<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
[ ] 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)
<TABLE>
<CAPTION>
Delaware 13-0802840
<S> <C>
(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:
</TABLE>
NOT APPLICABLE
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of April 30, 1998, the total number of shares outstanding of Registrant's
Common Stock, par value $1 per share ("Common Stock"), was 962,796 and of
Registrant's Limited Duration Class B Common Stock, par value $1 per share
("Class B Common Stock"), was 274,969.
<PAGE> 2
GREY ADVERTISING INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Other Information 13
Signatures 14
Index to Exhibits 15
</TABLE>
2
<PAGE> 3
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
ASSETS (A)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 97,139,000 $ 150,553,000
Marketable securities 43,757,000 15,401,000
Accounts receivable 653,690,000 647,524,000
Expenditures billable to clients 53,967,000 54,687,000
Other current assets 54,501,000 56,225,000
-------------- --------------
Total current assets 903,054,000 924,390,000
Investments in and advances to nonconsolidated affiliated companies 20,021,000 18,386,000
Fixed assets-at cost, less accumulated depreciation of $118,334,000
and $116,443,000 90,157,000 88,006,000
Marketable securities 37,362,000 57,340,000
Intangibles and other assets - including loans to executive officers
of $5,572,000 in 1998 and 1997 110,295,000 111,865,000
============== ==============
Total assets $1,160,889,000 $1,199,987,000
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(A) The consolidated balance sheet has been derived from the
audited financial statements at that date.
3
<PAGE> 4
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (A)
<S> <C> <C>
Current liabilities:
Accounts payable $ 683,854,000 $ 709,959,000
Notes payable to banks 41,729,000 22,455,000
Accrued expenses and other 106,603,000 122,269,000
Income taxes payable 9,644,000 19,181,000
--------------- ---------------
Total current liabilities 841,830,000 873,864,000
Other liabilities, including deferred compensation of $35,313,000 in
1998 and $36,481,000 in 1997 60,498,000 61,723,000
Long-term debt 78,025,000 78,025,000
Minority interest 11,994,000 13,309,000
Redeemable preferred stock - at redemption value; par value $1 per share;
authorized 500,000 shares; issued and outstanding 30,000 shares in 1998 and
32,000 shares in 1997
10,459,000 10,760,000
Common stockholders' equity:
Common Stock - par value $1 per share; authorized 10,000,000 shares; issued
1,184,080 in 1998 and 1,124,324 in 1997 1,184,000 1,124,000
Limited Duration Class B Common Stock - par value $1 per share; authorized
2,000,000 shares; issued 303,091 shares in 1998 and 307,460 shares in 1997 303,000 308,000
Paid-in additional capital 38,582,000 44,349,000
Retained earnings 172,653,000 169,214,000
Cumulative translation adjustment (11,404,000) (9,422,000)
Unrealized gain on marketable securities 440,000 189,000
Loans to officer used to purchase Common Stock and
Limited Duration Class B Common Stock (4,726,000) (4,726,000)
--------------- ---------------
197,032,000 201,036,000
Less - cost of 224,219 and 222,098 shares of Common Stock and 26,762 and
26,762 shares of Limited Duration Class B Common Stock held in treasury at
March 31, 1998 and December 31, 1997,
respectively 38,949,000 38,730,000
--------------- ---------------
Total common stockholders' equity 158,083,000 162,306,000
=============== ===============
Total liabilities and stockholders' equity $ 1,160,889,000 $ 1,199,987,000
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
(A) The consolidated balance sheet has been derived from the
audited financial statements at that date.
4
<PAGE> 5
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1998 1997
-------------------------------------
<S> <C> <C>
Commissions and fees $ 215,714,000 $ 188,748,000
Expenses:
Salaries and employee related expenses 136,193,000 122,086,000
Office and general expenses 68,997,000 58,019,000
-------------------------------------
205,190,000 180,105,000
-------------------------------------
10,524,000 8,643,000
Other income - net 1,572,000 939,000
-------------------------------------
Income of consolidated companies
before taxes on income 12,096,000 9,582,000
Provision for taxes on income 6,504,000 5,263,000
-------------------------------------
Income of consolidated companies 5,592,000 4,319,000
Minority interest applicable to
consolidated companies (1,075,000) (369,000)
Equity in earnings of nonconsolidated affiliated
companies 516,000 625,000
-------------------------------------
Net income $ 5,033,000 $ 4,575,000
=====================================
Weighted average number
of common shares outstanding
Basic 1,181,642 1,180,611
Diluted 1,367,401 1,352,311
Earnings per common share
Basic $4.50 $4.07
Diluted $3.91 $3.58
Dividends per common share $1.00 $1.00
=====================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1998 1997
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,033,000 $ 4,575,000
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of fixed assets 6,909,000 5,726,000
Amortization of intangibles 1,693,000 1,326,000
Deferred compensation 2,799,000 3,016,000
Equity in earnings of nonconsolidated affiliated
companies, net of dividends received of $68,000 in
1998 and none in 1997 (448,000) (625,000)
Gains from the sale of marketable securities (131,000)
Minority interest applicable to consolidated companies 1,075,000 369,000
Restricted stock (income) expense (57,000) 49,000
Deferred income taxes 520,000 (1,775,000)
Changes in operating assets and liabilities:
Increase in accounts receivable (9,903,000) (7,124,000)
Decrease in expenditures billable to clients 222,000 427,000
Decrease (increase) in other current assets 1,990,000 (3,150,000)
Decrease (increase) in other assets 1,355,000 (2,022,000)
Decrease in accounts payable (23,428,000) (32,473,000)
Decrease in accrued expenses and other (31,926,000) (9,193,000)
Decrease in income taxes payable (4,063,000) (4,675,000)
(Decrease) increase in other liabilities (759,000) 474,000
-------------------------------------
Net cash used in operating activities (49,119,000) (45,075,000)
INVESTING ACTIVITIES
Purchases of fixed assets (9,485,000) (6,254,000)
Trust fund deposits (1,328,000) (1,051,000)
Increase in investments and advances to
nonconsolidated affiliated companies (1,187,000) (168,000)
Purchases of marketable securities (48,507,000) (6,277,000)
Proceeds from the sale of marketable securities 40,492,000 7,320,000
Increase in intangibles, primarily goodwill (81,000) (2,948,000)
-------------------------------------
Net cash used in investing activities (20,096,000) (9,378,000)
</TABLE>
6
<PAGE> 7
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1998 1997
--------------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Net proceeds from short-term borrowings 19,465,000 15,777,000
Common Shares acquired for treasury (39,000) (56,000)
Redemption of preferred stock (651,000)
Cash dividends paid on Common Shares (1,180,000) (1,183,000)
Cash dividends paid on redeemable preferred stock (64,000) (64,000)
Repurchase of restricted stock (26,000)
Proceeds from exercise of stock options 71,000
--------------------------------------
Net cash provided by financing activities 17,505,000 14,545,000
Effect of exchange rate changes on cash (1,704,000) (2,875,000)
--------------------------------------
Decrease in cash and cash equivalents (53,414,000) (42,783,000)
Cash and cash equivalents at beginning of period 150,553,000 112,485,000
--------------------------------------
Cash and cash equivalents at end of period $ 97,139,000 $ 69,702,000
=====================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. As permitted by the Securities and Exchange Commission, the accompanying
unaudited Consolidated Financial Statements and Notes thereto have been
condensed and therefore do not contain all disclosures required by
generally accepted accounting principles. Reference should be made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997
filed with the Securities and Exchange Commission.
2. The financial statements as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 are unaudited. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair representation have been included.
3. The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
4. The provision for taxes on income is greater than the Federal statutory
rate principally due to state and local income taxes, and effective foreign
tax rates in excess of the Federal statutory rate.
5. As of March 31, 1998 and December 31, 1997, the Company had outstanding
20,000 shares of Series I Preferred Stock and 5,000 shares each of its
Series II and Series III Preferred Stock. The holder of these shares is the
Chairman and Chief Executive Officer of the Company. In addition, on
December 31, 1997 there were outstanding 2000 shares of Series 1 Preferred
Stock which were held by a former employee; these shares were redeemed
during the quarter ended March 31, 1998. 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 (subject to certain adjustments) upon redemption, less a fixed
discount established upon the issuance of the Preferred Stock. Each class
of Preferred Stock is 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.
The redemption date for the Series I, Series II and Series III Preferred
Stock is fixed at April 7, 2004. The terms of the Series I, Series II and
Series III Preferred Stock also give the holder, his estate or his legal
representative, as the case may be, the option to require the Company to
redeem his 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 without cause. In connection with his
ownership of Series I, Series II and Series III Preferred Stock, the holder
issued to the Company full recourse promissory notes (which are included in
Other Assets in the accompanying condensed consolidated balance sheets).
8
<PAGE> 9
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. The computations of basic earnings per common share for the three months
ended March 31, 1998 and 1997 are based on the weighted average number of
common shares outstanding and, for diluted earnings per common share, are
adjusted for the effect, if any, of the assumed exercise of dilutive stock
options, for shares issuable pursuant to the Company's Senior Management
Incentive Plan and for the assumed conversion of the 8-1/2% Convertible
Subordinated Debentures. Also, for the purpose of computing earnings per
common share for the three months ended March 31, 1998 and March 31, 1997,
the Company's net income was adjusted by dividends paid on the Company's
preferred stock and also by the change in redemption value of the Company's
preferred stock. In computing diluted earnings per common share, the
average quarterly market price was used to determine the number of shares
which would be assumed to be repurchased. The market price for a share of
Class B Common Stock, which is not publicly traded, is deemed to be equal
to the market price of a share of Common Stock, into which a share of Class
B Common Stock may be converted at the option of the holder, as of the date
such valuation is made. The following table shows the amounts used in
computing earnings per common share ("EPS") and the effect on income and
the weighted average number of shares of dilutive potential common stock:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997 (2)
------------------------------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE
WEIGHTED AVERAGE SHARES 1,181,642 1,180,611
------------------------------
Net income $5,033,000 $4,575,000
Effect of dividend requirements
and the change in redemption value
of redeemable preferred stock 286,000 236,000
------------------------------
NET EARNINGS USED IN COMPUTATION $5,319,000 $4,811,000
------------------------------
PER SHARE AMOUNT $4.50 $4.07
==============================
DILUTED EARNINGS PER COMMON SHARE
Weighted average shares used in the Basic EPS calculation 1,181,642 1,180,611
Net effect of dilutive stock options and
stock incentive plans (1) 134,720 120,808
Assumed conversion of 8.5%
convertible subordinated
debentures issued December 1983 51,039 50,892
------------------------------
ADJUSTED WEIGHTED AVERAGE SHARES 1,367,401 1,352,311
------------------------------
Net earnings used in the Basic EPS calculation $5,319,000 $4,811,000
8.5% convertible subordinated
debentures interest net of income tax effect 34,000 35,000
------------------------------
NET EARNINGS USED IN COMPUTATION $5,353,000 $4,846,000
------------------------------
PER SHARE AMOUNT $3.91 $3.58
==============================
</TABLE>
(1) Includes 94,919 and 94,686 shares for 1998 and 1997, respectively,
issuable pursuant to the terms of the Senior Management Incentive Plan.
(2) After restatement for adoption of FAS 128, Earnings Per Share
9
<PAGE> 10
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, Reporting Comprehensive Income ("FAS 130"). FAS
130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement had no
impact on the Company's net income or stockholders' equity. FAS 130
requires the unrealized gains and losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in stockholders' equity,
to be included in other comprehensive income. The prior year Consolidated
Statement of Common Stockholders' Equity will be reclassified to conform to
the requirements of FAS 130.
During the first quarter of 1998 and 1997, total comprehensive income
(loss) amounted to $3,302,000 and ($3,929,000), respectively. The
difference between net income and comprehensive income (loss) in both 1998
and 1997 is primarily attributable to the reduction of the net assets of
the Company's European operations due to the strengthening of the US dollar
against the European currencies.
8. In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosure About Segments of an Enterprise and Related Information
("FAS 131"). FAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. FAS 131 is effective for fiscal years beginning
after December 15, 1997. The adoption of this statement is not expected to
have any impact on the Company's consolidated financial statements.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Income from commissions and fees increased 14.3% during the first quarter of
1998 when compared to the same period in 1997. Absent exchange rate
fluctuations, gross income increased 19.3 % in 1998 when compared to the same
period in 1997. In the first quarters of 1998 and 1997, respectively, 46.7% and
46.4% of consolidated gross income was attributable to domestic operations and
53.3% and 53.6% to international operations. In the first quarter of 1998, gross
income from domestic operations increased 15.0% versus the respective prior
period, while gross income from international operations increased 13.6%, (23.0%
absent exchange rate fluctuations) for the quarter. The increase in gross income
primarily resulted from expanded activities from existing clients, and the
continued growth of the Company's general agency and specialized operations.
Salaries and employee related expenses increased 11.6% in 1998 when compared to
the respective prior period. Office and general expenses increased 18.9% in 1998
versus the respective prior period. These changes, taken together, are generally
in line with the increase in gross income.
Inflation did not have a material effect on revenue or expenses during 1998 or
1997.
Minority interest increased by $706,000 in the first quarter of 1998 as compared
to the respective prior period. The increase is primarily due to changes in the
level of profits of majority-owned companies.
Equity in earnings of nonconsolidated affiliated companies decreased by $109,000
in the first quarter of 1998 as compared to the respective prior period. The
decrease is primarily due to changes in the level of profits of nonconsolidated
affiliated companies.
The effective tax rate was 53.8% in the first quarter of 1998 versus 54.9% in
the same period in 1997. The decrease is due, in large part, to the change in
the mix of pre-tax income from consolidated companies in countries with lower
effective tax rates.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Net income was $5,033,000 in the first quarter of 1998 as compared to $4,575,000
in the respective prior period. Basic and diluted earnings per common share for
the first quarter of 1998 was $4.50 and $3.91, respectively, as compared to
$4.07 and $3.58 in the comparable quarter in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $10,698,000 from $50,526,000 at December 31, 1997
to $61,224,000 at March 31, 1998. The increase in working capital is largely
attributable to the increase in short-term marketable securities. Cash and cash
equivalents decreased by $53,414,000 from $150,553,000 to $97,139,000. The
decrease in cash and cash equivalents is largely attributable to the settlement
of year-end payable balances which were higher at the end of 1997. Domestically,
the Company has committed lines of credit totaling $51,000,000. These lines of
credit were partially utilized during the three months ended March 31, 1998 and
1997 to secure obligations of selected foreign subsidiaries. There was
$3,000,000 and $26,000,000 outstanding under these credit lines as of March 31,
1998 and 1997, respectively.
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 was $38,729,000 and $80,335,000 outstanding at March
31, 1998 and 1997, respectively.
12
<PAGE> 13
PART II
OTHER INFORMATION
13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Reference is made to the Index annexed hereto and
made a part hereof.
(b) Reports on Form 8-K: Press Release issued by the Company on
December 23, 1997. (Incorporated herein by reference to Grey's report on Form
8-K dated and filed as of January 6, 1998.)
13
<PAGE> 14
GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements 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.
(REGISTRANT)
DATE: May 14, 1998 By:/s/ Steven G. Felsher
-----------------------------
Steven G. Felsher
Executive Vice President -
Finance - Worldwide
Secretary and Treasurer
(Duly Authorized Officer)
DATE: May 14, 1998 By:/s/ Lester M. Feintuck
-----------------------------
Lester M. Feintuck
Senior Vice President -
Chief Financial Officer - US Operations
Controller
(Chief Accounting Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page Number in
Number Assigned to Sequential Numbering
Exhibit (i.e. 601 of Table of Item 601 Exhibits System Where Exhibit
Regulation S-K) Description of Exhibits May be Found
--------------- ----------------------- ------------
<S> <C> <C>
10.01 Tenth Amendment to Employment Agreement, dated 16
as of April 30, 1998, by and between Grey and
Edward H. Meyer.
10.02 Second Amendment to Deferred Compensation Trust 24
Agreement, dated as of April 30, 1998, by and
between Grey and United States Trust Company of
New York.
27 Financial Data Schedule 30
</TABLE>
15
<PAGE> 1
TENTH AMENDMENT
AGREEMENT made as of April 30, 1998, 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 originally
executed effective February 9, 1984 and amended from time to time thereafter
(such employment 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, unless
otherwise defined herein, have the meaning ascribed to such terms in the Current
Agreement.
2. Section 6 of the Current Agreement is hereby amended and
restated to read as follows:
6. Disability If, during the term of this Agreement,
Meyer should be unable regularly to perform his duties as required by
this Agreement because of Disability, Grey shall nevertheless pay or
credit to him, as the case may be in accordance with Grey's prior
policies, (i) during the first two years of such Disability (or, if
earlier, to the termination date of this Agreement), the Compensation
he would have been entitled to pursuant to Section 3 hereof, including
but not limited to his full Basic Salary, full bonus (based upon the
discretionary bonus awarded to Meyer for the calendar year immediately
preceding such Disability), full allocations (i.e., 15% of the total
SMIP pool) and payouts under the Senior Management Incentive Plan,
credits to the Pension
16
<PAGE> 2
Account and the Sub-Account in accordance with Section 4 hereof, and
continued health benefits and (ii) during the period (if any) of
Disability beginning on the second anniversary of such Disability and
ending on the termination date of this Agreement, his full Basic
Salary, full allocations (i.e., 15% of the total SMIP pool) and payouts
under the Senior Management Incentive Plan, credits to the Pension
Account and the Sub-Account in accordance with Section 4 hereof, and
continued health benefits, with such amounts being appropriately
reduced to reflect partial years. During the entire period of his
incapacity, Meyer shall perform such services for Grey as he is
reasonably able to perform based upon the nature and extent of his
Disability. As used in this Agreement, "Disability" shall mean Meyer's
physical or mental incapacity so as to render him incapable of carrying
out his duties under this Agreement. To establish a status of
Disability as provided in the preceding sentence, there must first be
issued in writing a determination of Disability. A determination of
Disability may be issued at the initiation of Grey, Meyer or a legal
representative of Meyer. A determination of Disability shall be issued
upon the written certification of a qualified medical doctor agreed to
by Grey and Meyer or, in the event of Meyer's incapacity to designate a
doctor, Meyer's legal representative. In the absence of agreement
between Grey and Meyer (or his legal representative), each party shall
nominate a qualified medical doctor and the two doctors shall select a
third doctor, who shall make the determination as to the Disability. In
the event that either Meyer or Grey shall desire to establish whether
Meyer is Disabled, Meyer (or his legal representative) and Grey shall
use their respective best efforts to cooperate so that a prompt
determination can be reached and Meyer shall make himself available, as
reasonably requested by Grey, for examination by a doctor in accordance
with this paragraph.
Notwithstanding the foregoing, (a) if Meyer
17
<PAGE> 3
should be able regularly to perform significant, important or otherwise
valuable services in connection with management, operations,
administration or client relations of Grey substantially equivalent to
half-time employment, then he may elect to continue as Chairman of the
Board of Grey and (b) even if Meyer shall not be able to regularly
resume any such duties referred to in the first paragraph of this
Section 6 or assume the duties referred to in this paragraph, he shall
be entitled to receive office facilities, assistance and other
arrangements as provided in Section 13 hereof.
3. Section 4 of the Current Agreement is hereby amended and
restated to read as follows:
4. Supplemental Pension. (a) Meyer shall, upon
termination of his employment with Grey, be entitled to receive a
supplemental pension, determined in accordance with the succeeding
provisions of this Section 4. As of the date hereof, Grey shall credit
to a bookkeeping account for the benefit of Meyer (the "Pension
Account") an amount equal to $1,160,000 (less any amounts then required
to be withheld by Grey for Medicare or other taxes, unless such amounts
are deducted by Grey from amounts otherwise payable to Meyer, which
amounts shall be so deducted by Grey to the extent available), and as
of the beginning of each month (commencing with May 1998 through and
including December 2002), provided Meyer is then employed by Grey, Grey
shall credit to the Pension Account an amount equal to $30,000 (less
any amounts then required to be withheld by Grey for Medicare or other
taxes unless such amounts are deducted by Grey from amounts otherwise
payable to Meyer, which amounts shall be so deducted by Grey to the
extent available). At the same time, or as soon as practicable
thereafter, an amount equal to the amount of such credits shall be
transferred by Grey to a sub-account (the "Sub-Account") created under
the Trust established by Grey pursuant to the Trust Agreement ("Trust"
and "Trust Agreement" shall have the meanings ascribed to such terms
18
<PAGE> 4
in the Amendment and Extension Agreement dated as of March 22, 1995,
between Grey and Meyer), and such amounts shall be invested in
accordance with the terms of the Trust Agreement. The Pension Account
and the Sub-Account shall be debited with amounts representing all
losses of and distributions from the Trust attributable to such
Sub-Account and shall be credited with all earnings of and deposits to
the Trust attributable to such Sub-Account.
(b) In the event Meyer's employment with Grey terminates for
any reason prior to December 31, 2002, Grey shall pay to Meyer (or, in
the case of Meyer's death, to his estate), in a cash lump sum within
thirty (30) days following such termination, the balance then held in
the Sub-Account. For purposes of this paragraph (b), Meyer's Disability
under Section 6 hereof during the term of this Agreement shall not be
treated as a termination of employment and, in such event, the balance
in the Sub-Account shall be payable in accordance with this paragraph
(b) upon Meyer's death or in accordance with paragraph (c) below upon
the expiration of the term of this Agreement, as applicable.
(c) Subject to paragraph (d) below, upon Meyer's retirement
from Grey at December 31, 2002, Meyer shall be entitled to receive from
Grey a supplemental pension equal to $40,000 per month, payable in cash
during the first week of each month commencing January 2003 through and
including the month in which occurs Meyer's death (the "payout
period"); provided, however, that if the balance in the Sub-Account as
of the end of any month within the payout period is less than $300,000
(after taking into account the amounts to be deducted pursuant to
paragraph (e) below), then the remaining balance in the Sub-Account
shall be paid to Meyer during the first week of the next succeeding
month. In the event of Meyer's death prior to full payment of the
Sub-Account, Grey shall pay to Meyer's estate in cash, as soon as
practicable following Meyer's death, the balance held in the
Sub-Account immediately prior to such payment.
(d) Upon the occurrence of a Change in Con-
19
<PAGE> 5
trol of Grey (as defined in Section 10(b) of this Agreement) during the
payout period, Grey shall pay to Meyer, as soon as practicable
following such Change in Control of Grey, the balance held in the
Sub-Account immediately prior to such payment.
(e) Notwithstanding anything to the contrary contained in this
Section 4, there shall be deducted from any lump sum payments payable
to Meyer (or his estate) or, in the case of monthly payments to Meyer
pursuant to paragraph (c) above, there shall be deducted from the final
payment(s) which would otherwise be made to Meyer, the sum of the
following amounts (such sum being hereinafter referred to as the
"Deducted Amount"), except to the extent that the Deducted Amount is or
has been deducted by Grey from amounts otherwise payable to Meyer:
(1) the costs of the Trust solely attributable
to the administration of the Sub-Account,
which costs shall be determined by the
trustee of the Trust (i) on an annual basis
as soon as practicable following the end of
each calendar year (commencing with 1998)
and (ii) as soon as practicable following
Meyer's death or the occurrence of a Change
in Control of Grey during the payout period,
for the period from the beginning of the
calendar year in which occurs Meyer's death
or such Change in Control of Grey (as the
case may be) to and including the date of
any lump sum payments to Meyer or Meyer's
estate hereunder.
(2) an amount equal to (i) the interest,
determined separately from the date of
payment of the income tax liabilities
referred to below to the date of the lump
sum payment or final monthly payment(s) to
or in respect of Meyer referred to above
(whichever is applicable), on Grey's
aggregate income tax liability attributable
to net
20
<PAGE> 6
realized earnings on the Sub-Account in
excess of seven percent (7%) in any year
(based on the average of the balances in the
Sub-Account at the beginning of each month
in such year, excluding, in the case of
1998, the months of January through April
and without regard to any earnings or losses
during such year), such amount to be reduced
(but not below zero) by (ii) the interest,
determined separately from the date Grey
realizes a tax benefit in respect of the
losses referred to below to the date of the
lump sum payment or final monthly payment(s)
to or in respect of Meyer referred to above
(whichever is applicable), on any tax
benefits realized by Grey in respect of net
realized losses on the Sub-Account in any
year. Interest hereunder shall accrue
annually (i.e., shall be determined at the
end of each calendar year and at the date of
final payment(s) to or in respect of Meyer
pursuant to this Section 4) at a rate equal
to Grey's returns on short-term cash during
such year (or during the period to such
final payment date, as the case may be).
(3) the aggregate amount paid (in excess of
amounts otherwise withheld by Grey in
accordance with applicable law from payments
due to Meyer) by Grey for Medicare or other
similar taxes in respect of net earnings on
the Sub-Account in excess of seven percent
(7%) in any year (based on the average of
the balances in the Sub-Account at the
beginning of each month in such year,
excluding, in the case of 1998, the months
of January through April and without regard
to any earnings or losses during such year),
plus interest thereon, from the date of
payment of such taxes to
21
<PAGE> 7
the date of the lump sum payment or final
monthly payment(s) to or in respect of Meyer
referred to above, such interest to accrue
annually (i.e., to be determined at the end
of each calendar year and at the date of
final payment to or in respect of Meyer
pursuant to this Section 4) at a rate equal
to Grey's returns on short-term cash during
such year (or during the period to such
final payment date, as the case may be).
As soon as practicable following the end of each calendar year
commencing with 1998 (and prior to the final payment(s) to or in
respect of Meyer pursuant to this Section 4), Grey shall provide to
Meyer a written statement setting forth in reasonable detail the
computation of the Deducted Amount as of the end of such year (or as of
the date of such final payment(s)), including any changes from the
Deducted Amount set forth in the immediately preceding written
statement provided hereunder. To the extent that the funds in the
Sub-Account at any time are less than the Deducted Amount, then any
shortfall shall be paid to Grey by Meyer (or his estate) as soon as
practicable following determination of such shortfall.
(f) The obligations of Grey hereunder shall constitute general
obligations and all payments shall be made from general assets and
property of Grey; provided, however, that it is expressly understood
that Grey's obligations under this Section 4 shall be limited to the
funds held in the Trust and reflected in the Sub-Account, as debited
and credited in accordance with this Section 4, and that Grey shall
have no obligation to pay amounts other than from such funds. Nothing
contained herein shall give Meyer any rights which are greater than
those of a general creditor of Grey nor create or be construed to
create a trust or fiduciary relationship of any kind.
4. Status of Current Agreement. This Amendment shall be
effective as of day and year first above written, and, except as set forth
herein, the Current
22
<PAGE> 8
Agreement shall remain in full force and effect and shall be otherwise
unaffected hereby.
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/Steven G. Felsher
--------------------
/s/Edward H. Meyer
--------------------
Edward H. Meyer
23
<PAGE> 1
SECOND AMENDMENT
TO
GREY ADVERTISING INC.
DEFERRED COMPENSATION TRUST
This Second Amendment (the "Second Amendment"), made as of the
30th day of April, 1998, by and between Grey Advertising Inc. (the "Company")
and United States Trust Company of New York (the "Trustee");
WHEREAS, the Company and the Trustee entered into the Grey
Advertising Inc. Deferred Compensation Trust, dated as of March 22, 1995, as
amended by instrument dated as of February 26, 1996, pursuant to which a trust
(the "Trust") has been created;
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 the date hereof by the Tenth Amendment thereof (the "Tenth Amendment"), a
copy of which is annexed hereto as Exhibit A;
WHEREAS, the Tenth Amendment contains, as Section 3 thereof, a
provision titled "Supplemental Pension" (such section hereinafter referred to as
the "Pension Agreement");
WHEREAS, the Company may incur liability under the terms of
such
24
<PAGE> 2
Pension Agreement with respect to the Executive;
WHEREAS, the Pension Agreement contemplates the establishment
of a Sub-Account under the Trust (hereinafter called the "Sub-Account") and the
contribution by the Company to the Trust from time to time of amounts that shall
be held therein and credited to the Sub-Account for the benefit of the
Executive;
WHEREAS, the Company desires further to amend the Trust
Agreement and, in accordance with Section 12 of the Trust Agreement, is
permitted to do so with the consent of the Executive;
NOW, THEREFORE, the parties are entering into this Second
Amendment and hereby agree as follows:
1. Section 1(e) of the Trust Agreement is hereby amended in
its entirety to read as follows:
At such time as a contribution to the Trust is
required pursuant to the Deferred Compensation Agreement or
the Pension 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 or the Pension Agreement, as the case
may be. The Trustee shall not have any right to compel such
contributions.
2. Sections 2(a) and 2(b) of the Trust Agreement are hereby
amended by inserting the words "or the Pension Agreement, as the case may be,"
after the words "Deferred Compensation Agreement," wherever appearing in such
25
<PAGE> 3
Sections.
3. Section 2(c) of the Trust Agreement is hereby amended in
its entirety to read as follows:
The Company may make payment of benefits directly to
the Executive in accordance with the terms of the Deferred
Compensation Agreement or the Pension Agreement, as the case
may be. To the extent that the Company pays any amounts then
due to the Executive pursuant to the terms of the Deferred
Compensation Agreement or the Pension Agreement, as the case
may be, then the Trustee, upon receipt of certification from
the Company and the Executive that such payment has been made,
shall return to the Company an equal amount of Trust assets
that have been credited to the Executive's Trust Account or
Sub-Account (as such terms are defined in Section 5(a)
hereof), as applicable.
4. Section 3(b)(3) and Section 4 of the Trust Agreement are
hereby amended by adding the words "or the Pension Agreement, as the case may
be" after the words "Deferred Compensation Agreement" wherever appearing in such
Sections.
5. The first sentence of Section 5(a) of the Trust Agreement
is hereby amended in its entirety to read as follows:
Contributions to the Trust on behalf of the Executive
pursuant to the Deferred Compensation Agreement and any
interest and earnings thereon shall be credited, and any
distribution from the Trust in respect of the Deferred
Compensation Agreement or losses thereon shall be debited, to
an account (the "Trust Account") established and held by the
Trustee for the Executive; and contributions to the Trust on
behalf of the Executive pursuant to the Pension Agreement and
any interest and earnings thereon shall be credited, and any
distribution from the Trust in respect of the Pension
Agreement or losses thereon
26
<PAGE> 4
shall be debited, to a sub-account (the "Sub-Account")
established and held by the Trustee for the Executive.
6. The last sentence of Section 6 of the Trust Agreement is
hereby amended to read as follows:
Except as otherwise provided in the Pension 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, whether held in the Trust Account or Sub-Account.
7. Section 7 of the Trust Agreement is hereby amended by
adding the words "and the Sub-Account" after the words "the Trust Account"
wherever appearing in such Section.
8. Section 8(a) of the Trust Agreement is hereby amended by
adding the words ", the Pension Agreement" after the words "Deferred
Compensation Agreement" in such Section.
9. Sections 12(b) and 12(c) are hereby amended by adding the
words "and the Pension Agreement" after the words "Deferred Compensation
Agreement" in such Sections.
10. A new Section 16 is added to the Trust Agreement, to read
as follows:
Section 16. Certain Reports. Each party shall furnish to the
other parties the reports and other information required to be
fur-
27
<PAGE> 5
nished by such party in connection with the determination of
the "Deducted Amount" (as defined in the Pension Agreement).
11. Capitalized terms not otherwise defined herein shall have
the meaning set forth in the Trust Agreement.
12. Except as expressly amended hereby, all of the terms and
provisions of the Trust Agreement shall remain unchanged and continue in full
force and effect and the parties hereto shall be entitled to all of the
applicable benefits thereof and shall be responsible for all of their respective
obligations thereunder.
13. On and after the date hereof, each reference in the Trust
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Trust Agreement shall mean and be a reference to the Trust
Agreement as amended hereby.
14. This Amendment may be executed in counterparts, both of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
15. This Second Amendment shall be construed in accordance
with and governed by the laws of New York, without regard to its conflicts of
law principles.
28
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Second Amendment as of the date first above written.
GREY ADVERTISING INC.
By: /s/ Steven G. Felsher
Name: Steven G. Felsher
---------------------------
Title: Executive Vice President
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ Harriet Friday Leahy
-----------------------------------
Name: Harriet Friday Leahy
Title: Vice President
Consented and Agreed to
as of the date first above
written:
By: /s/ Edward H. Meyer
--------------------------
Edward H. Meyer
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed consolidated Balance Sheet as of March 31, 1998 and the
unaudited condensed consolidated Statement of Income for the three months ended
March 31, 1998 of Grey Advertising Inc. and consolidated subsidiary companies
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 97,139
<SECURITIES> 43,757
<RECEIVABLES> 653,690
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 903,054
<PP&E> 208,491
<DEPRECIATION> 118,334
<TOTAL-ASSETS> 1,160,889
<CURRENT-LIABILITIES> 841,830
<BONDS> 78,025
10,459
0
<COMMON> 1,487
<OTHER-SE> 156,596
<TOTAL-LIABILITY-AND-EQUITY> 1,160,889
<SALES> 215,714
<TOTAL-REVENUES> 215,714
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 205,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,200
<INCOME-PRETAX> 12,096
<INCOME-TAX> 6,504
<INCOME-CONTINUING> 5,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,033
<EPS-PRIMARY> 4.50
<EPS-DILUTED> 3.91
</TABLE>
