-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SYBZe5d5xJdS5GpDdkK4GWN9I2aEeE+7GA7HhvecPA7oLuzqgSy1eCtHy2x84uzy VgXHXg1xF8MDXh/OOXiaEg== 0000950123-96-006495.txt : 19961115 0000950123-96-006495.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950123-96-006495 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREY ADVERTISING INC /DE/ CENTRAL INDEX KEY: 0000043952 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 130802840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07898 FILM NUMBER: 96660839 BUSINESS ADDRESS: STREET 1: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125462000 MAIL ADDRESS: STREET 1: 777 THIRD AVE STREET 2: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 September 30, 1996 [ ] 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 of (IRS 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 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 October 31, 1996, the total number of shares outstanding of Registrant's Common Stock, par value $1 per share ("Common Stock"), was 886,800 and of Registrant's Limited Duration Class B Common Stock, par value $1 per share ("Class B Common Stock"), was 294,274. 2 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES INDEX
PAGE NO. -------- 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 10 Other Information 12 Signatures 13 Index to Exhibits 14
2 3 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 DECEMBER 31, 1995 (UNAUDITED) (A) ----------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 69,631,000 $134,313,000 Marketable securities 28,349,000 20,419,000 Accounts receivable 537,518,000 495,349,000 Expenditures billable to clients 44,939,000 46,449,000 Other current assets 58,277,000 49,614,000 -------------------------------------- Total current assets 738,714,000 746,144,000 Investments in and advances to nonconsolidated affiliated companies 16,654,000 20,693,000 Fixed assets - at cost, less accumulated depreciation of $99,164,000 and $93,789,000 78,394,000 74,706,000 Marketable securities 57,500,000 48,252,000 Intangible assets and other assets-including loans to officers of $5,522,000 in 1996 and 1995 68,637,000 65,342,000 -------------------------------------- Total assets $959,899,000 $955,137,000 ======================================
3 4 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS(CONTINUED)
SEPTEMBER 30, 1996 DECEMBER 31, 1995 (UNAUDITED) (A) ---------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $535,590,000 $549,533,000 Notes payable to banks 86,008,000 71,336,000 Accrued expenses and other 94,443,000 97,126,000 Income taxes payable 14,207,000 18,567,000 ------------------------------------- Total current liabilities 730,248,000 736,562,000 Other liabilities including deferred compensation of $28,913,000 and $22,021,000 39,272,000 39,620,000 Long-term debt 33,025,000 33,025,000 Minority interest 10,167,000 9,281,000 Redeemable preferred stock-at redemption value; par value $1 per share; authorized 500,000 shares; issued and outstanding 32,000 shares in 1996 and 1995 9,481,000 8,986,000 Common stockholders' equity: Common Stock-par value $1 per share; authorized 10,000,000 shares; issued 1,108,909 in 1996 and 1,096,096 in 1995 1,109,000 1,096,000 Limited Duration Class B Common Stock-par value $1 per share; authorized 2,000,000 shares; issued 322,875 shares in 1996 and 335,688 shares in 1995 323,000 336,000 Paid-in additional capital 37,862,000 37,898,000 Retained earnings 136,440,000 122,345,000 Cumulative translation adjustment 4,146,000 4,664,000 Unrealized (loss) gain on marketable securities (1,258,000) 550,000 Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock (4,726,000) (4,726,000) ------------------------------------- 173,896,000 162,163,000 Less-cost of 218,926 and 212,848 shares of Common Stock and 26,751 and 26,751 shares of Limited Duration Class B Common Stock held in treasury at Sept. 30, 1996 and December 31, 1995, respectively 36,190,000 34,500,000 ------------------------------------- Total common stockholders' equity 137,706,000 127,663,000 ------------------------------------- Total liabilities and stockholders' equity $959,899,000 $955,137,000 =====================================
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 5 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------------------------- 1996 1995 1996 1995 ------------------------------------------------------------------------- Commissions and fees $182,487,000 $174,277,000 $542,497,000 $495,917,000 Expenses: Salaries and employee related expenses 118,859,000 110,196,000 347,501,000 314,477,000 Office and general expenses 53,904,000 54,444,000 160,603,000 149,539,000 ------------------------------------------------------------------------- 172,763,000 164,640,000 508,104,000 464,016,000 ------------------------------------------------------------------------- 9,724,000 9,637,000 34,393,000 31,901,000 Other income 529,000 199,000 5,658,000 135,000 ------------------------------------------------------------------------- Income of consolidated companies before taxes on income 10,253,000 9,836,000 40,051,000 32,036,000 Provision for taxes on income (5,050,000) (4,842,000) (20,661,000) (16,228,000) ------------------------------------------------------------------------- Net income of consolidated companies 5,203,000 4,994,000 19,390,000 15,808,000 Minority interest applicable to consolidated companies (730,000) (1,125,000) (2,757,000) (3,026,000) Equity in earnings of nonconsolidated affiliated companies 574,000 536,000 1,484,000 1,322,000 ------------------------------------------------------------------------- Net income $ 5,047,000 $ 4,405,000 $ 18,117,000 $ 14,104,000 ========================================================================= Weighted average number of common shares outstanding Primary 1,295,764 1,279,936 1,295,757 1,306,992 Fully diluted 1,351,004 1,332,202 1,351,465 1,366,769 Net income per common share Primary $3.71 $3.21 $13.46 $10.07 Fully diluted $3.58 $3.11 $12.98 $9.71 Dividends per common share $0.9375 $0.875 $2.8125 $2.625 =========================================================================
See accompanying notes to condensed consolidated financial statements 5 6 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ------------------------------------------ OPERATING ACTIVITIES Net income $ 18,117,000 $ 14,104,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization of fixed assets 13,714,000 12,993,000 Amortization of intangibles 3,948,000 3,074,000 Deferred compensation 10,692,000 9,233,000 Equity in earnings of nonconsolidated affiliated companies, net of dividends received of $235,000 and $187,000 (1,249,000) (1,135,000) Gains from the sale of a nonconsolidated affiliated company, a non-marketable investment security and marketable securities (4,754,000) Minority interest applicable to consolidated companies 2,757,000 3,026,000 Deferred income taxes (4,500,000) (3,550,000) Amortization of restricted stock 75,000 167,000 Changes in operating assets and liabilities: Increase in accounts receivable (50,175,000) (24,523,000) Increase in expenditures billable to clients (785,000) (8,732,000) (Increase) decrease in other current assets (10,583,000) 4,947,000 Increase in other assets (1,743,000) (575,000) Decrease in accounts payable (4,834,000) (21,572,000) (Decrease) increase in accrued expenses and other (2,707,000) 11,314,000 Decrease in income taxes payable (3,597,000) (7,206,000) Decrease in other liabilities (2,653,000) (3,925,000) ------------------------------------------ Net cash used in operating activities (38,277,000) (12,360,000) INVESTING ACTIVITIES Purchases of fixed assets (19,133,000) (19,170,000) Trust fund deposits (1,868,000) (1,278,000) Proceeds from the sale of marketable securities 91,634,000 20,293,000 Purchases of marketable securities (110,620,000) (32,717,000) Proceeds from the sale of a nonconsolidated affiliated company and a non-marketable investments security 8,947,000 Increase in intangibles (primarily goodwill) (7,002,000) (4,675,000) Decrease (increase) in investments and advances to nonconsolidated affiliated companies 539,000 (829,000) ------------------------------------------ Net cash used in investing activities (37,503,000) (38,376,000)
6 7 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---------------------------------------- FINANCING ACTIVITIES Net proceeds from short-term borrowings 18,234,000 18,408,000 Proceeds from loan from life insurance policies 11,779,000 Common shares acquired for treasury (1,910,000) (12,619,000) Cash dividends paid on Common Shares (3,346,000) (3,190,000) Cash dividends paid on Redeemable Preferred Stock (180,000) (168,000) Issuance of restricted stock 25,000 Proceeds from exercise of stock options 300,000 732,000 ---------------------------------------- Net cash provided by financing activities 13,123,000 14,942,000 Effect of exchange rate changes on cash (2,025,000) 3,748,000 ---------------------------------------- Decrease in cash and cash equivalents (64,682,000) (32,046,000) Cash and cash equivalents at beginning of period 134,313,000 170,077,000 ---------------------------------------- Cash and cash equivalents at end of period $ 69,631,000 $138,031,000 ========================================
See accompanying notes to condensed consolidated financial statements. 7 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, 1995 filed with the Securities and Exchange Commission. Certain amounts for the prior year have been reclassified to conform to the current period classification. 2. The financial statements as of September 30, 1996 and for the three and nine month periods ended September 30, 1996 and 1995 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 and nine month periods ended September 30, 1996 are not necessarily indicative of the results to be expected for the full year. 4. The computations of net income per common share for the three and nine month periods ended September 30, 1996 and 1995 are based on the weighted average number of common shares outstanding, adjusted for the effect, if any, of the assumed exercise of dilutive stock options and of shares payable in Common Stock pursuant to the Company's Senior Management Incentive Plan 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 for the three and nine month periods ended September 30, 1996 and 1995, the Company's net income was reduced by dividends on the Preferred Stock and also adjusted by the change in the redemption value of Preferred Stock. Primary net income per common share is computed as if the stock options were exercised at the beginning of the period and as if the funds obtained thereby were used to purchase Common Stock 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 was higher, 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. 5. 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 that are in excess of the Federal statutory rate. 8 9 6. As of September 30, 1996 and December 31, 1995, 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. 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 pertaining upon redemption (subject to certain adjustments), less a fixed discount established upon the issuance of the Preferred Stock. The holders (including one senior executive) of each class of Preferred Stock are entitled to receive cumulative preferential dividends at the annual rate of $0.25 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 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. The holder of the Series 1 Preferred Stock has 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 such holder thereof following termination of employment. In connection with the ownership of Series I, Series II and Series III Preferred Stock, the senior executive issued to the Company full recourse promissory notes (which are included in Other Assets in the accompanying condensed consolidated balance sheet). 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees increased 4.7% during the third quarter of 1996 and 9.4% during the nine months ended September 30, 1996 when compared to the same periods in 1995. Absent exchange rate fluctuations, gross income increased 7.0% in the three months ended September 30, 1996 and 9.5% in the nine months ended September 30, 1996 when compared to the same periods in 1995. In the third quarter of 1996 and 1995, respectively, 45.9% and 43.5% of consolidated gross income was attributable to domestic operations and 54.1% and 56.5% to international operations. In the third quarter of 1996 and for the first nine months of 1996, respectively, gross income from domestic operations increased 10.5% and 12.6% versus the respective prior periods. Gross income from international operations increased 0.2% for the third quarter (4.3% absent exchange rate fluctuations) and 6.9% for the first nine months of 1996 (7.0% absent exchange rate fluctuations) when compared to the same periods in 1995. The increase 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. Salaries and employee related expenses increased 7.9% in the third quarter of 1996 and 10.5% for the first nine months of 1996 when compared to the respective prior periods. Office and general expenses decreased 1.0% and increased 7.4% for the three and nine month periods ended September 30, 1996, respectively, versus the comparable prior periods. These changes in expenses, when taken together, are generally in line with the increases in gross income. Inflation did not have a material effect on revenue or expenses during 1996 or 1995. Minority interest applicable to consolidated companies decreased by $395,000 in the third quarter of 1996 and by $269,000 for the first nine months of 1996 as compared to the respective prior periods. These variances are primarily due to changes in the level of profits of majority-owned companies. Equity in earnings of nonconsolidated affiliated companies increased by $38,000 in the third quarter of 1996 and by $162,000 for the first nine months of 1996 as compared to the respective prior periods. These variances are primarily due to changes in the level of profits of nonconsolidated affiliated companies. 10 11 RESULTS OF OPERATIONS (CONTINUED) The effective tax rate was 49.3% in the third quarter of 1996 and 51.6% in the first nine months of 1996 versus 49.2% and 50.7% in the same periods in 1995, respectively. Other income was affected positively, in the first quarter of 1996, by non-recurring, non-operating pre-tax income of approximately $4,000,000 primarily related to gains on the sale of the Company's equity position in a nonconsolidated subsidiary and the liquidation of a non-marketable investment security. Net income increased by 14.6% and 28.5% in the three and nine months ended September 30, 1996, respectively, when compared to net income for the same periods in 1995. Primary net income per common share increased by 15.6% and 33.7% in the three and nine month periods ended September 30, 1996, respectively, versus the comparable periods in 1995. Fully diluted net income per common share increased by 15.1% for the three months ended September 30, 1996 and 33.7% for the nine months ended September 30, 1996 when compared to the same periods in 1995. Absent the non-recurring, non-operating gains which occurred in the first quarter of 1996, primary and fully diluted net income per common share increased by 18.3% and 18.4%, respectively, for the nine months ended September 30, 1996 as compared to the same period in 1995. For purposes of computing primary net income per common share, the Company's net income is adjusted by (i) dividends paid on the Company's Preferred Stock and (ii) the change in redemption value of the Preferred Stock. LIQUIDITY AND CAPITAL RESOURCES Working capital decreased by $1,116,000 from $9,582,000 at December 31, 1995 to $8,466,000 at September 30, 1996. Cash and cash equivalents decreased by $64,682,000 from $134,313,000 to $69,631,000. The decrease in cash and cash equivalents is largely attributable to the increase in long-term marketable securities and the timing of collections of accounts receivable versus payments to trade vendors. Domestically, the Company has committed lines of credit totaling $50,000,000. These lines of credit were partially utilized during the three and nine months ended September 30, 1996 and 1995 to secure obligations of selected foreign subsidiaries. There was $25,000,000 outstanding under these credit lines as of September 30, 1996 and $15,000,000 as of September 30, 1995. 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 $61,008,000 and $70,461,000 outstanding under these credit lines as of September 30, 1996 and 1995, respectively. 11 12 PART II OTHER INFORMATION Item 5. Other Information In order to comply with recent changes to the rules promulgated under Section 16 of the Securities and Exchange Act of 1934, as amended, the Company has amended its 1993 Senior Management Incentive Plan and 1994 Stock Incentive Plan. Copies of the amended and restated plans are attached hereto as Exhibits 10.01 and 10.02 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: The Company did not file any reports on Form 8-K during the quarter ended September 30, 1996. 12 13 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: November 13, 1996 By: /s/ Steven G. Felsher -------------------------------- Steven G. Felsher Executive Vice President - Finance - Worldwide Secretary and Treasurer (Duly Authorized Officer) DATE: November 13, 1996 By: /s/ William P. Garvey --------------------------------- William P. Garvey Executive Vice President Chief Financial Officer - United States (Chief Accounting Officer) 13 14 INDEX TO EXHIBITS
Number Assigned to Exhibit Page Number in Sequential (i.e., Exhibit Table of Item 601 Table of Item 601 Exhibits Numbering System Where of Regulation S-K) Description of Exhibit Exhibit May Be Found ------------------------------------------------------------------------------------------------- (10.01) Grey Advertising Inc. amended and restated 1993 Senior Management Incentive Plan (10.02) Grey Advertising Inc. amended and restated 1994 Stock Incentive Plan (11) Statement Re: Computation of Net Income per Common Share (unaudited) (27) Financial Data Schedule
14 EX-10.01 2 AMENDED RESTATED 1993 SENIOR MGMT INCENTIVE PLAN 1 Exhibit 10.01 GREY ADVERTISING INC. 1993 SENIOR MANAGEMENT INCENTIVE PLAN 1. PURPOSES OF THE PLAN The 1993 Senior Management Incentive Plan ("Plan") is intended to provide additional compensation to certain key executives of Grey Advertising Inc., A Delaware corporation ("Grey"), and its subsidiaries (collectively, the "Corporation"), based on the earnings of the Corporation and, thereby, to advance the continued success of the Corporation by providing additional incentive for them to promote the success of the business and to enable the Corporation to attract and retain the services of such key executives. In furtherance of these goals, a percentage of the Earnings (as hereinafter defined) of the Corporation for each of the calendar years (each of which is hereinafter called a "Plan Year") 1993 through 1997 shall be allocated to the Plan and credited and distributed to Participants (as hereinafter defined) in accordance with and subject to the terms of the Plan. Executives who are designated as participants under the Plan are herein called "Participants". In addition, in order to encourage the greatest community of interest with the stockholders of the Corporation, certain awards under the Plan shall be in the form of the common stock, par value $1 per share ("Stock"), of the Corporation. 2. SHARES SUBJECT TO THE PLAN Except as hereinafter provided in this Section 2, the aggregate number of shares of Stock which may be allocated under the Plan shall not exceed 200,000 shares ("Shares"). Shares shall be made available, at the discretion of the Committee (as hereinafter defined), either from the authorized but unissued shares of Stock or from shares of Stock held in the hands of the treasury of the Corporation. In the event that the number of outstanding shares of Stock of the Corporation shall be changed (or converted into other consideration) as a result of stock splits, combinations or exchanges of shares, or through reorganization, merger, consolidation or similar events, the number of Shares which may be allocated under the Plan and the number of Shares represented by outstanding allocations (as well as the consideration to be issued or paid under the Plan) shall be appropriately adjusted as determined by the Committee so as to reflect any such change. 3. ELIGIBILITY Key executive of the Corporation (including executive officers and directors who are employees) shall be eligible to become Participants in the Plan. The Board of Directors of Grey (the "Board") or the Compensation Committee of the Board (the Board or such Compensation Committee, as the case may be, being hereinafter referred to as the "Compensation Committee"), in its sole discretion, shall determine which key executives shall become Participants 2 in the Plan. In selecting participants, the Compensation Committee shall consider such factors as it shall, in its sole discretion, deem relevant in connection with accomplishing the purposes of the Plan. An employee shall become a Participant upon the allocation to him/her of cash credits or Stock Allocations (as hereinafter provided) under the Plan. 4. PARTICIPANTS There shall be three types of Participants in the Plan as follows: (a) Participants who have achieved the age of 65 when they become Participants prior to December 31, 1993 ("Vested Participants"); (b) Participants who may be considered "executive officers" of the Corporation for purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but only with respect to awards granted in respect of periods prior to 1994, and any other Participants specifically designed by the Compensation Committee. (Participants described in this paragraph (b) are referred to herein as "Affiliated Participants." and Affiliated Participants and Vested Participants are collectively referred to herein as "Cash Participants"); and (c) Participants who are not Cash Participants ("Stock Participants"). 5. AMOUNTS CREDITED TO THE PLAN; ALLOCATIONS TO PARTICIPANTS (a) For each Plan Year, there shall be credited by the Committee (as defined in Section 9 of the Plan) to the Plan for the benefit of the Participants an amount equal to 12% of the Earnings (as hereinafter defined) for such Plan Year; provided, however, that for Plan Years commencing with calendar year 1994, such crediting shall be made only if the Earnings for such Plan Year exceed $15,000,000. (The amount credited to the Plan for any Plan Year is hereinafter referred to as the "Plan Year Pool.") (b) For each Plan Year commencing with calendar year 1994, the Committee shall allocate to each Participant a percentage (the "Allocation Percentage") of the plan Year Pool for such Plan Year. For Plan Years commencing with calendar year 1994, the Allocation Percentage of a Participant may not exceed 30% with respect to any Plan Year. Allocations with respect to a Plan Year shall be made by the Committee not later than June 30th of each year following the Plan Year to which such allocations apply. Any portion of the Plan Year Pool which is not allocated to Participants may not be allowed for any other Plan Year. -2- 3 (c) Allocations to each Cash Participant shall be made in the form of cash credits. Allocations ("Stock Allocations") to each Stock Participant shall be made (in lieu of such cash credits) corresponding to such numbers of shares of Stock as shall equal (i) the dollar value of the cash credits which would otherwise be allocated to such Stock Participant, divided by (ii) the average of the means of the daily high bid and low asked prices of the Stock as reported in the Wall Street Journal during the last 15 days on which the Stock traded during December of the Plan Year to which the allocations are attributable. (If the Stock is traded on fewer than 15 days during such December, the average of the means of the high bid and low asked prices on days on which trading occurred shall be used.) (d) As at the end of each Plan Year, there shall be determined for each Stock Participant an amount ("Dividend Amount") equal to the number of shares in each Stock Participant's Stock Accumulated Account (as hereinafter defined) as at the end of the previous Plan Year multiplied by the amount of the dividends per share of Stock paid by Grey during the Plan Year. (A Stock Participant's "Stock Accumulated Account" shall be such number of shares of Stock in the Plan as shall have theretofore been allocated to such Stock Participant.) The Dividend Amount shall then be divided by the prices of the Stock determined in the preceding paragraph (c) and there shall be credited to the Stock Participant's Stock Accumulated Account, Stock Allocations representing such number of shares of Stock as shall be equal to the resulting quotient. (e) "Earnings" as used herein shall mean the Corporation's net income as determined for financial reporting purposes, determined in accordance with generally accepted accounting principles consistently applied, after deduction of all expenses incurred by the Corporation, but before deduction of any amounts to be credited under this Plan and any deduction for the provision for taxes on income. In determining Earnings for a particular Plan Year, the Compensation Committee shall have the authority to make adjustments in recognition of unusual or non-recurring events affecting the Corporation or its financial statements, or in response to changes in applicable laws, regulations or accounting principles. (f) This is an unfunded plan and the crediting of Stock to the accounts of Stock Participants or of amounts to the accounts of Cash Participants shall not require the Corporation to set aside or pay funds, or to set aside or transfer Stock, unless and until required by Paragraph 8 hereof. 6. VESTING A Participant's account (whether Stock or cash) may either be vested or contingent. An account shall be contingent ("Contingent Account") until a Participant's Vesting Date (as hereinafter defined) occurs. A Participant's account shall be vested ("Vested Account") from and after the Participant's Vesting Date as to all amounts or Stock in such account on the Vesting Date and as to all amounts or Stock credited thereafter. The Vesting Date of a Participant shall be the date on which the first of the following events occurs: -3- 4 (a) The Participant becomes a Vested Participant as defined in paragraph 4(a) hereof; or (b) The Participant has completed five full calendar years of continuous employment with the Corporation after becoming a Participant in the Plan, provided that any person who became a Participant in the Plan prior to or during 1993 shall be deemed to have completed such five full calendar years if he/she shall have remained continuously employed with the Corporation through December 31, 1997; or (c) The Participant has died or become permanently disabled while an employee of the Corporation. 7. FORFEITURES A Participant with a Contingent Account whose employment terminates for any reason whatsoever (except for death or permanent disability) shall forfeit his/her account. Any forfeited Contingent Account, in the discretion of the Committee, may be reallocated and applied to Participants other than Participants who are "Covered Employees" (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code")) or may be returned to the Corporation. 8. PAYMENTS TO PARTICIPANTS (a) No payment of funds or distributions of Stock from Contingent Accounts shall be made to Participants. Payments and distributions shall be made to Participants of sums credited or Stock allocated, as the case may be, to their respective Vested Accounts in the discretion of the Committee, as follows: (i) in the case of cash payments to a Cash Participant, in a lump sum, on or before June 30th following the Vesting Date; (ii) in the case of Stock distributions to a Stock Participant, by the issuance of such a number of shares of Stock as shall then be in such Stock Participant's Stock Accumulated Account (except for fractional shares which shall be paid in cash) on or before June 30th following the Vesting Date; and (iii) notwithstanding the foregoing, cash payments and/or Stock distributions may be made in no less than two nor more than five equal annual installments, the first installments to be paid on or before June 30th following the Vesting Date, and succeeding installments to be paid on or before succeeding June 30th, until the amount of cash or Stock in the Participant's Vested Account shall have been paid or distributed, as the case may be, in full. -4- 5 (b) Anything to the contrary contained above notwithstanding, in no event shall any payment be required to be made to a Participant sooner than 90 days after a Participant's Vesting Date. In the event the Committee shall have determined to make payment in accordance with sub-paragraph 8(a)(iii), the Committee shall have the right, subsequently, to amend its determination in order to accelerate the payment to any Participant. (c) Notwithstanding the preceding provisions of this Section 8, the Committee may, in its discretion, defer the payment of funds or distribution of Stock to Participants until such time and to the extent necessary to ensure that such payment or distribution shall not be rendered nondeductible to the Corporation by reason of Section 162(m) of the Code. The Committee shall have the authority to prescribe such other terms and conditions relating to such deferral as it may deem appropriate. 9. ADMINISTRATION The Plan shall be administered by the Compensation Committee, which shall have full and final authority, subject to the express provisions of the Plan, to make all determinations deemed necessary or advisable for the administration of the Plan. The Compensation Committee shall have full and final authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all determinations necessary or advisable for its administration. However, to the extent permitted by Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act and by Section 162(m) of the Code, the Compensation Committee may delegate some or all of its functions under the Plan to the Chief Executive Officer of Grey (the Compensation Committee or the Chief Executive Officer, as the case may be, being referred to herein as the "Committee"). In addition to such other rights of indemnification as they may have as directors, members of the Committee shall be indemnified by the Corporation to the full extent permissible under applicable law while serving as a member of the Committee. 10. NON-TRANSFERABILITY OF INTERESTS IN THE PLAN Interests of Participants in the Plan (including amounts or Stock allocated to their accounts) shall not be transferable otherwise than by will or by the laws of descent and distribution. More particularly, but without limiting the generality of the foregoing, no such interests may be assigned, transferred (except as provided in the preceding sentence), pledged or hypothecated in any manner, nor shall any such interests be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition contrary to this provision, and any levy or any attachment or similar process upon such an interest shall be null and void and without effect, and the Committee may, in its discretion, upon the happening of any such event, terminate and declare such an interest forfeited forthwith. -5- 6 11. TERMINATION AND AMENDMENT OF PLAN The Board may terminate this Plan at any time or make such amendments hereto as it shall deem advisable; provided, however, that any such termination or amendment shall not adversely affect any amounts previously credited to Participants under this Plan, whether in Vested or Contingent Accounts, without the consent of the affected Participants; and provided, further, that no such amendment may be made without the requisite approval of stockholders of Grey if such approval is required in order to maintain compliance with Rule 16b-3. No such termination shall accelerate any vesting under the Plan. Notwithstanding that the amounts may be credited or paid thereafter, no credits or payments shall be made under this Plan with respect to any year after the final Plan Year. 12. MISCELLANEOUS (a) Allocations may be made under this Plan from earlier plans of like nature, and such allocations shall be valued and shall vest as determined by the Committee. (b) Computations under this Plan shall be carried to the nearest one-one thousandth of a share or dollar, as the case may be. (c) This Plan shall be governed by the laws of the State of New York. (d) Captions are used herein for convenience only and shall not have any legal effect. -6- EX-10.02 3 AMENDED & RESTATED 1994 STOCK INCENTIVE PLAN 1 Exhibit 10.02 GREY ADVERTISING INC. 1994 STOCK INCENTIVE PLAN 1. PURPOSES The purposes of the Grey Advertising Inc. ("Company") 1994 Stock Incentive Plan ("Plan") are to encourage ownership of the common stock, par value $1 per share ("Common Stock"), of the Company be eligible key employees of the Company and its subsidiaries, and thereby to provide increased incentive for such employees to put forth maximum effort for the success of the business of the Company, and to enable the Company better to attract, retain and reward such employees. Awards under the Plan ("Awards") may be granted in the form of Stock Options ("Options") or restricted stock ("Restricted Stock"), subject to the applicable terms and conditions set forth herein. 2. ADMINISTRATION This Plan shall be administered by the Board of Directors of the Company (the "Board") or the Compensation Committee of the Board (the Board or such Compensation Committee, as the case may be, being hereinafter referred to as the "Committee"). The Committee is authorized to establish such rules and regulations as it deems necessary for the proper administration of the Plan, and to make such determinations and interpretations and to take such action in connection with the Plan and any options granted under the Plan as it deems necessary or advisable. All determinations of the Committee shall be by a majority of its members and such determinations shall be final. 3. ELIGIBILITY Key employees of the Company and its subsidiaries shall be eligible to receive Awards. Directors of the Company who are not full-time employees of the Company or of any of its subsidiaries shall not be eligible to receive Awards. 4. SHARES AVAILABLE An aggregate of 250,000 shares of Common Stock shall be available for grant of Options and Restricted Stock under the Plan (subject in each case to adjustment as provided in paragraph 9). Such shares may be authorized and unissued shares or may be treasury shares. Upon the expiration, termination or cancellation in whole or in part of any unexercised Options or upon the forfeiture or repurchase by the Company of any shares of Restricted Stock, shares of Common Stock covered by such unexercised Options or forfeited or repurchased shares of Restricted Stock shall be available again for new Awards of Options and Restricted Stock, respectively, under the Plan. No employee may be granted Options for more than 75,000 shares or more than 75,000 shares of Restricted Stock (subject in each case to adjustment as provided in paragraph 9) over the term of the Plan. 2 5. GRANT OF AWARDS Subject to the provisions of paragraphs 4 and 6, Awards may be granted to such eligible employees in such numbers and at such times during the term of the Plan as the Committee shall determine. Each Award shall be evidenced by a duly executed written agreement by and between the Company and the grantee, containing such other agreements as shall be required by the Committee and as shall not be inconsistent with the Plan. Agreements may contain dissimilar provisions provided that all such provisions are consistent with the Plan. Agreements relating to shares of Restricted Stock shall prescribe the form of legend to be inscribed to the stock certificate evidencing such shares. 6. TERMS AND CONDITIONS OF OPTIONS All Options under the Plan shall be granted subject to the following terms and conditions: (a) Designation. Each Option shall be designated as either an "incentive stock option" (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")) or as a "nonqualified stock option". (b) Option Price. The option price shall be not less than 100% of the fair market value of a share of Common stock, as determined by the Committee, on the date the option is granted; provided, however, that the option price of an "incentive stock option" granted to any individual (a "ten percent shareholder") who owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any subsidiary corporation shall not be less than 110% of such fair market value. (c) Duration of Options. Unless sooner terminated by terms of the Plan or by the terms of any specific grant, each Option shall expire not later than ten years from the date of grant; provided, however, that the maximum term of an "incentive stock option" granted to a ten percent shareholder shall be five years from the date of grant or such longer period as my be permitted by the Code. (d) Exercise of an Option. Options shall be exercisable over their term at such times and in such installments as the Committee may prescribe. Options may be exercised from time to time by written notice to the Company stating the number of shares with respect to which the Option is being exercised. (e) Payment. No shares shall be issued or delivered upon exercise of an Option until full payment for the Option shares has been made in cash, in shares having a fair market value equal to the option price, or in a combination of the foregoing. -2- 3 (f) Nontransferability of Options. An Option shall not be transferable by an optionee except by will or the laws of descent and distribution and shall be exercisable, during the optionee's lifetime, only by the optionee. (g) Termination of Employment. Upon termination of an optionee's employment, each Option previously granted to the optionee shall expire if not exercised before the earlier of (i) the expiration date provided in the option agreement applicable to each such Option and (ii) such earlier date as may be set forth in such option agreement. (h) Non-Competitive Provision. Anything herein to the contrary notwithstanding, if an optionee, without the written consent of the Company, engages either directly or indirectly, in any manner or capacity, as principal, agent, partner, officer, director, employee, or otherwise, in any business or activity competitive with the business conducted by the Company or any subsidiary of the Company, each Option previously granted to the optionee shall expire forthwith. 7. TERMS AND CONDITIONS APPLICABLE TO RESTRICTED STOCK All Awards of Restricted Stock shall be granted subject to the following terms and conditions: (a) Purchase Price. Shares of Restricted Stock may be sold to eligible employees at such purchase price per share as shall be determined by the Committee, or such shares may be awarded and issued without the payment of a purchase price. (b) Conditions to Certain Issuances and Sales. Shares of Restricted Stock may be issued or sold hereunder without the payment of a purchase price (or for a per share purchase price which is less than the then fair market value per share, as determined by the Committee) only if the Corporation's "Earnings" (as hereinafter defined) for its fiscal year prior to the year of such issuance or sale exceed $15,000,000. For purposes hereof, "Earnings" for a particular year shall mean the Company's net income as determined for financial reporting purposes, determined in accordance with generally accepted accounting principles consistently applied, after deduction of all expenses incurred by the Company, but before deduction of any amounts credited for such year under the Company's 1993 Senior Management Incentive Plan (or any successor plan thereto) and any deduction for the provision for taxes on income. In determining Earnings for a particular year, the Committee shall have the authority to make adjustments in recognition of unusual or nonrecurring events affecting the Company or its financial statements, or in response to changes in applicable laws, regulations or accounting principles. (c) Exercise of Rights to Purchase. An employee who is granted the right to purchase shares of Restricted Stock may exercise such right during such period after the time of grant as may be determined by the Committee, provided that he or she is still an employee of the Company or any of its subsidiaries on the date of such exercise. -3- 4 In order to exercise his or her right to purchase shares of Restricted Stock, the employee shall give written notice to the Company of his or her election to purchase and the number of shares he or she is purchasing. The full purchase price of the shares being purchased shall be tendered at the time of such notice in cash or in previously owned shares of Stock. The purchaser shall possess no rights as a stockholder with respect to any purchased shares until he or she has made such full payment and has had issued to him or her a certificate or certificates evidencing the shares so purchased. (d) Restrictions. Shares of Restricted Stock issued to or purchased by an employee under the Plan shall be subject to such restrictions as may be imposed by the Committee ast the time of issuance or at the time of the grant of the right to purchase shares. Such restrictions may vary from employee to employee and may also vary among several grants to the same employee. 8. REGULATORY APPROVALS The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of an Option or upon the lapsing of restrictions with respect to Restricted Stock prior to (a) the obtaining of any approval from any governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable and (b) the completion of any registration or other qualification of such shares under any state or Federal law or rulings or regulations of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable. 9. ADJUSTMENT OF SHARES AVAILABLE If there is any change in the Common Stock through the declaration of stock dividends, or through recapitalization resulting in stock splits, or combinations or exchanges of shares, or otherwise, the number of shares available for Awards, the maximum number of Options and shares of Restricted Stock which may be granted to any individual, the shares subject to any Award and the option prices applicable to outstanding Options shall be appropriate adjusted by the Committee. 10. AMENDMENT The Board may at any time, and from time to time, terminate, modify, amend or interpret the Plan in any respect, except that any such amendment shall be effective only upon stockholder approval if the Board determines that such approval is necessary or appropriate under the circumstances. 11. EFFECTIVE DATE OF THE PLAN This Plan shall be effective as from June 27, 1994, provided that the Plan shall have been approved within twelve months of such date by the Stockholders of the Company. In the absence of such Stockholder approval, the Plan (and any Awards theretofore granted) shall be null and void. No Awards may be granted after the tenth anniversary of such effective date. -4- EX-11 4 STAMENT OF COMPUTATION OF NET INCOME PER COMMON SH 1 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES EXHIBIT - STATEMENT RE: COMPUTATION OF NET INCOME PER COMMON SHARE (UNAUDITED) EXHIBIT - 11
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------------------------- PRIMARY 1996 1995 1996 1995 ------------------------------------------------------------------------- Weighted average shares outstanding(1) 1,262,740 1,248,442 1,263,117 1,280,855 Net effect of dilutive stock options - based on the treasury stock method using average market price 33,024 31,494 32,640 26,137 ------------------------------------------------------------------------- TOTAL 1,295,764 1,279,936 1,295,757 1,306,992 ========================================================================= Net Income $5,047,000 $4,405,000 $18,117,000 $14,104,000 Less: Effect of dividend requirements and the change in redemption value of redeemable preferred stock (238,000) (300,000) (675,000) (943,000) ------------------------------------------------------------------------- NET EARNINGS USED IN COMPUTATION $4,809,000 $4,105,000 $17,442,000 $13,161,000 ========================================================================= Per share amount $3.71 $3.21 $13.46 $10.07 ========================================================================= FULLY DILUTED Weighted average shares outstanding (1) 1,262,740 1,248,442 1,263,117 1,280,885 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 37,372 32,761 37,456 34,915 Assumed conversion of 8-1/2% convertible subordinated debentures issued December 1983 50,892 50,999 50,892 50,999 ------------------------------------------------------------------------- TOTAL 1,351,004 1,332,202 1,351,465 1,366,769 ========================================================================= Net Income $5,047,000 $4,405,000 $18,117,000 $14,104,000 Less: Effect of dividend requirements and the change in redemption value of redeemable preferred stock (238,000) (300,000) (675,000) (943,000) Add: 8-1/2% convertible subordinated debentures interest, net of income tax effect 35,000 35,000 104,000 104,000 ------------------------------------------------------------------------- NET EARNINGS USED IN COMPUTATION $4,844,000 $4,140,000 $17,546,000 $13,265,000 ========================================================================= Per share amount $3.58 $3.11 $12.98 $9.71 =========================================================================
(1) Includes 73,696 shares and 54,287 shares for 1996 and 1995, respectively, expected to be issued pursuant to the terms of the Senior Management Incentive Plan. 25 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 OF GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 SEP-30-1996 69,631 28,349 537,518 0 0 738,714 177,558 99,164 959,899 730,248 33,025 9,481 0 1,432 136,274 959,899 542,497 542,497 0 0 508,104 0 8,100 40,051 20,661 18,117 0 0 0 18,117 13.46 12.98
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