 and 1992.................................. F-5
Consolidated Statements of Common Stockholders' Equity --
Years Ended December 31, 1994, 1993 and 1992...................... F-6
Consolidated Statements of Cash Flows --
Years Ended December 31, 1994, 1993 and 1992...................... F-8
Notes to Consolidated Financial Statements --
December 31, 1994................................................. F-10
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
Summarized financial information and financial statements for nonconsolidated
foreign investee companies accounted for by the equity method have been omitted
because such companies, considered individually or in the aggregate, do not
constitute a significant subsidiary.
F-1
<PAGE> 22
Report of Independent Auditors
Board of Directors
Grey Advertising Inc.
We have audited the accompanying consolidated balance sheets of Grey Advertising
Inc. and consolidated subsidiary companies as of December 31, 1994 and 1993, and
the related consolidated statements of income, common stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Grey
Advertising Inc. and consolidated subsidiary companies at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 8, 1995
F-2
<PAGE> 23
Grey Advertising Inc. and Consolidated Subsidiary Companies
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $170,077,000 $181,267,000
Marketable securities (Notes A and E) 7,678,000
Accounts receivable 403,973,000 363,105,000
Expenditures billable to clients 30,145,000 22,581,000
Other current assets 63,796,000 69,116,000
---------------------------
Total current assets 675,669,000 636,069,000
Investments in and advances to nonconsolidated
affiliated companies (Notes A and B) 16,495,000 16,104,000
Fixed assets -- net (Note D) 61,174,000 57,724,000
Marketable securities (Notes A and E) 14,785,000 22,425,000
Intangibles and other assets - including loans to
officers of $5,347,000 in 1994
and $4,947,000 in 1993 (Notes A, F,
G, I and L(1)) 61,953,000 88,311,000
---------------------------
Total assets $830,076,000 $820,633,000
===========================
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 24
Grey Advertising Inc. and Consolidated Subsidiary Companies
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
-----------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $475,188,000 $469,227,000
Notes payable to banks (Note F) 64,460,000 45,851,000
Accrued expenses and other 88,156,000 88,099,000
Income taxes payable 14,130,000 7,891,000
-----------------------------------
Total current liabilities 641,934,000 611,068,000
Other liabilities, including deferred compensation of
$16,244,000 and $15,342,000 (Note L(1)) 30,053,000 31,820,000
Long-term debt (Note F) 33,025,000 33,025,000
Minority interest 8,843,000 9,053,000
Redeemable preferred stock - at redemption value; par value
$1 per share; authorized 500,000 shares; issued and
outstanding 32,000 shares in 1994 and 32,000 in
1993(Note G) 7,516,000 6,590,000
Common stockholders' equity:
Common Stock - par value $1 per share; authorized
10,000,000 shares; issued 1,077,116 in 1994 and
1,062,046 in 1993 1,077,000 1,062,000
Limited Duration Class B Common Stock - par value $1
per share; authorized 2,000,000 shares; issued 354,668
shares in 1994 and 369,738 shares in 1993 355,000 370,000
Paid-in additional capital 31,895,000 27,329,000
Retained earnings 105,123,000 131,835,000
Cumulative translation adjustment (728,000) (3,573,000)
Unrealized loss on marketable securities (Notes A and E) (1,492,000) (147,000)
Loans to officer used to purchase Common Stock and
Limited Duration Class B Common Stock (Note I) (4,726,000) (4,726,000)
-----------------------------------
131,504,000 152,150,000
Less - cost of 161,382 and 164,372 shares of Common
Stock and 26,751 and 26,851 shares of Limited Duration
Class B Common Stock held in treasury at December
31, 1994 and 1993, respectively 22,799,000 23,073,000
-----------------------------------
Total common stockholders' equity 108,705,000 129,077,000
Retirement plans, leases and contingencies (Note L)
-----------------------------------
Total liabilities and stockholders' equity $830,076,000 $820,633,000
===================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 25
Grey Advertising Inc. and Consolidated Subsidiary Companies
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C>
Commissions and fees $ 593,317,000 $ 567,243,000 $ 564,468,000
Expenses:
Salaries and employee related expenses
(Note L(1)) 370,196,000 348,462,000 346,933,000
Office and general expenses (Note L(2)) 181,826,000 176,054,000 172,512,000
Goodwill write-off (Notes A and M) 39,944,000 1,939,000 3,065,000
--------------------------------------------------------------
591,966,000 526,455,000 522,510,000
--------------------------------------------------------------
1,351,000 40,788,000 41,958,000
Other income - net (Note C) 259,000 1,917,000 630,000
--------------------------------------------------------------
Income of consolidated companies before
taxes on income 1,610,000 42,705,000 42,588,000
Provision for taxes on income (Note K) 21,621,000 22,487,000 19,975,000
--------------------------------------------------------------
Net income of consolidated companies (20,011,000) 20,218,000 22,613,000
Minority interest applicable to
consolidated companies (3,040,000) (4,508,000) (7,612,000)
Equity in nonconsolidated affiliated
companies 1,673,000 1,971,000 903,000
--------------------------------------------------------------
Net (loss) income $ (21,378,000) $ 17,681,000 $ 15,904,000
==============================================================
Earnings per Common Share (Note J):
Primary $ (17.51) $ 13.46 $ 12.68
Fully diluted * $ 13.00 $ 12.25
</TABLE>
*Antidilutive
See notes to consolidated financial statements.
F-5
<PAGE> 26
Grey Advertising Inc. and Consolidated Subsidiary Companies
Consolidated Statements of Common Stockholders' Equity
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
PAID-IN
COMMON ADDITIONAL RETAINED
STOCK CAPITAL EARNINGS
------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1991 $1,432,000 $20,030,000 $106,973,000
Net income 15,904,000
Cash dividends- Common Shares-$3.025 (3,519,000)
Cash dividends-Redeemable Preferred Stock-$6.05 (206,000)
Common Shares acquired-at cost
Increase in redemption value of Redeemable Preferred
Stock(Note G) (415,000)
Restricted Stock Plan activity (Note I) 252,000
Tax benefit from restricted stock (Note K) 119,000
Common Shares issued upon exercise of stock options (Note K) 498,000
Tax benefit from exercise of stock options (Note K) 1,556,000
Deferred compensation used to purchase Common Shares 20,000
Senior Management Incentive Plan activity (Note L) 1,160,000
Notes receivable from senior executive related to exercise of
stock options (Note I)
Translation adjustment
------------------------------------------
Balance at December 31, 1992 1,432,000 23,635,000 118,737,000
Net income 17,681,000
Cash dividends-Common Shares-$3.1375 per share (3,911,000)
Cash dividends-Redeemable Preferred Stock-$6.275 per share (204,000)
Common Shares acquired-at cost
Increase in redemption value of Redeemable Preferred Stock (468,000)
(Note G)
Restricted Stock Plan activity (Note I) 256,000
Tax benefit from restricted stock (Note K) 66,000
Common Shares issued upon exercise of stock options (44,000)
Tax benefit from exercise of stock options (Note K) 46,000
Senior Management Incentive Plan activity (Note L) 3,370,000
Translation adjustment
Unrealized loss on marketable securities (Notes A and E)
------------------------------------------
Balance at December 31, 1993 1,432,000 27,329,000 131,835,000
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
HELD IN TREASURY OTHER
------------------------ EQUITY
SHARES AMOUNT ACCOUNTS TOTAL
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991 275,815 $(27,470,000) $4,188,000 $105,153,000
Net income 15,904,000
Cash dividends- Common Shares-$3.025 (3,519,000)
Cash dividends-Redeemable Preferred Stock-$6.05 (206,000)
Common Shares acquired-at cost 7,375 (891,000) (891,000)
Increase in redemption value of Redeemable Preferred
Stock(Note G) (415,000)
Restricted Stock Plan activity (Note I) 252,000
Tax benefit from restricted stock (Note K) 119,000
Common Shares issued upon exercise of stock options (Note K) (70,999) 4,112,000 4,610,000
Tax benefit from exercise of stock options (Note K) 1,556,000
Deferred compensation used to purchase Common Shares (17,810) 1,133,000 1,153,000
Senior Management Incentive Plan activity (Note L) 1,160,000
Notes receivable from senior executive related to exercise of
stock options (Note I) (4,726,000) (4,726,000)
Translation adjustment (1,409,000) (1,409,000)
------------------------------------------------------------
Balance at December 31, 1992 194,381 (23,116,000) (1,947,000) 118,741,000
Net income 17,681,000
Cash dividends-Common Shares-$3.1375 per share (3,911,000)
Cash dividends-Redeemable Preferred Stock-$6.275 per share (204,000)
Common Shares acquired-at cost 5,426 (787,000) (787,000)
Increase in redemption value of Redeemable Preferred Stock
(Note G) (468,000)
Restricted Stock Plan activity (Note I) 256,000
Tax benefit from restricted stock (Note K) 66,000
Common Shares issued upon exercise of stock options (8,584) 830,000 786,000
Tax benefit from exercise of stock options (Note K) 46,000
Senior Management Incentive Plan activity (Note L) 3,370,000
Translation adjustment (6,352,000) (6,352,000)
Unrealized loss on marketable securities (Notes A and E) (147,000) (147,000)
------------------------------------------------------------
Balance at December 31, 1993 191,223 (23,073,000) (8,446,000) 129,077,000
</TABLE>
F-6
<PAGE> 27
Grey Advertising Inc. and Consolidated Subsidiary Companies
Consolidated Statements of Common Stockholders' Equity (continued)
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
PAID-IN
COMMON ADDITIONAL RETAINED
STOCK CAPITAL EARNINGS
-------------------------------------------
<S> <C>
Net loss (21,378,000)
Cash dividends - Common Shares - $3.3125 per share (4,196,000)
Cash dividends - Redeemable Preferred Stock - $6.625 per share (212,000)
Common Shares acquired - at cost
Increase in redemption value of Redeemable Preferred
Stock(Note G) (926,000)
Restricted stock activity (Note I) 30,000
Tax benefit from restricted stock (Note K) 450,000
Common Shares issued upon exercise of stock options (101,000)
Tax benefit from exercise of stock options (Note K) 118,000
Senior Management Incentive Plan activity (Note L) 4,069,000
Translation adjustment
Unrealized loss on marketable securities (Notes A and E)
-------------------------------------------
Balance at December 31, 1994 $1,432,000 $31,895,000 $105,123,000
===========================================
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
HELD IN TREASURY OTHER
-------------------------- EQUITY
SHARES AMOUNT ACCOUNTS TOTAL
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss (21,378,000)
Cash dividends - Common Shares - $3.3125 per share (4,196,000)
Cash dividends - Redeemable Preferred Stock - $6.625 per share (212,000)
Common Shares acquired - at cost 1,993 (372,000) (372,000)
Increase in redemption value of Redeemable Preferred
Stock(Note G) (926,000)
Restricted stock activity (Note I) (1,750) 226,000 256,000
Tax benefit from restricted stock (Note K) 450,000
Common Shares issued upon exercise of stock options (3,333) 420,000 319,000
Tax benefit from exercise of stock options (Note K) 118,000
Senior Management Incentive Plan activity (Note L) 4,069,000
Translation adjustment 2,845,000 2,845,000
Unrealized loss on marketable securities (Notes A and E) (1,345,000) (1,345,000)
------------------------------------------------------------
Balance at December 31, 1994 188,133 $(22,799,000) $(6,946,000) $108,705,000
============================================================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 28
Grey Advertising Inc. and Consolidated Subsidiary Companies
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
-------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(21,378,000) $ 17,681,000 $ 15,904,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of fixed assets 15,093,000 13,591,000 13,171,000
Goodwill write-off 39,944,000 1,939,000 3,065,000
Amortization of intangibles 7,475,000 5,486,000 5,107,000
Deferred compensation 9,006,000 6,379,000 8,572,000
Equity in earnings of nonconsolidated affiliated
companies, net of dividends received of
$903,000, $1,336,000 and $595,000 (770,000) (635,000) (308,000)
Minority interest applicable to consolidated
companies 3,040,000 4,508,000 7,612,000
Amortization of restricted stock expense 116,000 256,000 280,000
Deferred income taxes (5,104,000) (3,271,000) 5,351,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (31,058,000) (29,082,000) 27,633,000
(Increase) decrease in expenditures billable to
clients (6,006,000) 555,000 (4,014,000)
Decrease (increase) in other current assets 10,739,000 28,454,000 (11,434,000)
Increase in other assets (3,077,000) (4,141,000) (5,082,000)
(Decrease) increase in accounts payable (4,220,000) 76,731,000 769,000
(Decrease) increase in accrued expenses and
other (9,424,000) (5,580,000) 8,976,000
Increase in income taxes payable 6,600,000 2,385,000 478,000
Decrease in other liabilities (2,507,000) (7,298,000) (26,160,000)
-------------------------------------------------------
Net cash provided by operating activities 8,469,000 107,958,000 49,920,000
INVESTING ACTIVITIES
Purchases of fixed assets (17,067,000) (13,421,000) (11,904,000)
Increase in investments in and advances to
nonconsolidated affiliated companies (3,564,000) (4,849,000) (1,731,000)
Purchases of marketable securities (1,517,000) (22,572,000)
Increase in intangibles, primarily goodwill (14,800,000) (6,770,000) (1,780,000)
-------------------------------------------------------
Net cash used in investing activities (36,948,000) (47,612,000) (15,415,000)
</TABLE>
F-8
<PAGE> 29
Grey Advertising Inc. and Consolidated Subsidiary Companies
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term
borrowing $ 15,826,000 $ 9,762,000 $(11,331,000)
Common Shares issued under Restricted Stock Plan 141,000
Common Shares acquired for treasury (372,000) (787,000) (492,000)
Cash dividends paid on Common Shares (4,112,000) (3,884,000) (3,519,000)
Cash dividends paid on Redeemable Preferred Stock (212,000) (204,000) (206,000)
Proceeds from exercise of stock options 319,000 786,000 1,041,000
Proceeds from the redemption of Redeemable
Preferred Stock (300,000)
Proceeds from long-term debt 30,000,000
---------------------------------------------------------
Net cash provided by (used in) financing activities 11,590,000 35,373,000 (14,507,000)
Effect of exchange rate changes on cash 5,699,000 (7,207,000) 1,231,000
---------------------------------------------------------
(Decrease) increase in cash and cash equivalents (11,190,000) 88,512,000 21,229,000
Cash and cash equivalents at beginning of year 181,267,000 92,755,000 71,526,000
---------------------------------------------------------
Cash and cash equivalents at end of year $ 170,077,000 $ 181,267,000 $ 92,755,000
=========================================================
</TABLE>
SUPPLEMENTAL INFORMATION REGARDING NON-CASH FINANCING ACTIVITIES.
In 1992, the Company granted a loan of $3,170,000 in partial payment for the
purchase of common stock (see Note I).
See notes to consolidated financial statements.
F-9
<PAGE> 30
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. Material intercompany balances and transactions
have been eliminated in consolidation. Certain amounts for years prior to 1994
have been reclassified to conform with the current year classification.
COMMISSIONS AND FEES
Income derived from advertising placed with media is generally recognized based
upon the publication or broadcast dates. Income resulting from expenditures
billable to clients is generally recognized when billed. Payroll costs are
expensed as incurred.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less from the purchase date to be cash equivalents. The carrying
amount of cash equivalents approximates fair value because of the short
maturities of those instruments.
INVESTMENTS IN AND ADVANCES TO NONCONSOLIDATED AFFILIATED COMPANIES
The Company generally carries its investments in nonconsolidated affiliated
companies on the equity method. Certain investments which are not material in
the aggregate are carried on the cost method.
FIXED ASSETS
Depreciation of furniture, fixtures and equipment is provided for over their
estimated useful lives ranging from three to ten years and has been computed
principally by the straight-line method. Amortization of leaseholds and
leasehold improvements is provided for principally over the terms of the related
leases, which are not in excess of the lives of the assets.
FOREIGN CURRENCY TRANSLATION
Primarily all balance sheet accounts of the Company's foreign operations are
translated at the exchange rate in effect at each year end and income statement
accounts are translated at the average exchange rates prevailing during the
year. Resulting translation adjustments are made directly to a separate
component of stockholders' equity. Foreign currency transaction gains and losses
are reported in income. During 1994, 1993 and 1992, foreign currency transaction
gains and losses were not material
F-10
<PAGE> 31
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES
The excess of purchase price over underlying net equity of certain consolidated
subsidiaries and nonconsolidated affiliated companies at the date of acquisition
("goodwill") is being amortized by the straight-line method over periods of up
to 20 years. The amounts of goodwill associated with consolidated subsidiaries
(included in Other Assets) and nonconsolidated investments (included in
Investments in and Advances to Nonconsolidated Affiliated Companies) were
$36,603,000 and $7,718,000 in 1994 and $63,965,000 and $6,995,000 in 1993,
respectively.
Annually, the Company assesses the carrying value of its goodwill and the
respective periods of amortization. As part of the evaluation, the Company
considers a number of factors including actual operating results, the impact of
gains and losses of major local clients, the impact of any loss of key local
management staff and any changes in general economic conditions. In 1994, the
Company formalized its assessment of goodwill and quantified the recoverability
of goodwill based on each agency's estimated future non-discounted cash flows
over the applicable remaining amortization periods. This required management to
make certain specific assumptions with respect to future revenue and expense
levels. Where multiple investments had been made in an agency, a weighted
average amortization period is used.
Charges to reflect permanent impairment are recorded to the extent that the
unamortized book value of the goodwill exceeds the future cumulative
non-discounted cash flows. If such cash flows are expected to recover less than
10% of the associated goodwill, a full write-off is recorded. No write-off is
recorded if the cash flows are expected to recover 90% or more of the
associated goodwill.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company provides appropriate foreign
withholding taxes on unremitted earnings of consolidated and nonconsolidated
foreign companies.
MARKETABLE SECURITIES
Effective December 31, 1993, the Company adopted FAS 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company has classified its
investments in marketable securities as available-for-sale at the time of
purchase and re-evaluates such designation as of each balance sheet date.
Available-for-sale securities are carried at fair value, based on publicly
quoted market prices, with unrealized gains and losses reported as a separate
component of stockholders' equity.
F-11
<PAGE> 32
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
B. FOREIGN OPERATIONS
The following financial data is applicable to consolidated foreign subsidiaries:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 349,208,000 $357,391,000 $369,342,000
Current liabilities 364,571,000 367,048,000 372,391,000
Other assets--net of
other liabilities 50,696,000 69,915,000 77,214,000
Net (loss) income (35,043,000) 2,584,000 4,473,000
</TABLE>
Consolidated retained earnings at December 31, 1994 includes equity in
unremitted earnings of nonconsolidated foreign companies of approximately
$4,156,000.
C. OTHER INCOME - NET
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 7,507,000 $ 7,307,000 $ 6,565,000
Interest expense (7,833,000) (7,558,000) (7,170,000)
Dividends from affiliates 86,000 674,000 198,000
Other -- net 499,000 1,494,000 1,037,000
----------------------------------------------------------------
$ 259,000 $ 1,917,000 $ 630,000
================================================================
</TABLE>
D. FIXED ASSETS
Components of fixed assets - at cost are:
<TABLE>
<CAPTION>
1994 1993
----------------------------------
<S> <C> <C>
Furniture, fixtures and equipment $97,988,000 $90,304,000
Leaseholds and leasehold improvements 43,770,000 42,091,000
----------------------------------
141,758,000 132,395,000
Less accumulated depreciation and
amortization 80,584,000 74,671,000
----------------------------------
$61,174,000 $57,724,000
==================================
</TABLE>
F-12
<PAGE> 33
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
E. MARKETABLE SECURITIES
At December 31, 1994 and 1993, the Company's investments in marketable
securities consist of U.S. Treasury obligations with maturities of 11 months to
6 years and a market value of $22,463,000 and $22,425,000, respectively. At
December 31, 1994 and 1993, the Company has recorded unrealized losses of
$1,492,000 and $147,000, respectively related to these investments.
F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT
The Company maintains committed lines of credit of $40,000,000 with various
banks and may draw against the lines on unsecured demand notes at rates below
the applicable bank's prime interest rate. These lines of credit were partially
utilized during both 1994 and 1993 to secure obligations of selected foreign
subsidiaries in the respective year-end amounts of $15,000,000 and $11,100,000.
The weighted average interest rate related to the debt associated with the
committed lines of credit was 6.25% and 7.7% at December 31, 1994 and 1993
respectively. The Company had $49,460,000 and $34,751,000 outstanding under
other uncommitted lines of credit at December 31, 1994 and 1993, respectively.
The weighted average interest rate for the borrowings under the uncomitted lines
of credit was 7.7% and 10.9%, at December 31, 1994 and 1993, respectively. The
carrying amount of the debt outstanding under both the committed and uncommitted
lines of credit approximates fair value because of the short maturities of the
underlying notes.
In January 1993, the Company borrowed $30,000,000 from the Prudential Insurance
Company at a fixed interest rate of 7.68% and principal repayable in equal
installments of $10,000,000 in January 1998, 1999 and 2000. The terms of the
loan agreement require, inter alia, that the Company maintain specified levels
of net worth, meet certain cash flow requirements and limit its incurrence of
additional indebtedness to certain specified amounts. At December 31, 1994, the
Company was in compliance with all of these covenants. The fair value of the
Prudential debt is estimated to be $29,900,000 and $31,400,000 at December 31,
1994 and 1993 respectively. This estimate was determined using a discounted cash
flow analysis using current interest rates for debt having similar terms and
remaining maturities.
The remaining balance of long-term debt consists of 8-1/2% Convertible
Subordinated Debentures due December 10, 1996 which are currently convertible
into 8.43 shares of Common Stock and an equal amount of Limited Duration Class B
Common Stock, subject to certain adjustments, for each $1,000 principal amount
of such Debentures. The debt was issued in exchange for cash and a $3,000,000,
9% promissory note, payable
F-13
<PAGE> 34
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT (CONTINUED)
December 10,1997 from an officer of the Company that is included in Other Assets
at December 31, 1994 and 1993. During each of the years 1994, 1993 and 1992, the
Company paid to the officer interest of $257,000 pursuant to the terms of the
Debenture and the officer paid to the Company interest of $270,000 pursuant to
the terms of the 9% promissory note.
For the years 1994, 1993 and 1992, the Company made interest payments of
$7,839,000, $6,529,000 and $7,242,000, respectively.
G. REDEEMABLE PREFERRED STOCK
As of December 31, 1994, the Company had outstanding 20,000 shares of Series I
Preferred Stock, 5,000 shares each of its Series II and Series III Preferred
Stock, and 2,000 shares of Series 1 Preferred Stock. As of December 31, 1993,
the Company had outstanding 22,000 shares of Series 1 Preferred Stock and 5,000
shares each of its Series 2 and 3 Preferred Stock which were sold to certain
current and former employees, including one senior executive, for a combination
of cash and full recourse promissory notes (included in Other Assets). In April
1994, the senior executive entered into an Exchange Agreement pursuant to which
he exchanged 20,000 shares of Series 1 Preferred Stock and 5,000 shares each of
Series 2 and Series 3 Preferred Stock (collectively, the "Original Preferred
Stock") for a like number of shares of new Preferred Stock, designated Series I
Preferred Stock, Series II Preferred Stock and Series III Preferred Stock
(collectively, the "New Preferred Stock"). The terms of the New Preferred Stock,
including the basic economic terms relating thereto, are essentially the same as
the Original Preferred Stock, except that the redemption date of the new
Preferred Stock is fixed at April 7, 2004, unless redeemed earlier under the
circumstances described below, rather than on a date determined by reference to
the senior executive's termination of full-time employment with the Company, as
was the case with the Original Preferred Stock. The terms of the New Preferred
Stock also give the holder, his estate or legal representative, as the case may
be, the option to require the Company to redeem his New Preferred Stock for a
period of 12 months following his (i) death, (ii) permanent disability or
permanent mental disability, (iii) termination of full-time employment for good
reason or (iv) termination of full-time employment by the Company with cause. In
addition, the maturity date for the outstanding promissory notes referred to
above was extended to April, 2004. The terms of the Series 1 Preferred Stock
permits the holder of shares thereof the option to have his shares redeemed upon
termination of his employment prior to age 65. The Company is obligated to
redeem such shares following the attainment of age 65 by the holder thereof
following termination of employment.
F-14
<PAGE> 35
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
G. REDEEMABLE PREFERRED STOCK (CONTINUED)
Each share of Preferred Stock is to be redeemed by the Company at a price equal
to the book value per share attributable to one share of Common Stock and one
share of Class B Common Stock upon redemption (subject to certain adjustments),
less a fixed discount established upon the issuance of the Preferred Stock. The
holders of each class of Preferred Stock are entitled to receive cumulative
preferential dividends at the annual rate of $.25 per share, and to participate
in dividends on one share of the Common Stock and one share of the Class B
Common Stock to the extent such dividends exceed the per share preferential
dividend. In April 1993, the Company, at the option of one holder, after
attainment of age 65, redeemed 2,000 shares of Series 1 Preferred Stock at a
price of $347,000. The Company discharged its obligation by payment of cash of
$300,000 and forgiveness of the holder's promissory note of $47,000. The amount
of the full recourse promissory notes included in Other Assets at December 31,
1994 and 1993 was $763,000. The interest paid by the senior employees to the
Company in 1994, 1993 and 1992 pursuant to the terms of these notes was $70,000,
$70,000 and $77,000, respectively.
In accordance with the terms of the respective Certificates of Designation and
Terms of each Series of Preferred Stock ("Certificates"), the change in
redemption value in 1994 does not reflect the write-off of goodwill described in
Notes A and M, but rather reflects amortization as if the Company had continued
to write-off goodwill in accordance with historical amortization schedules.
Following the distribution of the new class of Common Stock designated Limited
Duration Class B Common Stock, the holder of the Preferred Stock became entitled
to eleven votes per share on all matters submitted to the vote of stockholders.
The holder of the Series I Preferred Stock is entitled, as well, to vote as a
single class to elect or remove one-quarter of the Board of Directors, to
approve the merger or consolidation of the Company or the sale by it of all or
substantially all of its assets, and to approve the authorization or issuance of
any other class of Preferred Stock having equivalent voting rights.
In the event of the liquidation of the Company, holders of Preferred Stock are
entitled to a preferential liquidation distribution of $1.00 per share in
addition to all accrued and unpaid preferrential dividends.
The total carrying value of the Preferred Stock (applicable to those shares
outstanding at each respective year end) increased by $926,000, $468,000 and
$415,000 in 1994, 1993 and 1992, respectively. The change in carrying value
represents the change in redemption value during those periods. This change is
referred to as "Additional Capital Applicable to Redeemable Preferred Stock" in
the respective Certificates.
F-15
<PAGE> 36
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
H. COMMON STOCK
The Company has authorized and outstanding two classes of common stock, Common
Stock and Limited Duration Class B Common Stock (Class B Common Stock), both $1
par value per share.
The Class B Common Stock has the same dividend and liquidation rights as the
Common Stock and a holder of each share of Class B Common Stock is entitled to
ten votes on all matters submitted to stockholders. The shares of Class B Common
Stock are restricted as to transferability and upon transfer, except to
specified limited classes of transferees, will convert into shares of Common
Stock which have one vote per share. The Class B Common Stock will automatically
convert to Common Stock on April 30, 1996.
I. RESTRICTED STOCK AND STOCK OPTION PLANS
The Company's 1994 Stock Incentive Plan ("Stock Incentive Plan") was adopted in
March 1994 subject to stockholder approval which was received in June 1994. The
Stock Incentive Plan replaces the Restricted Stock Plan, the Executive Growth
Plan, the Incentive Stock Option Plan and the Nonqualified Stock Option Plan
("Prior Plans") and any shares available for granting of awards under the Prior
Stock Plans are no longer available for such awards. Options granted pursuant to
the Prior Plans remain outstanding and in full force and shares reserved remain
for such purposes.
STOCK INCENTIVE PLAN
Under the Stock Incentive Plan, awards in the form of incentive or nonqualified
stock options or restricted stock are available to be granted through June 2003
to officers and other key employees. A maximum of 250,000 shares of Common Stock
are available for grant under the Stock Incentive Plan and no employee can be
granted stock options in excess of 75,000 shares or more than 75,000 shares of
restricted stock. Stock options cannot be granted at a price less than 100% of
the fair market value of the shares on the date of grant. A committee of the
Board of Directors ("the Committee") determines the terms and conditions under
which the awards may be granted or exercised. Options, however, shall expire not
later than ten years from the date of grant. Shares of restricted stock may be
sold to participants, at a purchase price determined by the Committee (which may
be less than fair market value per share). During 1994, non-qualified options
for 3,250 shares of Common Stock were granted a total option price of $530,750.
In addition, 1,750 shares of Restricted Stock were issued at prices between
$77.50 and $81.50 per share with restrictions as to transferability expiring
after five years. No restrictions lapsed during 1994 and no restricted stock or
options were forefeited during 1994. At December 31,1994, there were 245,000
shares of Common Stock available for issuance under the Stock Incentive Plan.
F-16
<PAGE> 37
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)
Compensation to employees under the Plan of $134,000 representing the
unamortized excess of the market value of restricted stock over any cash
consideration received, is carried as a reduction of Paid-In Additional Capital
and is charged to income ($7,000 in 1994) over the related required period of
service of the respective employees.
RESTRICTED STOCK PLAN
Shares which have been issued and are now outstanding under the provisions of
the Company's Restricted Stock Plan are subject to restrictions as to
transferability expiring generally five or six years from the date of issue. In
1990, an additional 100,000 shares of Common Stock were authorized under this
Plan. During 1994, the restriction lapsed on 13,800 shares of Common Stock. At
December 31, 1994, there were no shares of Common Stock or Class B Common Stock
reserved by the Company and available for issuance under this Plan. At December
31, 1993, there were 125,000 shares of Common Stock and 49,900 shares of Class B
Common Stock reserved for issuance under this Plan. Compensation to employees
under the Plan of $105,000 representing the unamortized excess of the market
value of restricted stock over any cash consideration received, is carried as a
reduction of Paid-In Additional Capital and is charged to income ($109,000 in
1994, $256,000 in 1993 and $252,000 in 1992) over the related required period of
service of the respective employees.
This plan was replaced by the Stock Incentive Plan discussed above.
EXECUTIVE GROWTH PLAN
Under the terms of the Company's qualified stock option plan (Executive Growth
Plan), options were granted to officers and other key employees at prices not
less than 100% of the fair market value of the shares on the date of grant. At
December 31, 1994, 1993 and 1992, there were no options outstanding and no
options exercisable. At December 31, 1991, there were 25,000 options for Class B
Common Stock and 25,000 options for Common Stock outstanding and exercisable
under this plan. During 1992, these options were exercised at a total option
price of $3,237,000, and were paid for with cash of $67,000 and a note from an
officer of the Company in the amount of $3,170,000 due and payable in December
2001 at a fixed interest rate of 6.06%. At December 31, 1994, there were no
shares of either Common Stock or Class B Common Stock reserved by the Company
for issuance with respect to the Plan. In addition, the holder of the options
was entitled to receive an additional amount representing the dividends which
would have been paid if the options had been exercised on the date of grant. The
holder used this additional amount ($1,153,000) to purchase an additional 8,905
shares of both Common Stock and Class B Common Stock. The additional amount was
reflected as compensation expense in 1992 and in years prior to the exercise.
F-17
<PAGE> 38
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)
In addition, and in accordance with the terms of the option agreement, the
holder of the options issued to the Company a promissory note in the principal
amount of $2,340,000 bearing interest at the rate of 6.06%, payable in December
2001, to settle his obligation to provide the Company with funds necessary to
pay the required withholding taxes due upon the exercise of the options. The
Company received a tax benefit of $1,556,000 upon the exercise of the options. A
portion of this note equal to the tax benefit and the full amount of the note
for $3,170,000 are reflected in a separate component of stockholders' equity at
December 31, 1994 and 1993.
The interest paid to the Company by the holder pursuant to the terms of the two
notes issued in connection with the option exercise was $334,000 in both 1994
and 1993.
This plan was replaced by the Stock Incentive Plan discussed above.
INCENTIVE STOCK OPTION PLAN
In 1982, the Company adopted an Incentive Stock Option Plan. Under this plan in
which options were available to be granted through May 1992, options were
granted to key employees, including officers, at a price not less than 100% of
the fair market value of the shares on the date of grant. A Committee of the
Board of Directors determined the terms and conditions under which options may
be granted or exercised. However, options (i) may not be exercised within twelve
months from the date of grant, (ii) may not be granted to Committee members,
(iii) expire within ten years from the date of grant and (iv) must be exercised
in the order of grant.
Transactions involving outstanding stock options under this Plan were:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------------
CLASS B
COMMON COMMON TOTAL
STOCK STOCK OPTION PRICE
----------------------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1991 14,833 19,833 $2,635,000
Cancelled (500) (500) (65,000)
Exercised (10,233) (10,233) (1,323,000)
----------------------------------------------------
Outstanding, December 31, 1992 4,100 9,100 1,247,000
Cancelled (300) (300) (58,000)
Exercised (3,700) (3,700) (676,000)
----------------------------------------------------
Outstanding, December 31, 1993 100 5,100 513,000
Exercised (100) (100) (18,000)
----------------------------------------------------
Outstanding, December 31, 1994 -0- 5,000 $ 495,000
====================================================
</TABLE>
F-18
<PAGE> 39
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
I. RESTRICTED STOCK AND STOCK OPTIONS PLANS (CONTINUED)
As of December 31, 1994, options to acquire 2,856 shares of Common Stock were
exercisable. There are 5,000 shares of Common Stock reserved to be issued with
respect to this plan.
This plan was replaced by the Stock Incentive Plan discussed above.
NONQUALIFIED STOCK OPTION PLAN
On December 2, 1987, the Company adopted a Nonqualified Stock Option Plan,
whereby 100,000 shares of Common Stock were reserved for issuance. In 1990, the
number of shares of Common Stock authorized for issuance under this Plan was
increased to 200,000. No shares were available for grant after June, 1994. At
the discretion of a Committee of the Board of Directors, nonqualified stock
options were granted to employees eligible to receive options at prices not less
than 100% of the fair market value of the shares on the date of grant, and
options must be exercised within 10 years of grant and for only specified
limited periods beyond termination of employment.
Transactions involving outstanding stock options under this Plan were:
<TABLE>
<CAPTION>
NUMBER TOTAL
OF SHARES OPTION PRICE
-------------------------------
<S> <C> <C>
Outstanding, December 31, 1991 40,850 $4,307,000
Cancelled (2,200) (257,000)
Issued 1,000 131,000
Exercised (533) (50,000)
-------------------------------
Outstanding, December 31, 1992 39,117 4,131,000
Cancelled (567) (58,000)
Exercised (1,184) (110,000)
-------------------------------
Outstanding, December 31, 1993 37,366 3,963,000
Cancelled (1,084) (116,000)
Exercised (3,133) (301,000)
-------------------------------
Outstanding, December 31, 1994 33,149 $3,546,000
===============================
</TABLE>
As of December 31, 1994 and 1993, 27,867 and 19,668 of the outstanding options,
respectively, were exercisable, and 33,149 shares were reserved for issuance
under this plan.
This plan was replaced by the Stock Incentive Plan discussed above.
F-19
<PAGE> 40
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
J. COMPUTATION OF NET INCOME PER COMMON SHARE
The computation of net income per common share is based on the weighted average
number of common shares outstanding, including adjustments for the effect of the
assumed exercise of dilutive stock options and shares issuable pursuant to the
Company's Senior Management Incentive Plan (see Note L(1)) (1,285,605 in 1994,
1,263,900 in 1993 and 1,205,241 in 1992) and, for fully diluted net income per
common share, the assumed conversion of the 8-1/2% Convertible Subordinated
Debentures issued in December 1983. Also, for the purpose of computing net
income per common share, the Company's net income is reduced by dividends on the
Preferred Stock and is reduced or increased to the extent of an increase or
decrease, respectively, in redemption value of the Preferred Stock. Primary net
income per common share is computed as if stock options were exercised at the
beginning of the period and the funds obtained thereby used to purchase common
shares at the average market price during the period. In computing fully diluted
net income per common share, the market price at the close of the period or the
average market price, whichever is higher, is used to determine the number of
shares which are assumed to be repurchased.
The effects of the Preferred Stock dividend requirements and the change in
redemption values amounted to $.88, $.53 and $.52 per share in 1994, 1993 and
1992, respectively.
K. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. At December 31, 1994, 1993
and 1992, the Company had deferred tax assets of $19,651,000, $16,282,000 and
$15,334,000 and deferred tax liabilities of $10,459,000, $12,194,000 and
$14,517,000, respectively, detailed as follows:
F-20
<PAGE> 41
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
K. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS (LIABILITIES)
1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
Restructuring costs and related future tax benefits $2,056,000 $3,531,000 $ 5,767,000
Deferred compensation 8,955,000 5,730,000 4,220,000
Accrued expenses 8,640,000 7,021,000 5,347,000
Safe harbor lease and depreciation (7,493,000) (9,228,000) (10,772,000)
Tax on unremitted foreign earnings and other (2,966,000) (2,966,000) (3,745,000)
---------------------------------------------
9,192,000 4,088,000 817,000
Valuation allowance for deferred tax assets -0- -0- -0-
---------------------------------------------
Net deferred tax assets $9,192,000 $4,088,000 $ 817,000
=============================================
</TABLE>
The components of income before taxes on income are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 25,918,000 $28,646,000 $20,440,000
Foreign (24,308,000) 14,059,000 22,148,000
-------------------------------------------------------------
$ 1,610,000 $42,705,000 $42,588,000
=============================================================
</TABLE>
Provisions (benefits) for Federal, foreign, state and local income taxes
consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal $11,510,000 $(2,470,000) $12,106,000 $(2,448,000) $1,649,000 $3,752,000
Foreign 9,034,000 (1,197,000) 8,580,000 (1,578,000) 11,727,000
State and
local 6,181,000 (1,437,000) 5,072,000 755,000 1,248,000 1,599,000
---------------------------------------------------------------------------------------
$26,725,000 $(5,104,000) $25,758,000 $(3,271,000) $14,624,000 $5,351,000
=======================================================================================
</TABLE>
The effective tax rate varied from the statutory Federal income tax rate as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Statutory Federal tax rate 35.0% 35.0% 34.0%
State and local income taxes (benefits), net of Federal
income tax 191.5 8.9 4.4
Difference in foreign tax rates 215.0 6.8 8.7
Withholding tax on unremitted foreign earnings 33.4 1.2 1.0
Goodwill write-off 868.3 1.6 2.5
Adjustment of prior years' provisions (24.8) (2.2) (4.9)
Other -- net 24.5 1.4 1.2
-------------------------------------
1,342.9% 52.7% 46.9%
=====================================
</TABLE>
F-21
<PAGE> 42
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
K. INCOME TAXES (CONTINUED)
During the years 1994, 1993 and 1992, the Company made net income tax payments
of $19,005,000, $18,748,000 and $14,435,000, respectively.
The tax benefit resulting from the difference between compensation expense
deducted for tax purposes and compensation expense charged to income for
restricted stock and nonqualified stock options is recorded as an increase to
Paid-In Additional Capital.
L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES
1. The Company's Profit Sharing Plan is available to all employees of the
Company and qualifying subsidiaries meeting certain eligibility
requirements. The Plan provides for contributions by the Company at the
discretion of the Board of Directors, subject to maximum limitations. The
Company also operates a noncontributory Employee Stock Ownership Plan
covering eligible employees of the Company and qualifying subsidiaries,
under which the Company may make contributions (in stock or cash) to an
Employee Stock Ownership Trust ("ESOT") in amounts each year as determined
at the discretion of the Board of Directors. The Company made only cash
contributions to the Plan in 1994, 1993 and 1992. The Company and the ESOT
have certain rights to purchase shares from participants whose employment
has terminated. In addition to the two plans noted above, various
subsidiaries maintain separate profit sharing and retirement arrangements.
Furthermore, the Company also provides additional retirement and deferred
compensation benefits to certain officers and employees.
The Company maintains a Senior Management Incentive Plan in which deferred
compensation is granted to senior executive or management employees deemed
essential to the continued success of the Company. The amount recorded as
an expense related to this Plan amounted to $5,434,000, $4,581,000 and
$4,340,000 in 1994, 1993 and 1992, respectively. Approximately $4,215,300,
$3,343,000 and $1,160,000 of Plan expense incurred in 1994, 1993 and 1992,
respectively, will be payable in Company stock in accordance with the terms
of the Plan. These awards convert into 28,081, 18,461 and 8,624 equivalent
shares of Common Stock in 1994, 1993 and 1992, respectively. The future
obligation related to the stock award has been reflected as an increase to
Paid-In Additional Capital.
Expenses related to the foregoing plans and benefits aggregated $24,211,000
in 1994, $21,057,000 in 1993 and $25,002,000 in 1992.
F-22
<PAGE> 43
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED)
In December 1990, the Company amended its employment agreement with its
Chairman and Chief Executive Officer. Concurrently, the Company also
discharged this individual's pension obligation which had been established
pursuant to the terms of his long-standing employment agreement. This
obligation was partially satisfied by a distribution of approximately $19.8
million from a trust fund previously established by the Company for this
purpose. The remainder of the amount necessary to discharge this obligation
(approximately $9.5 million) was distributed from general corporate funds.
Included in Other Assets at December 31, 1994 and 1993 is approximately
$7,100,000 and $9,500,000 respectively, related to this arrangement which
is being amortized to expense over the remaining term of the related
employment agreement.
Pursuant to an employment agreement, dated December 21, 1990, an executive
officer of the Company borrowed $1,000,000 from the Company repayable at
December 31, 1995, except that one-fifth of the principal of the loan is
forgiven by the Company each December 31, beginning with December 31, 1991,
provided that the officer continues to be employed by the Company on those
dates. In 1994, the executive officer entered into a new employment
agreement. Pursuant to that agreement, the executive officer borrowed an
additional $600,000 from the Company repayable at December 31, 1998 except
that one-third of the principal of the loan is forgiven by the Company each
December 31, beginning with December 31, 1996, provided that the officer
continues to be employed by the Company on those dates. In 1994, 1993 and
1992, the Company has included in each year $200,000 of compensation
expense, representing the amount of loan forgiven each year. As of December
31, 1994 and 1993, the remaining loan balance was $800,000 and $400,000,
respectively (the long-term portion of the loan, $600,000 in 1994 and
$200,000 in 1993, is included in Other Assets).
2. Rental expense amounted to approximately $35,568,000 in 1994, $32,725,000
in 1993 and $33,741,000 in 1992 which is net of sub-lease rental income of
$1,263,000 in 1994, $2,016,000 in 1993, and $3,343,000 in 1992. Approximate
minimum rental commitments, excluding escalations, under noncancellable
operating leases are as follows:
F-23
<PAGE> 44
L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
SUB-LEASE
OFFICE SPACE COMMITMENTS NET
----------------------------------------------------------
<S> <C> <C> <C>
1995 $27,822,000 $(352,000) $27,470,000
1996 25,847,000 (147,000) 25,700,000
1997 24,381,000 (165,000) 24,216,000
1998 20,486,000 (79,000) 20,407,000
1999 19,945,000 (80,000) 19,865,000
Beyond 1999 36,175,000 (65,000) 36,110,000
----------------------------------------------------------
$154,656,000 $(888,000) $153,768,000
==========================================================
</TABLE>
3. The Company is not involved in any pending legal proceedings not covered by
insurance or by adequate indemnification or which, if decided adversely,
would have a material effect on either the results of operations, liquidity
or financial position of the Company.
M. GOODWILL WRITE-OFF
In the fourth quarter of 1994, the Company wrote-off $39,944,000 of goodwill.
The non-cash write-off related almost exclusively to international acquisitions
made by the Company principally in the 1980's. The carrying value of the
Company's goodwill prior to the write-off was approximately $84,000,000 and the
write-off was associated with 34 of the almost 100 investments for which the
Company had unamortized goodwill. The portion of the write-off relating to
advertising agencies was approximately $31,295,000 and $8,649,000 related to
public relations agencies. Significant amounts of these write-offs related to
operations in the United Kingdom.
The widely recognized international recession seriously affected the advertising
industry, particularly in Western Europe, where the Company has its largest
and most developed international operations. As the recession abated in the
latter part of 1994, the Company was able to assess more clearly the long-term
prospects of the affected operations. At that point, and in connection with
annual business plan meetings which took place in the fourth quarter, it became
clear that the goodwill associated with a number of the agencies had become
permanently impaired. Management's projections indicated that anticipated
future cash flows for these specific operations would not, as would be expected
in a normal post-recession environment, recover sufficiently to cover
amortization of the associated goodwill.
The material portion of the goodwill write-off related to ten agencies acquired
in the United Kingdom as part of a strategy to develop the Company's
representation outside of the London market in the general advertising category
and in specialized disciplines (such as retail advertising, promotional services
and public relations). With the revival of the industry, a review of the
Company's local market strategies and in conjunction with several key
management changes, client losses or the inability of these operations to
maintain revenues with replacement or new clients, after the analysis referred
to above, management concluded that the goodwill associated with these
operations had been permanently impaired. While future client losses and
management changes could affect the Company's operation in the United Kingdom,
the Company has consolidated a number of operations, thereby lessening the
likelihood of a negative impact from any instance of client or management
turnover. In addition, the unimpaired goodwill balances associated with the
United Kingdom operations represents less than 10% of the Company's
consolidated unamortized goodwill as of December 31, 1994.
In 1993 and 1992, respectively, the Company wrote-off $1,939,000 and $3,065,000
of goodwill in excess of normal amortization schedules.
F-24
<PAGE> 45
Grey Advertising Inc. and Consolidated Subsidiary Companies
Notes to Consolidated Financial Statements (continued)
N. INDUSTRY SEGMENT AND RELATED INFORMATION
Commissions and fees and operating profit by geographic area for the years ended
December 31, 1994, 1993 and 1992, and related identifiable assets at December
31, 1994, 1993 and 1992 are summarized below (000s omitted):
<TABLE>
<CAPTION>
UNITED STATES WESTERN EUROPE
--------------------------------- ---------------------------------
1994 1993 1992 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees $277,411 $267,964 $241,279 $273,754 $260,005 $281,632
Operating profit (loss) $ 22,767 $ 28,809 $ 20,023 $(20,457) $ 11,415 $ 16,594
---------------------------------------------------------------------
Other income-net
Income of consolidated companies
before taxes on income
Identifiable assets $390,547 $353,532 $260,849 $353,904 $389,723 $427,728
---------------------------------------------------------------------
Investments in and advances to
nonconsolidated affiliated
companies
Total assets
</TABLE>
<TABLE>
<CAPTION>
OTHER CONSOLIDATED
----------------------------- ------------------------------------
1994 1993 1992 1994 1993 1992
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees $42,152 $39,274 $41,557 $593,317 $567,243 $564,468
Operating profit (loss) $ (959) $ 564 $ 5,341 $ 1,351 $ 40,788 $ 41,958
------------------------------
Other income-net 259 1,917 630
-----------------------------------
Income of consolidated companies
before taxes on income $ 1,610 $ 42,705 $ 42,588
-----------------------------------
Identifiable assets $69,130 $61,274 $52,627 $813,581 $804,529 $741,204
------------------------------
Investments in and advances to
nonconsolidated affiliated 16,495 16,104 11,160
-----------------------------------
companies
Total assets $830,076 $820,633 $752,364
-----------------------------------
</TABLE>
Commissions and fees from one client amounted to 13.8%, 13.0% and 13.4% of the
consolidated total in 1994, 1993 and 1992, respectively.
F-25
<PAGE> 46
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
3.01 Restated Certificate of Incorporation
of Grey Advertising Inc. ("Grey").
(Incorporated herein by reference to
Exhibit 3(a) to Grey's Current Report
on Form 8-K, dated April 7, 1994,
filed with the SEC pursuant to
Section 13 of the 1934 Act.)
3.02 By-Laws of Grey as amended.
(Incorporated herein by reference to
Exhibit 3.02 to Grey's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1988.)
4.01 Stockholder Exchange Agreement, dated
as of April 7, 1994, by and between
Grey and Edward H. Meyer. (Incorporated
herein by reference to Ex-hibit 10(a) of
Grey's Current Report on Form 8-K, dated
April 7, 1994, filed with the SEC
pursuant to Section 13 of the 1934 Act.
4.02 Purchase Agreement, dated as of
December 10, 1983, between Grey and
Edward H. Meyer relating to the sale to
Mr. Meyer of Grey's 8-1/2% Convertible
Debentures, of even date therewith
("Convertible Debenture"). (Incorporated
herein by reference to Exhibit 3.08 to
Grey's Annual Report on Form 10-K for the
fiscal year ended December 31, 1983.)
4.03 Extension Agreement, dated as of
November 19, 1991 between Grey and
Edward H. Meyer relating to the
extension of the maturity dates of
the Convertible Debenture and
related Promissory Note. (Incorporated
herein by reference to Exhibit 3.07 to
Grey's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991.)
</TABLE>
<PAGE> 47
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Numbering System
to Exhibit (i.e.601)
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
4.04 Form of Convertible Debenture.
(Incorporated herein by reference to
Exhibit 3.09 to Grey's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1983.)
9.01 Voting Trust Agreement, dated as of
December 1, 1989, among the several
Beneficiaries, Grey and Edward H. Meyer
as Voting Trustee. (Incorporated herein
by reference to Exhibit 9.03 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1989.)
9.02 Amended and Restated Voting Trust
Agreement, dated as of February
24, 1986, as amended and restated as
of August 31, 1987 and again amended
and restated as of March 21, 1994,
among the several Beneficiaries there-
under, Grey and Edward H. Meyer as
Voting Trustee. (Incorporated herein
by reference to Exhibit 9.04 to Grey's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
10.01* Employment Agreement, dated as of
February 9, 1984, between Grey and Edward
H. Meyer ("Meyer Employment Agreement").
(Incorporated herein by reference to
Exhibit 10.01 to Grey's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1983.)
</TABLE>
<PAGE> 48
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
10.02* Amendments Two through Seven to Meyer
Employment Agreement. (Incorporated
herein by reference to Exhibit 10.02 to
Grey's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985,
Exhibit 10.03 to Grey's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1987, Exhibit 1 to Grey's
Current Report on Form 8-K, dated May 9,
1988, filed with the SEC pursuant to
Section 13 of the 1934 Act, Exhibit 2 to
Grey's current Report on Form 8-K, dated
May 9, 1988, filed with the SEC pursuant
to Section 13 of the 1934 Act. Exhibit I
to Grey's Current Report on Form 8-K,
dated June 9, 1989, filed with the SEC
pursuant to Section 13 of the 1934 Act
and Exhibit 10.07 to Grey's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1990 respectively.)
10.03* Amendment and Extension Agreement, to
Meyer Employment Agreement, dated
March 22, 1995, by and between Grey
and Edward H. Meyer.
10.04* Deferred Compensation Trust Agreement
dated March 22, 1995, by and between
Grey and United States Trust Company
of New York.
10.05* Pension Agreement, dated as of
May 9, 1988, between Grey and Edward H.
Meyer. (Incorporated herein by reference
to Exhibit 3 to Grey's Current Report on
Form 8-K, dated May 9, 1988 filed with
the SEC pursuant to Section 13 of the
1934 Act.)
</TABLE>
<PAGE> 49
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
10.06* Employment Agreement, dated as of
December 21, 1990, by and between
Grey and Stephen A. Novick.
(Incorporated herein by reference
to Exhibit 10.11 to Grey's Annual
Report on Form 10-K for the fiscal
year ended December 31, 1990.)
10.07* Amendment to Employment Agreement,
dated as of April 26, 1994, by and
between Grey and Stephen A. Novick.
10.08* Employment Agreement, dated as of
December 1, 1992, by and between
Grey and Robert L. Berenson. (Incor-
porated herein by reference to
Exhibit 10.05 to Grey's Annual Report
on Form 10-K for the fiscal year
ended December 31, 1992.)
10.09* Employment Agreement, dated as of
January 1, 1993 by and between Grey and
Barbara S. Feigin. (Incorporated herein
by reference to Exhibit 10.06 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.)
10.10* Grey Advertising Inc. Book Value Pre-
ferred Stock Plan, as amended.
(Incorporated herein by reference to
Exhibit 4.1 to Grey's Current Report on
Form 8-K, dated June 14, 1983, filed with
the SEC pursuant to Section 13 of the
1934 Act.)
10.11* Grey Advertising Inc. Amended and Re-
stated Senior Executive Officer Pension
Plan. (Incorporated herein by reference
to Exhibit 10.08 to Grey's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1984.)
</TABLE>
<PAGE> 50
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
10.12* Grey Advertising Inc. 1993 Senior Man-
agement Incentive Plan. (Incorporated
herein by reference to Exhibit A to the
Proxy Statement for Grey's Annual Meet-
ing of Stockholders dated June 27, 1994.)
10.13* Grey Advertising Inc. Restricted Stock
Plan, as amended and restated as of
April 3, 1986. (Incorporated herein by
reference to Exhibit 4.03 to Grey's
Registration Statement on Form S-8, filed
with the SEC pursuant to Section 6(a) of
the '33 Act.)
10.14* Stock Option Agreement, dated as
of October 13, 1984, by and between
Grey and Edward H. Meyer ("Meyer 1984
Option Agreement"). (Incorporated herein
by reference to Exhibit 10.15 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1985.)
10.15* Extension Agreement, dated as of
March 27, 1992, by and between Grey and
Edward H. Meyer, relating to the Meyer
1984 Option Agreement. (Incorporated
herein by reference to Exhibit 10.13 to
Grey's Annual Report on Form 10-K for the
fiscal year ended Dec-ember 31, 1992.)
10.16* Amendment One to Meyer 1984 Option
Agreement, dated as of December 29, 1992.
(Incorporated herein by reference to
Exhibit 10.14 to Grey's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1992.)
</TABLE>
<PAGE> 51
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
10.17 Notice of Exercise, dated
December 29, 1992, from Edward H. Meyer
to Grey pursuant to the Meyer 1984
Option Agreement. (Incorporated herein
by reference to Exhibit 10.15 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.)
10.18 Promissory Notes I and II, dated as of
December 29, 1992, from Edward H. Meyer
to Grey, delivered pursuant to the Meyer
1984 Option Agreement. (Incorporated
herein by reference to Exhibit 10.16 to
Grey's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.)
10.19* Stock Option Agreement, effective as
of January 5, 1995, by and between
Grey and Edward H. Meyer. (Incorpor-
ated herein by reference to Exhibit 13
to Amendment No. 8 to the Statement on
Schedule 13D, dated as of March 10, 1995,
filed by Edward H. Meyer.)
10.20 Registration Rights Agreement, dated
as of June 5, 1986, between the Com-
pany and Edward H. Meyer. (Incorpo-
rated herein by reference to Exhibit
12 to Amendment No. 8 to the State-
ment on Schedule 13D, dated as of
March 10, 1995, filed by Edward H.
Meyer.)
10.21* Grey Advertising Inc. Incentive Stock
Option Plan, as amended and restated as
of April 3, 1986. (Incorporated herein by
reference to Exhibit 4.04 to Grey's
Registration Statement on Form S-8 filed
with the SEC pursuant to Section 6(a) of
the '33 Act.)
</TABLE>
<PAGE> 52
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
10.22* Grey Advertising Inc. 1987 Stock
Option Plan. (Incorporated herein by
reference to Exhibit 10.24 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1988.)
10.23* Grey Advertising Inc. 1994 Stock Incen-
tive Plan. (Incorporated herein by refer-
ence to Exhibit B to the Proxy Statement
for Grey's 1994 Annual Meeting of
Stockholders, dated June 27, 1994.)
10.24* Note Agreement, dated as of
January 19, 1993, by and between Grey and
The Prudential Insurance Company of
America. (Incorporated herein by
reference to Exhibit 10.21 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.)
10.25* Bonuses - Grey has paid bonuses to
certain of its executive officers
(including those who are directors)
and employees in prior years including
1993, and may do so in future years.
Bonuses have been and may be in the form
of cash, shares of stock or both although
Grey presently does not have any plans
to pay stock bonuses. Bonuses are not
granted pursuant to any formal plan.
10.26* Directors' Fees - It is the policy of
Grey to pay each of its non-employee
directors a fee of $4,500 per fiscal
quarter and a fee of $3,000 for each
meeting of the Board of Directors
attended. This policy is not embodied
in any written document.
</TABLE>
<PAGE> 53
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
10.27* Deferred Compensation Agreement,
dated December 23, 1981, between
Grey and Mark N. Kaplan, regarding
deferral of payment of director's
fees to which Mr. Kaplan may become
entitled. (Incorporated herein by
reference to Exhibit 10.18 to Grey's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1982.)
10.28* On March 23, 1978, Grey's Board of
Directors, at a meeting thereof held
on such date, approved an arrangement
whereby Grey is required to accrue for
Edward H. Meyer, the difference between
the amount contributed by Grey on behalf
of Mr. Meyer under the Profit Sharing
Plan and Grey's Employee Stock Owner-
ship Plan, and the amount which would
have been contributed to such plans on his
behalf had such plans not contained maximum
annual limitations on contributions and
credits, as required by the Employee Retire-
ment Income Security Act of 1974. Such
accrual is to be paid to Mr. Meyer as if it
had been contributed to his account under
the Profit Sharing Plan. Such arrangement
is not embodied in any written document.
10.29 Lease, dated as of July 1, 1978 by and
between Grey and William Kaufman and J.
D. Weiler, regarding space at 777 Third
Avenue, New York, New York ("Main
Lease"). (Incorporated herein by
reference to Exhibit 10.21 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1982.)
</TABLE>
<PAGE> 54
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Number Assigned
to Exhibit (i.e. 601
of Regulation S-K) Description of Exhibits
-------------------- -----------------------
<S> <C>
10.30 First through Fourteenth Amendments
to Main Lease (Incorporated herein
by reference to Exhibits 10.22, 10.23,
10.24, 10.25, 10.26, 10.27, 10.28 and
10.29 to Grey's Annual Report on Form
10-K for the fiscal year ended December
31, 1982, Exhibit 10.30 to Grey's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1983, Exhibits
10.33 and 10.34 to Grey's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1984, Exhibits 10.35 and
10.36 to Grey's Annual Report on Form
10-K for the fiscal year ended December
31, 1985, and Exhibit 10.36 to Grey's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1986
respectively.)
11.01 Statement re: Computation of Net
Income Per Share.
21.01 Subsidiaries of Grey.
24.01 Consent of Auditors
27.01 Financial Data Schedule
</TABLE>
*Management contract or compensatory plan
or arrangement identified in compliance
with Item 14(c) of the rules governing
the preparation of this report.
10K-Exhibits
<PAGE> 1
EXHIBIT 10.03
AMENDMENT AND EXTENSION AGREEMENT
AGREEMENT made as of March 22, 1995 between GREY ADVERTISING
INC., a Delaware corporation with principal offices at 777 Third Avenue, New
York, New York 10017 ("Grey"), and EDWARD H. MEYER, residing at 580 Park
Avenue, New York, New York ("Meyer").
Meyer is employed by Grey as its President, Chairman of the
Board and Chief Executive Officer pursuant to an employment agreement first
executed effective February 9, 1984, which agreement has been amended from time
to time (such agreement, as so amended, being hereinafter referred to as the
"Current Agreement").
The parties desire to amend the Current Agreement in certain
respects.
NOW, THEREFORE, in consideration of the foregoing, the parties
hereby agree as follows:
1. Capitalized Terms. Capitalized terms used herein
shall, unless otherwise defined herein, have the meanings ascribed to such
terms in the Current Agreement.
2. Term. The Term of the Current Agreement shall be
extended to December 31, 2002.
3. Deferral of Compensation. (a) Notwithstanding
anything to the contrary contained in the Current Agreement, payment of the
following compensation or benefits payable or provided to Meyer by Grey in any
taxable year pursuant to the Current Agreement or otherwise (such compensation
and benefits being referred to herein as "Excess Payments") shall be deferred
and shall be treated in accordance with paragraphs (b) and (c) below:
(1) all cash compensation payable from March 22, 1995 through
December 31, 1995; and
(2) for taxable years after 1995, all compensation and benefits in
excess of a value elected by Meyer in writing prior to the
commencement of the applicable tax year (in the absence of any
<PAGE> 2
such election, such value shall be deemed to be $1 million);
provided, however, that any such election shall not be given
effect to the extent it would cause the payment of any
compensation or the provision of any benefits to Meyer by Grey
not to be deductible to Grey by reason of Section 162(m) of the
Internal Revenue Code of 1986, as amended.
For purposes of the preceding sentence, the value of non-cash taxable benefits
shall be estimated by Grey and Grey may elect to treat such estimated value as
having been provided to Meyer at the beginning of the taxable year so that
Excess Payments consist solely of cash amounts that would otherwise have been
paid to Meyer in such taxable year. For purposes of clause (2) above, Excess
Payments in respect of a taxable year shall be treated as payable or provided
only after all other compensation and benefits in respect of such taxable year
have been paid or provided to Meyer.
(b) On the last day of the month in which Excess Payments
would otherwise be paid or provided to Meyer, Grey shall credit to a book
reserve (the "Account") established for this purpose, an amount equal to the
Excess Payments (net of any amounts required to be withheld by Grey for
Medicare or other taxes). At the same time or as soon as practicable
thereafter, an amount equal to the Excess Payments (net of any required
withholding for Medicare taxes) shall be transferred by Grey to a grantor trust
("Trust") established by Grey pursuant to the Trust Agreement, substantially in
the form of Exhibit A hereto (the "Trust Agreement"). The Account shall be
debited with amounts representing all losses of and distributions from the
Trust and shall be credited with all earnings of and deposits to the Trust.
The extent of Grey's obligation to make payments with respect to Excess
Payments shall be limited to the amount reflected in the Account, as debited
and credited in accordance with this Agreement. To the extent that Grey is
required to withhold Medicare or other taxes in respect of credits to the
Account representing earnings of the Trust prior to distribution of such
earnings to Meyer pursuant to paragraph (c) below, Grey and Meyer may agree
that such withholding obligation shall be satisfied from amounts otherwise
payable to Meyer pursuant to the Current Agreement (after taking into account
the deferrals
2
<PAGE> 3
hereunder) and, in the absence of such agreement, such withholding obligation
shall be satisfied from amounts held in the Trust. Grey agrees to perform all
of its obligations under Sections 8(f) and 9 of the Trust Agreement.
(c) As soon as reasonably practicable following the
expiration of the Term or, if earlier, Meyer's termination of employment by
reason of death or disability, and upon advance notice to Meyer (or to his
beneficiary or estate, if applicable), Grey shall cause the Trust to distribute
to Meyer (or his beneficiary or estate, in the event of his death) in cash or
in kind a lump sum amount equal to the amount then credited to the Account.
4. Definition of Cause. Section 22 of the Current Agreement
shall be amended to read as follows:
If Grey at any time should validly terminate Meyer's
employment hereunder for Cause, he shall tender his resignation as a
director. As used in this Agreement, "Cause" shall mean (a) the
willful and continued failure by Meyer to substantially perform
Meyer's duties with Grey (other than any such failure resulting from
Meyer's incapacity due to physical or mental illness or any such
actual or anticipated failure resulting from Meyer's voluntary
termination or termination for Good Reason or other similar reason)
with knowledge that such failure is demonstrably and materially
injurious to Grey, monetarily or otherwise, or (b) the entry of an
order and judgment of conviction of Meyer in a court of law of a
felony (within the meaning of 18 U.S.C. Section 1) which
substantially impairs Meyer's ability to perform his duties with Grey;
provided, in any event, Meyer shall be given written notice by the
Board of Directors that it intends to terminate Meyer's employment for
Cause under this Section 22, which written notice shall specify the
basis on which the Board of Directors intends to terminate Meyer's
employment, and Meyer shall then be given the opportunity within
fifteen days of his receipt of such notice, to have a meeting with the
Board of Directors to discuss such matter. Meyer shall then be given
seven days after such meeting within which to cease, or correct, the
performance (or
3
<PAGE> 4
nonperformance) giving rise to such written notice, or, if practicable
under the circumstances, to demonstrate his ability to perform his
duties with Grey, and upon Meyer's failure within seven days to so
perform, Meyer's employment shall automatically be terminated hereunder
for Cause. For purposes of this Section 22, no act, or failure to act,
on Meyer's part shall be considered "willful" unless done or omitted to
be done, by Meyer not in good faith and without reasonable belief that
his action or omission was in the best interest of Grey.
Grey also acknowledges that it is not aware of any actions occurring prior to
the date of this Agreement which would constitute "Cause" as defined in such
Section 22.
5. Status of Current Agreement. Except as amended
hereby, the terms and conditions of the Current Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals as of the day and year first above written.
GREY ADVERTISING INC.
By /s/ S G Felsher
------------------
/s/ E H Meyer
---------------------
Edward H. Meyer
4
<PAGE> 5
EXHIBIT A
GREY ADVERTISING INC.
DEFERRED COMPENSATION TRUST
This Trust Agreement made as of the 22nd day of March, 1995,
by and between Grey Advertising Inc. (the "Company") and United States Trust
Company of New York (the "Trustee");
WHEREAS, the Company has entered into an employment agreement
(the "Agreement") first executed effective February 9, 1984 with Edward H. Meyer
(the "Executive"), which Agreement has been last amended and extended as of
March 22, 1995, by an Amendment and Extension Agreement (the "Amendment"), a
copy of which is annexed hereto as Exhibit A;
WHEREAS, the Amendment contains, as Section 3 thereof, a
provision titled "Deferral of Compensation" (such section hereinafter referred
to as the "Deferred Compensation Agreement");
WHEREAS, the Company may incur liability under the terms of
such Deferred Compensation Agreement with respect to the Executive;
WHEREAS, the Deferred Compensation Agreement contemplates the
establishment of this trust (hereinafter called the "Trust") and the
contribution by the Company
<PAGE> 6
to the Trust from time to time of amounts that shall be held herein for the
benefit of the Executive;
WHEREAS, the assets of this Trust shall be subject to the
claims of the Company's creditors in the event of the Company's Insolvency, as
herein defined, until paid to the Executive in such manner and at such times as
specified herein and in the Deferred Compensation Agreement;
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) The Company hereby deposits with the Trustee in trust the
sum of $100, which, together with additional contributions made in accordance
with the terms hereof, shall comprise the principal of the Trust. The principal
of the Trust, together with earnings thereon, shall be held, administered and
disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable, but is
subject to termination in accordance with Section 12 hereof.
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the
2
<PAGE> 7
meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the
Internal Revenue Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of the Company and shall be
used exclusively for the purposes herein set forth. The Executive shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Deferred Compensation Agreement and this
Trust Agreement shall be mere unsecured contractual rights of the Executive
against the Company. Any assets held by the Trust will be subject to the claims
of the Company's general creditors under federal and state law in the event that
the Company is considered Insolvent, as defined in Section 3(a) herein.
(e) At such time as a contribution to the Trust is required
pursuant to the Deferred Compensation Agreement, the Company shall contribute in
cash to the Trustee hereunder an amount equal to the contributions required to
be made pursuant to the terms of the Deferred Compensation Agreement. The
Trustee shall not have any right to compel such contributions.
3
<PAGE> 8
(f) Amounts held in the Trust shall not be subject to
offset by the Company for any claims it may have against the Executive.
Section 2. Payments to Executive.
(a) Except as otherwise provided herein and subject to the
provisions of this Section 2(a), the Trustee shall make payment to the Executive
in accordance with written instructions received from the Executive or the
Company, which instructions shall include a certification that (1) the Executive
is entitled to payment under the Deferred Compensation Agreement, and the amount
of such payment, and (2) a copy of such instructions has been provided to the
Company or the Executive, as the case may be. Unless the Company or the
Executive (as the case may be), by written notice to the Trustee and the
Executive or the Company (as the case may be), objects to the payment called for
by such instructions within ten business days of its receipt thereof (the bases
for such objection by the Company being limited to (i) the Company's Insolvency
(as defined in Section 3(a) hereof) and (ii) the amount of such payment not
being payable under the Deferred Compensation Agreement), the Trustee shall make
payment to the Executive in accordance with such instructions. In the event the
Trustee receives
4
<PAGE> 9
such objection within such ten-day period, it shall not make payment until
receipt of, and then in accordance with, written instructions from the Company
and the Executive.
(b) The Trustee shall make provision for the reporting and
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits to or in respect of the
Executive pursuant to the terms of the Deferred Compensation Agreement and shall
pay amounts withheld to the appropriate taxing authorities or, if such amounts
have been reported, withheld and paid by the Company, to the Company. Prior to
making any payments to the Executive hereunder, the Trustee shall receive
written instructions as to any withholding obligations, which instructions shall
include (1) a certification as to the amount to be withheld and the person or
authority to whom such amount shall be paid and (2) a certification that a copy
of such instructions has been provided to the Executive. Unless the Executive,
by written notice to the Trustee and the Company, objects to the withholding of
the amounts set forth in such instructions, the Trustee shall withhold such
amounts and pay such amounts to the party called for in such instructions. In
the event the Trustee receives
5
<PAGE> 10
such objection within such ten-day period, it shall not withhold or make
payments hereunder until receipt of, and then in accordance with, instructions
from the Company and the Executive.
(c) The Company may make payment of benefits directly to the
Executive in accordance with the terms of the Deferred Compensation Agreement.
In the event that the Company pays the entire amount then due to the Executive
pursuant to the terms of the Deferred Compensation Agreement, then the Trustee,
upon receipt of certification from the Company and the Executive that such
payment has been made, shall return to the Company all Trust assets that have
been credited to the Executive's Trust Account (as defined in Section 5(a)
hereof).
Section 3. Trustee Responsibility Regarding Payments to
Trust Beneficiary When the Company Is Insolvent.
(a) The Trustee shall cease payment of benefits to the
Executive if the Company is Insolvent. The Company shall be considered
"Insolvent" for purpose of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company is subject to a pending
procedure as a debtor under the United States Bankruptcy Code.
6
<PAGE> 11
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of the Company under federal and state
law as set forth below.
(1) The Board of Directors and the Chief
Financial Officer of the Company shall have the duty to inform the
Trustee in writing of the Company's becoming Insolvent. If a person
claiming to be a creditor of the Company alleges in writing to the
Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment of benefits to the
Executive.
(2) Unless the Trustee has actual knowledge
of the Company's becoming Insolvent, or has received notice from the
Company or a person claiming to be a creditor alleging that the Company
is Insolvent, the Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all events rely on such
evidence concerning the
7
<PAGE> 12
Company's solvency as may be furnished to the Trustee and that
provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined
that the Company is Insolvent, the Trustee shall discontinue payments
to the Executive and shall hold the assets of the Trust for the benefit
of the Company's general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Executive to pursue his
rights as a general creditor of the Company with respect to benefits
due under the Deferred Compensation Agreement or otherwise.
(4) The Trustee shall resume the payment of
benefits to the Executives in accordance with Section 2 of this Trust
Agreement only after the Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent).
Section 4. Payments to Company. Except as provided in
Sections 2(b), 2(c), 3, 6, and 12 hereof, the Company shall have no right or
power to direct the Trust-
8
<PAGE> 13
ee to return to the Company or to divert to others any of the Trust assets
before all payments of benefits have been made to or in respect of the Executive
pursuant to the terms of the Deferred Compensation Agreement.
Section 5. Accounts and Investment Authority.
(a) Contributions to the Trust on behalf of the Executive and
any interest and earnings thereon shall be credited, and any distribution from
the Trust or losses thereon shall be debited, to an account (the "Trust
Account") established and held by the Trustee for the Executive. Assets held
in the Trust shall be invested in Permitted Assets as directed by the Company
or, in the absence of such direction, in Permitted Assets of the type referred
to in clause (ii) of the next sentence (except that the Trustee may invest in
Permitted Assets of the type referred to in clause (iii) of the next sentence
until such time as assets of the type referred to in clause (ii) may be
purchased). For purposes of the preceding sentence, "Permitted Assets" shall
mean one or more of the following alone or in combination:
(i) cash; or
(ii) direct obligations of the United States of
America or agencies of the United States
9
<PAGE> 14
of America or obligations unconditionally and fully guaranteed as to
principal and interest by the United States of America, in each case
maturing within five years or less from the date of acquisition; or
(iii) negotiable certificates of deposit (in each
case maturing within five years or less from the date of acquisition)
issued by a commercial bank organized and existing under the laws of
the United States of America or any state thereof having a combined
capital and surplus of at least $1,000,000,000;
(iv) corporate debt obligations such as bonds,
debentures and commercial paper of investment grade as rated within the
four highest ratings of Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's"), and maturing within five
years or less from the date of acquisition;
(v) a commingled fund maintained by the Trustee which
invests in (i)-(iv) above; or
(vi) other assets selected by the Company with the
consent of the Executive.
10
<PAGE> 15
The Trustee shall not be liable for failure to maximize the income earned on
that portion of the Trust as is from time to time invested or reinvested as set
forth above, nor for any loss of income due to liquidation of any investment
which the Trustee, in its sole discretion, believes necessary to make payments
or to reimburse expenses under the terms of this Trust.
(b) In no event may the Trustee invest in securities
(including stock or rights to acquire stock) or obligations issued by the
Company or any affiliate, other than a de minimis amount held in common
investment vehicles in which the Trustee invests.
Section 6. Treatment of Trust Income; Taxes. During the term
of this Trust, all income received by the Trust, net of expenses, shall be
accumulated and reinvested; provided, however, that the Trustee, as soon as
practicable following receipt of notice from the Company and the Executive,
shall distribute to the Company such amount (set forth in the aforementioned
notice) as shall be necessary for the Company to satisfy any required
withholding obligation for Medicare or other taxes (other than applicable taxes
described in the succeeding sentence) in respect of credits to the Account (as
defined in the Deferred Compensation Agreement) representing
11
<PAGE> 16
earnings of the Trust prior to distribution of such earnings to Executive
pursuant to the Deferred Compensation Agreement. The Company shall be solely
responsible for the payment of all applicable income and other taxes imposed on
the Trust with respect to interest and other earnings on amounts held in the
Trust.
Section 7. Accounting by Trustee.
The Trustee shall separately keep accurate and detailed records
of all investments, receipts, disbursements, and all other transactions required
to be made, with respect to the Trust Account of the Executive, including such
specific records as shall be agreed upon in writing between the Company, the
Executive and the Trustee. Within 30 days following the close of each calendar
quarter and within 120 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company and the Executive a written account of its
administration of the Trust during such quarter or during the period from the
close of the last preceding quarter to the date of such removal or resignation,
setting forth with respect to the Trust Account, all investments, receipts,
disbursements and other transactions effected by it for the Executive, including
a description of all securities and investments purchased and sold with the
12
<PAGE> 17
cost or net proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash, securities and other
property held in the Trust for the Executive at the end of such quarter or as
of the date of such removal or resignation, as the case may be.
Section 8. Responsibility of Trustee.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company or the Executive that is
contemplated by, and in conformity with, the terms of the Deferred Compensation
Agreement or this Trust. In the event of a dispute between or among the
Company, the Executive and the Trustee, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) The duties and responsibilities of the Trustee shall be
limited to those expressly set forth in
13
<PAGE> 18
this Trust, and no implied covenants or obligations shall be read into this
Trust against the Trustee.
(c) If, pursuant to Section 3 hereof or otherwise, all or any
part of the Trust is at any time attached, garnished, or levied upon by any
court order, or in case the payment, assignment, transfer, conveyance or
delivery of any such property shall be stayed or enjoined by any court order, or
in case any order, judgment or decree shall be made or entered by a court
affecting such property or any part thereof, then and in any of such events the
Trustee is authorized, in its sole discretion, to rely upon and comply with any
such order, writ, judgment or decree, and it shall not be liable to the Company
(or any of its subsidiaries), or the Executive by reason of such compliance even
though such order, writ, judgment or decree subsequently may be reversed,
modified, annulled, set aside or vacated.
(d) The Trustee shall not be liable for any act taken or
omitted to be taken hereunder if taken or omitted to be taken by it in good
faith. The Trustee shall also be fully protected in relying upon any notice
given hereunder which it in good faith believes to be genuine and executed and
delivered in accordance with this Trust.
14
<PAGE> 19
(e) The Trustee may consult with legal counsel and certified
public accountants to be selected by it, and the Trustee shall not be liable for
any action taken or suffered by it in accordance with the advice of such counsel
or accountants.
(f) The Company shall indemnify and hold harmless the Trustee
from and against any and all damages, losses, claims or expenses as incurred
(including expenses of investigation and fees and disbursements of counsel and
of certified public accountants to the Trustee) arising out of or in connection
with the performance by the Trustee of its duties hereunder. Any amount payable
to the Trustee under Section 9 or this paragraph (f) and not previously paid by
the Company shall be paid by the Company promptly upon demand therefor by the
Trustee or, if the Trustee so chooses in its sole discretion, from the Trust. If
the payment is made hereunder to the Trustee from the Trust, the Trustee shall
promptly notify the Company in writing of the amount of such payment. Upon
receipt of such notice, the Company shall deliver to the Trustee, to be held in
the Trust, cash in an amount equal in value to the amount of any payments made
from the Trust to the Trustee pursuant to this paragraph (f). The failure of
the company to transfer
15
<PAGE> 20
any such amount shall not in any way impair the Trustee's right to
indemnification, reimbursement and payment pursuant to Section 9 or this
paragraph (f).
(g) The Trustee shall have, without exclusion, all powers
conferred on the Trustee by applicable law, unless ex- pressly provided
otherwise herein.
(h) Notwithstanding any power granted to the Trustee pursuant
to this Trust Agreement or to applicable law, the Trustee shall not have any
power that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Internal
Revenue Code of 1986, as amended.
Section 9. Compensation and Expenses of Trustee.
The Company shall pay all administrative and Trustee's fees and
expenses. The fees of the Trustee shall be such amount as the Company and
Trustee may agree upon from time to time.
Section 10. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to
the Company, which shall be effective
16
<PAGE> 21
30 days after receipt of such notice unless the Company and the Trustee agree
otherwise.
(b) The Trustee may be removed by the Company (with the
consent of the Executive) on 30 days' notice or upon shorter notice accepted by
Trustee.
(c) Upon resignation or removal of the Trustee and appointment
of a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 30 days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) or (b) of this section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions.
Section 11. Appointment of Successor.
(a) If the Trustee resigns or is removed in accordance with
Section 10(a) or (b) hereof, the Company (with the consent of the Executive,
which shall not be unreasonably withheld) may appoint any third party, such as a
bank trust department or other party that may be
17
<PAGE> 22
granted corporate trustee powers under state law, as a successor to replace the
Trustee upon resignation or removal. The appoint- ment shall be effective when
accepted in writing by the new Trustee, who shall have all of the rights and
powers of the former Trustee, including ownership rights in the Trust assets.
The former Trustee shall execute any instrument necessary or reasonably
requested by the Company or the successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing Trust assets,
subject to Sections 5, 7 and 8 hereof. The successor Trustee shall not be
responsible for and the Company shall indemnify and defend the successor Trustee
from any claim or liability resulting from any action or inaction of any prior
Trustee or from any other past event, or any condition existing at the time it
becomes successor Trustee.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company; provided, however, that no
amendment that alters or impairs the rights of the Executive hereunder may be
made without the prior written consent of the Executive.
18
<PAGE> 23
(b) The Trust shall not terminate until the date on which the
Executive is no longer entitled to payments pursuant to the terms of the
Deferred Compensation Agreement. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to Company.
(c) Upon written approval of the Executive, the Company may
terminate this Trust prior to the time all benefit payments under the Deferred
Compensation Agreement have been made. All assets in the Trust at termination
shall be returned to the Company.
13. Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Grey Advertising Inc.
777 Third Avenue
New York, New York 10017
Attn: Corporate Secretary
19
<PAGE> 24
If to the Executive:
Edward H. Meyer
580 Park Avenue
New York, New York 10021
If to the Trustee:
United States Trust Company of New York
114 W. 47th Street
New York, New York 10036
Attn: Lorraine B. Tsavaris
or to such other address as any of the foregoing may have furnished to the
others in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
Section 14. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibi- tion, without
invalidating the remaining provisions hereof.
(b) Benefits payable to the Executive under this Trust
Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process. References to Executive in this
Trust Agreement shall include, in the event of the Executive's disability, his
guardian,
20
<PAGE> 25
and, in the event of his death, the executor of the Executive's estate.
(c) This Trust Agreement shall be construed in accordance with
and governed by the laws of New York without regard to its conflict of laws
principles.
(d) In the event that any provision of this Trust or the
application thereof to any person or circumstances shall be determined by a
court of proper jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Trust, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each provision of this Trust shall be valid
and enforced to the fullest extent permitted by law.
Section 15. Effective Date.
The effective date of this Trust Agreement shall be as of March
22, 1995.
21
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed the Trust
as of the date first above written.
GREY ADVERTISING INC.
By:_____________________________
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By:_____________________________
22
<PAGE> 1
EXHIBIT 10.04
GREY ADVERTISING INC.
DEFERRED COMPENSATION TRUST
This Trust Agreement made as of the 22nd day of March, 1995,
by and between Grey Advertising Inc. (the "Company") and United States Trust
Company of New York (the "Trustee");
WHEREAS, the Company has entered into an employment agreement
(the "Agreement") first executed effective February 9, 1984 with Edward H. Meyer
(the "Executive"), which Agreement has been last amended and extended as of
March 22, 1995, by an Amendment and Extension Agreement (the "Amendment"), a
copy of which is annexed hereto as Exhibit A;
WHEREAS, the Amendment contains, as Section 3 thereof, a
provision titled "Deferral of Compensation" (such section hereinafter referred
to as the "Deferred Compensation Agreement");
WHEREAS, the Company may incur liability under the terms of
such Deferred Compensation Agreement with respect to the Executive;
WHEREAS, the Deferred Compensation Agreement contemplates the
establishment of this trust (hereinafter called the "Trust") and the
contribution by the Company
<PAGE> 2
to the Trust from time to time of amounts that shall be held herein for the
benefit of the Executive;
WHEREAS, the assets of this Trust shall be subject to the
claims of the Company's creditors in the event of the Company's Insolvency, as
herein defined, until paid to the Executive in such manner and at such times as
specified herein and in the Deferred Compensation Agreement;
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) The Company hereby deposits with the Trustee in trust the
sum of $100, which, together with additional contributions made in accordance
with the terms hereof, shall comprise the principal of the Trust. The principal
of the Trust, together with earnings thereon, shall be held, administered and
disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable, but is
subject to termination in accordance with Section 12 hereof.
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the
2
<PAGE> 3
meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the
Internal Revenue Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of the Company and shall be
used exclusively for the purposes herein set forth. The Executive shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Deferred Compensation Agreement and this
Trust Agreement shall be mere unsecured contractual rights of the Executive
against the Company. Any assets held by the Trust will be subject to the claims
of the Company's general creditors under federal and state law in the event that
the Company is considered Insolvent, as defined in Section 3(a) herein.
(e) At such time as a contribution to the Trust is required
pursuant to the Deferred Compensation Agreement, the Company shall contribute in
cash to the Trustee hereunder an amount equal to the contributions required to
be made pursuant to the terms of the Deferred Compensation Agreement. The
Trustee shall not have any right to compel such contributions.
3
<PAGE> 4
(f) Amounts held in the Trust shall not be subject to
offset by the Company for any claims it may have against the Executive.
Section 2. Payments to Executive.
(a) Except as otherwise provided herein and subject to the
provisions of this Section 2(a), the Trustee shall make payment to the Executive
in accordance with written instructions received from the Executive or the
Company, which instructions shall include a certification that (1) the Executive
is entitled to payment under the Deferred Compensation Agreement, and the amount
of such payment, and (2) a copy of such instructions has been provided to the
Company or the Executive, as the case may be. Unless the Company or the
Executive (as the case may be), by written notice to the Trustee and the
Executive or the Company (as the case may be), objects to the payment called for
by such instructions within ten business days of its receipt thereof (the bases
for such objection by the Company being limited to (i) the Company's Insolvency
(as defined in Section 3(a) hereof) and (ii) the amount of such payment not
being payable under the Deferred Compensation Agreement), the Trustee shall make
payment to the Executive in accordance with such instructions. In the event the
Trustee receives
4
<PAGE> 5
such objection within such ten-day period, it shall not make payment until
receipt of, and then in accordance with, written instructions from the Company
and the Executive.
(b) The Trustee shall make provision for the reporting and
withholding of any federal, state or local taxes that may be required to be
withheld with respect to the payment of benefits to or in respect of the
Executive pursuant to the terms of the Deferred Compensation Agreement and shall
pay amounts withheld to the appropriate taxing authorities or, if such amounts
have been reported, withheld and paid by the Company, to the Company. Prior to
making any payments to the Executive hereunder, the Trustee shall receive
written instructions as to any withholding obligations, which instructions shall
include (1) a certification as to the amount to be withheld and the person or
authority to whom such amount shall be paid and (2) a certification that a copy
of such instructions has been provided to the Executive. Unless the Executive,
by written notice to the Trustee and the Company, objects to the withholding of
the amounts set forth in such instructions, the Trustee shall withhold such
amounts and pay such amounts to the party called for in such instructions. In
the event the Trustee receives
5
<PAGE> 6
such objection within such ten-day period, it shall not withhold or make
payments hereunder until receipt of, and then in accordance with, instructions
from the Company and the Executive.
(c) The Company may make payment of benefits directly to the
Executive in accordance with the terms of the Deferred Compensation Agreement.
In the event that the Company pays the entire amount then due to the Executive
pursuant to the terms of the Deferred Compensation Agreement, then the Trustee,
upon receipt of certification from the Company and the Executive that such
payment has been made, shall return to the Company all Trust assets that have
been credited to the Executive's Trust Account (as defined in Section 5(a)
hereof).
Section 3. Trustee Responsibility Regarding Payments to
Trust Beneficiary When the Company Is Insolvent.
(a) The Trustee shall cease payment of benefits to the
Executive if the Company is Insolvent. The Company shall be considered
"Insolvent" for purpose of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company is subject to a pending
procedure as a debtor under the United States Bankruptcy Code.
6
<PAGE> 7
(b) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of the Company under federal and state
law as set forth below.
(1) The Board of Directors and the Chief
Financial Officer of the Company shall have the duty to inform the
Trustee in writing of the Company's becoming Insolvent. If a person
claiming to be a creditor of the Company alleges in writing to the
Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment of benefits to the
Executive.
(2) Unless the Trustee has actual knowledge
of the Company's becoming Insolvent, or has received notice from the
Company or a person claiming to be a creditor alleging that the Company
is Insolvent, the Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all events rely on such
evidence concerning the
7
<PAGE> 8
Company's solvency as may be furnished to the Trustee and that
provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined
that the Company is Insolvent, the Trustee shall discontinue payments
to the Executive and shall hold the assets of the Trust for the benefit
of the Company's general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Executive to pursue his
rights as a general creditor of the Company with respect to benefits
due under the Deferred Compensation Agreement or otherwise.
(4) The Trustee shall resume the payment of
benefits to the Executives in accordance with Section 2 of this Trust
Agreement only after the Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent).
Section 4. Payments to Company. Except as provided in
Sections 2(b), 2(c), 3, 6, and 12 hereof, the Company shall have no right or
power to direct the Trust-
8
<PAGE> 9
ee to return to the Company or to divert to others any of the Trust assets
before all payments of benefits have been made to or in respect of the Executive
pursuant to the terms of the Deferred Compensation Agreement.
Section 5. Accounts and Investment Authority.
(a) Contributions to the Trust on behalf of the Executive and
any interest and earnings thereon shall be credited, and any distribution from
the Trust or losses thereon shall be debited, to an account (the "Trust
Account") established and held by the Trustee for the Executive. Assets held
in the Trust shall be invested in Permitted Assets as directed by the Company
or, in the absence of such direction, in Permitted Assets of the type referred
to in clause (ii) of the next sentence (except that the Trustee may invest in
Permitted Assets of the type referred to in clause (iii) of the next sentence
until such time as assets of the type referred to in clause (ii) may be
purchased). For purposes of the preceding sentence, "Permitted Assets" shall
mean one or more of the following alone or in combination:
(i) cash; or
(ii) direct obligations of the United States of
America or agencies of the United States
9
<PAGE> 10
of America or obligations unconditionally and fully guaranteed as to
principal and interest by the United States of America, in each case
maturing within five years or less from the date of acquisition; or
(iii) negotiable certificates of deposit (in each
case maturing within five years or less from the date of acquisition)
issued by a commercial bank organized and existing under the laws of
the United States of America or any state thereof having a combined
capital and surplus of at least $1,000,000,000;
(iv) corporate debt obligations such as bonds,
debentures and commercial paper of investment grade as rated within the
four highest ratings of Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's"), and maturing within five
years or less from the date of acquisition;
(v) a commingled fund maintained by the Trustee which
invests in (i)-(iv) above; or
(vi) other assets selected by the Company with the
consent of the Executive.
10
<PAGE> 11
The Trustee shall not be liable for failure to maximize the income earned on
that portion of the Trust as is from time to time invested or reinvested as set
forth above, nor for any loss of income due to liquidation of any investment
which the Trustee, in its sole discretion, believes necessary to make payments
or to reimburse expenses under the terms of this Trust.
(b) In no event may the Trustee invest in securities
(including stock or rights to acquire stock) or obligations issued by the
Company or any affiliate, other than a de minimis amount held in common
investment vehicles in which the Trustee invests.
Section 6. Treatment of Trust Income; Taxes. During the term
of this Trust, all income received by the Trust, net of expenses, shall be
accumulated and reinvested; provided, however, that the Trustee, as soon as
practicable following receipt of notice from the Company and the Executive,
shall distribute to the Company such amount (set forth in the aforementioned
notice) as shall be necessary for the Company to satisfy any required
withholding obligation for Medicare or other taxes (other than applicable taxes
described in the succeeding sentence) in respect of credits to the Account (as
defined in the Deferred Compensation Agreement) representing
11
<PAGE> 12
earnings of the Trust prior to distribution of such earnings to Executive
pursuant to the Deferred Compensation Agreement. The Company shall be solely
responsible for the payment of all applicable income and other taxes imposed on
the Trust with respect to interest and other earnings on amounts held in the
Trust.
Section 7. Accounting by Trustee.
The Trustee shall separately keep accurate and detailed records
of all investments, receipts, disbursements, and all other transactions required
to be made, with respect to the Trust Account of the Executive, including such
specific records as shall be agreed upon in writing between the Company, the
Executive and the Trustee. Within 30 days following the close of each calendar
quarter and within 120 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company and the Executive a written account of its
administration of the Trust during such quarter or during the period from the
close of the last preceding quarter to the date of such removal or resignation,
setting forth with respect to the Trust Account, all investments, receipts,
disbursements and other transactions effected by it for the Executive, including
a description of all securities and investments purchased and sold with the
12
<PAGE> 13
cost or net proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash, securities and other
property held in the Trust for the Executive at the end of such quarter or as
of the date of such removal or resignation, as the case may be.
Section 8. Responsibility of Trustee.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company or the Executive that is
contemplated by, and in conformity with, the terms of the Deferred Compensation
Agreement or this Trust. In the event of a dispute between or among the
Company, the Executive and the Trustee, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) The duties and responsibilities of the Trustee shall be
limited to those expressly set forth in
13
<PAGE> 14
this Trust, and no implied covenants or obligations shall be read into this
Trust against the Trustee.
(c) If, pursuant to Section 3 hereof or otherwise, all or any
part of the Trust is at any time attached, garnished, or levied upon by any
court order, or in case the payment, assignment, transfer, conveyance or
delivery of any such property shall be stayed or enjoined by any court order, or
in case any order, judgment or decree shall be made or entered by a court
affecting such property or any part thereof, then and in any of such events the
Trustee is authorized, in its sole discretion, to rely upon and comply with any
such order, writ, judgment or decree, and it shall not be liable to the Company
(or any of its subsidiaries), or the Executive by reason of such compliance even
though such order, writ, judgment or decree subsequently may be reversed,
modified, annulled, set aside or vacated.
(d) The Trustee shall not be liable for any act taken or
omitted to be taken hereunder if taken or omitted to be taken by it in good
faith. The Trustee shall also be fully protected in relying upon any notice
given hereunder which it in good faith believes to be genuine and executed and
delivered in accordance with this Trust.
14
<PAGE> 15
(e) The Trustee may consult with legal counsel and certified
public accountants to be selected by it, and the Trustee shall not be liable for
any action taken or suffered by it in accordance with the advice of such counsel
or accountants.
(f) The Company shall indemnify and hold harmless the Trustee
from and against any and all damages, losses, claims or expenses as incurred
(including expenses of investigation and fees and disbursements of counsel and
of certified public accountants to the Trustee) arising out of or in connection
with the performance by the Trustee of its duties hereunder. Any amount payable
to the Trustee under Section 9 or this paragraph (f) and not previously paid by
the Company shall be paid by the Company promptly upon demand therefor by the
Trustee or, if the Trustee so chooses in its sole discretion, from the Trust. If
the payment is made hereunder to the Trustee from the Trust, the Trustee shall
promptly notify the Company in writing of the amount of such payment. Upon
receipt of such notice, the Company shall deliver to the Trustee, to be held in
the Trust, cash in an amount equal in value to the amount of any payments made
from the Trust to the Trustee pursuant to this paragraph (f). The failure of
the company to transfer
15
<PAGE> 16
any such amount shall not in any way impair the Trustee's right to
indemnification, reimbursement and payment pursuant to Section 9 or this
paragraph (f).
(g) The Trustee shall have, without exclusion, all powers
conferred on the Trustee by applicable law, unless expressly provided
otherwise herein.
(h) Notwithstanding any power granted to the Trustee pursuant
to this Trust Agreement or to applicable law, the Trustee shall not have any
power that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Internal
Revenue Code of 1986, as amended.
Section 9. Compensation and Expenses of Trustee.
The Company shall pay all administrative and Trustee's fees and
expenses. The fees of the Trustee shall be such amount as the Company and
Trustee may agree upon from time to time.
Section 10. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to
the Company, which shall be effective
16
<PAGE> 17
30 days after receipt of such notice unless the Company and the Trustee agree
otherwise.
(b) The Trustee may be removed by the Company (with the
consent of the Executive) on 30 days' notice or upon shorter notice accepted by
Trustee.
(c) Upon resignation or removal of the Trustee and appointment
of a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 30 days after receipt
of notice of resignation, removal or transfer, unless the Company extends the
time limit.
(d) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the effective date of
resignation or removal under paragraphs (a) or (b) of this section. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions.
Section 11. Appointment of Successor.
(a) If the Trustee resigns or is removed in accordance with
Section 10(a) or (b) hereof, the Company (with the consent of the Executive,
which shall not be unreasonably withheld) may appoint any third party, such as a
bank trust department or other party that may be
17
<PAGE> 18
granted corporate trustee powers under state law, as a successor to replace the
Trustee upon resignation or removal. The appoint- ment shall be effective when
accepted in writing by the new Trustee, who shall have all of the rights and
powers of the former Trustee, including ownership rights in the Trust assets.
The former Trustee shall execute any instrument necessary or reasonably
requested by the Company or the successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing Trust assets,
subject to Sections 5, 7 and 8 hereof. The successor Trustee shall not be
responsible for and the Company shall indemnify and defend the successor Trustee
from any claim or liability resulting from any action or inaction of any prior
Trustee or from any other past event, or any condition existing at the time it
becomes successor Trustee.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company; provided, however, that no
amendment that alters or impairs the rights of the Executive hereunder may be
made without the prior written consent of the Executive.
18
<PAGE> 19
(b) The Trust shall not terminate until the date on which the
Executive is no longer entitled to payments pursuant to the terms of the
Deferred Compensation Agreement. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to Company.
(c) Upon written approval of the Executive, the Company may
terminate this Trust prior to the time all benefit payments under the Deferred
Compensation Agreement have been made. All assets in the Trust at termination
shall be returned to the Company.
13. Notice. For the purposes of this Agreement, notices,
demands and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States certified or registered mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company:
Grey Advertising Inc.
777 Third Avenue
New York, New York 10017
Attn: Corporate Secretary
19
<PAGE> 20
If to the Executive:
Edward H. Meyer
580 Park Avenue
New York, New York 10021
If to the Trustee:
United States Trust Company of New York
114 W. 47th Street
New York, New York 10036
Attn: Lorraine B. Tsavaris
or to such other address as any of the foregoing may have furnished to the
others in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
Section 14. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibi- tion, without
invalidating the remaining provisions hereof.
(b) Benefits payable to the Executive under this Trust
Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process. References to Executive in this
Trust Agreement shall include, in the event of the Executive's disability, his
guardian,
20
<PAGE> 21
and, in the event of his death, the executor of the Executive's estate.
(c) This Trust Agreement shall be construed in accordance with
and governed by the laws of New York without regard to its conflict of laws
principles.
(d) In the event that any provision of this Trust or the
application thereof to any person or circumstances shall be determined by a
court of proper jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Trust, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each provision of this Trust shall be valid
and enforced to the fullest extent permitted by law.
Section 15. Effective Date.
The effective date of this Trust Agreement shall be as of March
22, 1995.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed the Trust
as of the date first above written.
GREY ADVERTISING INC.
By: /s/ S G Felsher
----------------------------
UNITED STATES TRUST COMPANY OF NEW
YORK, Trustee
By: /s/ Harriet Friday Leahy
--------------------------------
Harriet Friday Leahy
Vice President
22
<PAGE> 23
EXHIBIT A
AMENDMENT AND EXTENSION AGREEMENT
AGREEMENT made as of March 22, 1995 between GREY ADVERTISING
INC., a Delaware corporation with principal offices at 777 Third Avenue, New
York, New York 10017 ("Grey"), and EDWARD H. MEYER, residing at 580 Park
Avenue, New York, New York ("Meyer").
Meyer is employed by Grey as its President, Chairman of the
Board and Chief Executive Officer pursuant to an employment agreement first
executed effective February 9, 1984, which agreement has been amended from time
to time (such agreement, as so amended, being hereinafter referred to as the
"Current Agreement").
The parties desire to amend the Current Agreement in certain
respects.
NOW, THEREFORE, in consideration of the foregoing, the parties
hereby agree as follows:
1. Capitalized Terms. Capitalized terms used herein
shall, unless otherwise defined herein, have the meanings ascribed to such
terms in the Current Agreement.
2. Term. The Term of the Current Agreement shall be
extended to December 31, 2002.
3. Deferral of Compensation. (a) Notwithstanding
anything to the contrary contained in the Current Agreement, payment of the
following compensation or benefits payable or provided to Meyer by Grey in any
taxable year pursuant to the Current Agreement or otherwise (such compensation
and benefits being referred to herein as "Excess Payments") shall be deferred
and shall be treated in accordance with paragraphs (b) and (c) below:
(1) all cash compensation payable from March 22, 1995 through
December 31, 1995; and
(2) for taxable years after 1995, all compensation and benefits in
excess of a value elected by Meyer in writing prior to the
commencement of the applicable tax year (in the absence of any
<PAGE> 24
such election, such value shall be deemed to be $1 million);
provided, however, that any such election shall not be given
effect to the extent it would cause the payment of any
compensation or the provision of any benefits to Meyer by Grey
not to be deductible to Grey by reason of Section 162(m) of the
Internal Revenue Code of 1986, as amended.
For purposes of the preceding sentence, the value of non-cash taxable benefits
shall be estimated by Grey and Grey may elect to treat such estimated value as
having been provided to Meyer at the beginning of the taxable year so that
Excess Payments consist solely of cash amounts that would otherwise have been
paid to Meyer in such taxable year. For purposes of clause (2) above, Excess
Payments in respect of a taxable year shall be treated as payable or provided
only after all other compensation and benefits in respect of such taxable year
have been paid or provided to Meyer.
(b) On the last day of the month in which Excess Payments
would otherwise be paid or provided to Meyer, Grey shall credit to a book
reserve (the "Account") established for this purpose, an amount equal to the
Excess Payments (net of any amounts required to be withheld by Grey for
Medicare or other taxes). At the same time or as soon as practicable
thereafter, an amount equal to the Excess Payments (net of any required
withholding for Medicare taxes) shall be transferred by Grey to a grantor trust
("Trust") established by Grey pursuant to the Trust Agreement, substantially in
the form of Exhibit A hereto (the "Trust Agreement"). The Account shall be
debited with amounts representing all losses of and distributions from the
Trust and shall be credited with all earnings of and deposits to the Trust.
The extent of Grey's obligation to make payments with respect to Excess
Payments shall be limited to the amount reflected in the Account, as debited
and credited in accordance with this Agreement. To the extent that Grey is
required to withhold Medicare or other taxes in respect of credits to the
Account representing earnings of the Trust prior to distribution of such
earnings to Meyer pursuant to paragraph (c) below, Grey and Meyer may agree
that such withholding obligation shall be satisfied from amounts otherwise
payable to Meyer pursuant to the Current Agreement (after taking into account
the deferrals
2
<PAGE> 25
hereunder) and, in the absence of such agreement, such withholding obligation
shall be satisfied from amounts held in the Trust. Grey agrees to perform all
of its obligations under Sections 8(f) and 9 of the Trust Agreement.
(c) As soon as reasonably practicable following the
expiration of the Term or, if earlier, Meyer's termination of employment by
reason of death or disability, and upon advance notice to Meyer (or to his
beneficiary or estate, if applicable), Grey shall cause the Trust to distribute
to Meyer (or his beneficiary or estate, in the event of his death) in cash or
in kind a lump sum amount equal to the amount then credited to the Account.
4. Definition of Cause. Section 22 of the Current Agreement
shall be amended to read as follows:
If Grey at any time should validly terminate Meyer's
employment hereunder for Cause, he shall tender his resignation as a
director. As used in this Agreement, "Cause" shall mean (a) the
willful and continued failure by Meyer to substantially perform
Meyer's duties with Grey (other than any such failure resulting from
Meyer's incapacity due to physical or mental illness or any such
actual or anticipated failure resulting from Meyer's voluntary
termination or termination for Good Reason or other similar reason)
with knowledge that such failure is demonstrably and materially
injurious to Grey, monetarily or otherwise, or (b) the entry of an
order and judgment of conviction of Meyer in a court of law of a
felony (within the meaning of 18 U.S.C. Section 1) which
substantially impairs Meyer's ability to perform his duties with Grey;
provided, in any event, Meyer shall be given written notice by the
Board of Directors that it intends to terminate Meyer's employment for
Cause under this Section 22, which written notice shall specify the
basis on which the Board of Directors intends to terminate Meyer's
employment, and Meyer shall then be given the opportunity within
fifteen days of his receipt of such notice, to have a meeting with the
Board of Directors to discuss such matter. Meyer shall then be given
seven days after such meeting within which to cease, or correct, the
performance (or
3
<PAGE> 26
nonperformance) giving rise to such written notice, or, if practicable
under the circumstances, to demonstrate his ability to perform his
duties with Grey, and upon Meyer's failure within seven days to so
perform, Meyer's employment shall automatically be terminated hereunder
for Cause. For purposes of this Section 22, no act, or failure to act,
on Meyer's part shall be considered "willful" unless done or omitted to
be done, by Meyer not in good faith and without reasonable belief that
his action or omission was in the best interest of Grey.
Grey also acknowledges that it is not aware of any actions occurring prior to
the date of this Agreement which would constitute "Cause" as defined in such
Section 22.
5. Status of Current Agreement. Except as amended
hereby, the terms and conditions of the Current Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals as of the day and year first above written.
GREY ADVERTISING INC.
By
------------------
---------------------
Edward H. Meyer
4
<PAGE> 1
EXHIBIT 10.07
AMENDMENT TO EMPLOYMENT AGREEMENT
WHEREAS, GREY ADVERTISING INC., a Delaware corporation (the "Company"),
and STEPHEN A. NOVICK ("Executive") have previously entered into an employment
agreement dated December 21, 1990 (the "Agreement"); and
WHEREAS, the Company and the Executive consider it advisable to amend
the Agreement in certain respects;
NOW, THEREFORE, effective January 1, 1994, the Agreement is hereby
amended to provide, as follows:
1. Section 1 of the Agreement is amended in its entirety to read in full as
follows:
1. Term. The term of this Agreement shall commence on the date
hereof and shall end on December 31, 1998 (the "Term").
2. The first sentence of subsection 4(a) of the Agreement is amended in its
entirety to read in full as follows:
(a) Salary. The Company shall pay to Executive a salary at the annual
rate of $635,000 or such greater sum as may from time to time be
fixed by the Chief Executive Officer of the Company. The
Executive's annual salary will be reviewed
<PAGE> 2
annually by the Chief Executive of the Company.
3. A new subsection (4)(b) is added to the Agreement to read in full as
follows:
(b) Bonus Compensation. For each year of the Term, the Company shall
(i) pay to the Executive an annual bonus of at least $75,000 and
(ii) allocate to the Executive's account under the Senior
Management Incentive Plan (the "SMIP") at least $150,000 pursuant
to the terms and conditions of the SMIP as in effect from time to
time.
4. Subsection 4(b) of the Agreement (and any references thereto) are
redesignated subsection 4(c) and such subsection is amended in its entirety
to read in full as follows:
(c) Employee Benefits. Executive shall participate in the Company's
Senior Executive Pension Plan ("SEPP"), Profit Sharing Plan,
Employee Stock Ownership Plan, Retirement Compensation Plan, SMIP
and all other health, medical, insurance, disability and benefit
plans and programs of the
2
<PAGE> 3
Company, in each instance to the extent such plans and programs
are available generally by their terms to employees of his
seniority, office, nature of responsibilities and length of
service. The maximum annual benefit amount payable to the
Executive under the Executive Medical Plan shall be increased to
$10,000. The foregoing notwithstanding, if the Executive is
employed by the Company on December 31, 1995, the annual benefit
payable under, and in accordance with the terms of the SEPP,
commencing at age 60 shall be increased from $50,000 to $100,000.
5. Subsections 4(c) and 4(d) of the Agreement (and any references thereto) are
redesignated as subsections 4(d) and 4(e), respectively.
6. Subsection 4(e) of the Agreement (and any references thereto) are
redesignated subsection 4(f) and such subsection is amended in its entirety
to read in full as follows:
(d) Loans. (i) The Company shall lend to Executive up to $1,000,000
(the "Loan") to finance the purchase of a residence (which
3
<PAGE> 4
may be either a house, a condominium or a cooperative apartment).
Such loan shall be (A) secured by a first mortgage lien (or
comparable security in the case of a cooperative), (B) repayable
on December 31, 1995; except that one-fifth of the principal of
the Loan shall be forgiven by the Company each December 31st
commencing with December 31, 1991; provided that, Executive is
employed by the Company on each such date (and pro rata for any
partial year) and (C) upon such other terms as shall be mutually
agreed upon in the definitive loan documents between the Company
and the Executive.
(ii) The Company shall lend Executive an additional amount up to
$600,000 (the "Additional Loan") to finance the purchase of
another residence. Such Additional Loan shall (A) be secured by a
first mortgage lien on such residence; (B) bear interest at an
annual rate equal to the prime rate of Citibank, N.A. in effect on
the effective date hereof; (C) be repayable on De-
4
<PAGE> 5
cember 31, 1998; except that one-third of the principal of the
Additional Loan shall be forgiven by the Company each December
31st commencing with December 31, 1996, provided that Executive is
employed by the Company on each such date (and pro rata for any
partial year) and (D) be made upon such other terms as shall be
mutually agreed upon in the definitive loan documents between the
Company and Executive.
7. Subsection 4(f) of the Agreement (and any references thereto) are
redesignated subsection 4(g).
8. The first sentence of Section 5 of the Agreement is amended in its entirety
to read in full as follows:
5. Termination. The Executive's employment under this Agreement may
be terminated by the Company upon and only upon the occurrence of
any one of the circumstances described in Subsections (a), (b),
(c) or (d) of this Section 5:
9. A new Subsection 5(d) is added to the Agreement to read in full as follows:
(d) Change in Control. Following the occurrence of a "change in
control of the Com-
5
<PAGE> 6
pany" (as defined herein), if any time prior to December 31, 1995
(i) the Company terminates the employment of Executive other than
for death, Disability or Cause or (ii) Executive terminates his
employment within 90 days following a material uncured breach
breach by the Company of any provision of Sections 2, 3 or 4
hereof, (x) the Company shall forgive the then remaining
principal amounts of the Loan and the Additional Loan referred to
in Subsection 4(f) hereof; (y) all the unvested portions of any
rights or benefits of Executive under any stock option or
restricted stock plan of the Company or SMIP which Executive has
as of January 1, 1994 (but not any option or restricted stock of
the Company or any awards under SMIP, in either instance granted
or made available after January 1, 1994) shall vest; and (z) the
Company shall pay Executive in a lump sum an amount equal to
three times the sum of (A) his annual salary in effect
immediately prior to such
6
<PAGE> 7
change in control of the Company and (B) the most recent bonus
paid to Executive prior to such change in control of the Company;
provided, however, that if any portion of the payment or
forgiveness under this Subsection (d) would not be deductible by
the Company by reason of sections 280G and 4999 of the Internal
Revenue Code of 1986, as amended, or any successor provisions
thereto, such payment shall be reduced to the extent necessary so
that the entire payment shall be deductible under said Code
sections. For purposes of this Subsection (d), a "change in
control of the Company" shall be deemed to have occurred if, and
only if, Edward H. Meyer ("Meyer"), or the legal representative
of Meyer's estate if Meyer should not then be living, should sell
all or substantially all of his shares of common stock of the
Company to a person or persons other than the Executive, a group
of executives of the Company and/or the Company.
7
<PAGE> 8
10. Subsection 5(d) of the Agreement (and any references thereto) are
redesignated subsection 5(e).
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
this 26th day of April, 1994.
GREY ADVERTISING INC.
By /S/ EDWARD H. MEYER
-------------------------
Edward H. Meyer
Chairman and Chief
Executive Officer
/S/ STEPHEN A. NOVICK
------------------------
STEPHEN A. NOVICK
Executive Vice President
8
<PAGE> 1
Exhibit 11.01
Grey Advertising Inc. and Consolidated Subsidiary Companies
Exhibit - Statement Re: Computation of Net Income Per Share
<TABLE>
<CAPTION>
For the Year Ended
December 31 December 31
1994 1993
------------- -------------
<S> <C> <C>
PRIMARY
Weighted average shares outstanding(1) 1,269,246 1,247,711
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 16,359 16,189
------------ -----------
TOTAL 1,285,605 1,263,900
============ ===========
Net Income ($21,378,000) $17,681,000
Less: Effect of dividend requirements
and the increase (decrease) in
redemption value of redeemable
preferred stock (1,137,000) (672,000)
------------ -----------
NET EARNINGS USED IN COMPUTATION ($22,515,000) $17,009,000
============ ===========
($17.51) $13.46
============ ===========
FULLY DILUTED
Weighted average shares outstanding(1) 1,269,246 1,247,711
Net effect of dilutive stock options
based on the treasury stock method
using the period-end market price, if
higher than the average market price 16,583 20,639
Assumed conversion of 8.5% convertible
subordinated debentures issued
December 1983 51,000 50,999
------------ -----------
TOTAL 1,336,829 1,319,349
============ ===========
Net Income ($21,378,000) $17,681,000
Less: Effect of dividend requirements
and the increase (decrease) in
redemption value of redeemable
preferred stock (1,137,000) (672,000)
Add: 8.5% convertible subordinated
debentures interest, net of income
tax effect 139,000 139,000
------------ -----------
NET EARNINGS USED IN COMPUTATION ($22,376,000) $17,148,000
============ ===========
* $13.00
============ ===========
</TABLE>
* Antidilutive
(1) Includes 28,167 shares and 10,237 shares for 1994 and 1993,
respectively, expected to be issued pursuant to the terms
of the Senior Management Incentive Plan
<PAGE> 1
EXHIBIT 21.01
-------------
SUBSIDIARIES OF GREY
--------------------
(as of March 1, 1994)
---------------------
<TABLE>
<CAPTION>
Name Jurisdiction of Organization
---- ----------------------------
<S> <C>
Alonso y Asociados S.A. Mexico
AS Grey Oy Finland
Beaumont-Bennett Inc. New York
CR & Grey Advertising Pte. Ltd. Singapore
CSS & Grey Cyprus
Cenajans Grey Reklamcilik A.S. Turkey
Creative Collaboration Grey S.A. Switzerland
Crescendo Productions Inc. New York
Dialogic S.A. Belgium
Dorland & Grey S.A. Belgium
Dorland & Grey S.A. France
Esfera Grey, S.A. Columbia
Fischer-Grey, C.A. Venezuela
Font & Vaamonde Inc. Delaware
G2 Advertising Inc. California
GCG Norge A/S Norway
GCG Scandinavia A/S Denmark
GCI Italy S.r.l. Italy
GCI Group Inc. New York
GCI - Ringpress GmbH Germany
</TABLE>
- 1 -
<PAGE> 2
<TABLE>
<S> <C>
GEM F&C Inc. California
Great Productions Inc. Delaware
Great Spot Films Ltd. Delaware
Grey Advertising (Hong Kong) Ltd. Hong Kong
Grey Advertising (NSW) Pty. Limited Australia
Grey Advertising (New Zealand) Ltd. New Zealand
Grey Advertising de Venezuela, C.A. Venezuela
Grey Advertising (Victoria) Pty. Ltd. Australia
Grey Advertising Inc. Maryland
Grey Advertising Ltd. Canada
Grey Argentina S.A.C. y de P. Argentina
Grey Athens Advertising S.A. Greece
Grey Australia Pty. Limited Australia
Grey Austria GmbH Austria
Grey Chile S.A. Chile
Grey Communications Group A/S Denmark
Grey Communications Group B.V. The Netherlands
Grey Communications Group Ltd. United Kingdom
Grey-Daiko Advertising, Inc. Japan
Grey Denmark A/S Denmark
Grey Diciembre S.A. Uruguay
Grey Direct Inc. Delaware
Grey Direct International GmbH Germany
Grey Directory Marketing Inc. Delaware
Grey Dusseldorf GmbH & Co. Kommanditgesellschaft Germany
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
<S> <C>
Grey Entertainment Inc. New York
Grey Espana S.A. Spain
Grey GMBH Germany
Grey Holding S.A. Belgium
Grey Holdings A.B. Sweden
Grey Holding GMBH Germany
Grey Holdings Pty. Ltd. South Africa
Grey IFC Inc. Delaware
Grey India Inc. Delaware
Grey Advertising (Malaysia) Sdn. Bhd. Malaysia
Grey Media Connections Inc. New York
Grey Mexico, S.A. de C.V. Mexico
Grey Peru S.A. Peru
Grey Strategic Marketing Inc. Delaware
Grey Thailand Co. Ltd. Thailand
Greycom SARL France
Gross Townsend Frank Hoffman Inc. New York
Hwa Wei & Grey Advertising Co. Ltd. Taiwan
Indigo Entertainment Inc. Delaware
Local Marketing Corporation Ohio
Milano e Grey S.p.A. Italy
National Research Foundation for
Business Statistics, Inc. New York
Principal Communications Inc. Delaware
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<S> <C>
Preferred Professionals Inc. New York
Rigel Limited Cayman Islands
SEK & Grey Ltd. Finland
The Tape Center Inc. Delaware
300 East 42nd Street Promotions, Inc. New York
Trace, S.A. Spain
Triple Seven Concepts Inc. Delaware
Visual Communications Group Inc. New York
W&L/Dialog Grey AG Switzerland
West Indies & Grey Advertising Inc. Puerto Rico
Z&G Grey Comunicacao Ltda. Brazil
</TABLE>
- 4 -
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-98101, 2-97465 and 33-11253) pertaining to the Incentive Stock
Option and Restricted Stock Plans of Grey Advertising Inc. of our report dated
February 8, 1995 on the consolidated financial statements of Grey Advertising
Inc. and consolidated subsidiary companies included in the Annual Report (Form
10-K) for the year ended December 31, 1994.
ERNST & YOUNG LLP
New York, New York
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994 AND THE AUDITED CONSOLIDATED
STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 OF GREY
ADVERTISING INC. AND CONSOLIDATED SUBISIDARY COMPANIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 170,077
<SECURITIES> 7,678
<RECEIVABLES> 403,973
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 675,669
<PP&E> 141,758
<DEPRECIATION> 80,584
<TOTAL-ASSETS> 830,076
<CURRENT-LIABILITIES> 641,934
<BONDS> 33,025
<COMMON> 1,432
7,516
0
<OTHER-SE> 107,273
<TOTAL-LIABILITY-AND-EQUITY> 830,076
<SALES> 593,317
<TOTAL-REVENUES> 593,317
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 591,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,833
<INCOME-PRETAX> 1,610
<INCOME-TAX> 21,621
<INCOME-CONTINUING> (21,378)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,378)
<EPS-PRIMARY> (17.51)
<EPS-DILUTED> (17.51)
</TABLE>
