-----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, GVl9NuUv4B85qlOp7CaSyhpxXT32BH9fo2LqnqUZsIMEHp3h1k3ia4L84MceIwzZ +7eSHOIod/5+YvMoOW7Jbg== 0000950123-03-003333.txt : 20030327 0000950123-03-003333.hdr.sgml : 20030327 20030327113319 ACCESSION NUMBER: 0000950123-03-003333 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREY GLOBAL GROUP INC 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07898 FILM NUMBER: 03619927 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 FORMER COMPANY: FORMER CONFORMED NAME: GREY ADVERTISING INC /DE/ DATE OF NAME CHANGE: 19920703 10-K 1 y84535e10vk.txt GREY GLOBAL GROUP, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-7898 GREY GLOBAL GROUP INC. (Exact name of registrant as specified in its charter) DELAWARE 13-0802840 (State or other jurisdiction of incorporation (I.R.S. Employer Identification Number) or organization) 777 THIRD AVENUE, NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-546-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $0.01 PER SHARE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act). Yes [X] No [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was $627,999,081 at June 30, 2002. The registrant had 1,073,578 shares of its Common Stock, par value $0.01 per share, and 207,568 shares of its Limited Duration Class B Common Stock, par value $0.01 per share, outstanding at March 1, 2003. DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual proxy statement to be furnished in connection with the registrant's 2003 annual meeting of stockholders are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Grey Global Group Inc. ("Grey" or the "Company") commenced operations in 1917, was incorporated in New York in 1925 as Grey Advertising Inc. and reincorporated in Delaware in 1974. The Company changed its name to Grey Global Group Inc. in 2000. Grey is one of the world's largest advertising, communications and marketing service companies. It operates in 83 countries around the world providing its clients with services and expertise over a broad range of communications disciplines including mass market advertising, media planning and buying, direct marketing, healthcare marketing, public relations and public affairs, sales promotion, graphic design, corporate communications, event marketing, interactive communications, channel marketing and retail advertising support, and product branding. Grey services a diverse client base in all product categories including fast moving consumers goods, pharmaceutical products, automobiles, entertainment and communications, technology and telecommunications, and retail. Longevity is a hallmark of Grey's client relationships. It has been providing service to its ten largest clients, on average, for more than 15 years. One client, The Procter & Gamble Company, which has been a client of the Company for more than forty years, represented approximately 10% of the Company's consolidated income from fees and commissions ("gross income") in 2002. The loss of this client would likely have an adverse effect on the results of the Company. No other client represented more than 5% of gross income. The Company and its subsidiaries (consolidated and nonconsolidated) employed 10,500 people at the end of 2002, including six executive officers. The Company faces risks normally associated with a global marketing communications firm including general economic and market conditions; the credit-worthiness of its clients; competition for client assignments and talented staff; and the risk associated with extensive international operations. While the Company has no reason to believe that its international operations as a whole are jeopardized in any material respect, they bear certain risks, including those of currency fluctuations, political instability and exchange controls, which do not effect its domestic operations. While the Company operates on a global basis, for purposes of presenting certain financial information in accordance with accounting principles generally accepted in the United States, its operations are deemed to be conducted in three geographic areas and relevant information for these areas for the last three years is summarized in the Notes to the Company's Consolidated Financial Statements. The Company's website address is www.greyglobalgroup.com. The Company makes available free of charge on its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. FORWARD LOOKING STATEMENTS In connection with the provisions of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), the Company may include Forward Looking Statements (as defined in the Reform Act) in oral or written public statements issued by or on behalf of the Company. These Forward Looking Statements may include, among other things, plans, objectives, projections, anticipated future economic performance or assumptions and the like that are subject to risks and uncertainties. Actual results or outcomes may differ materially from those discussed in the Forward Looking Statements. Important factors which may cause actual results to differ include, but are not limited to, the following: the unanticipated loss of a material client or key personnel, delays or reductions in client budgets, shifts in industry rates of compensation, government compliance costs or litigation, unanticipated natural disasters, terrorist attacks, war, technological developments, creditworthiness of clients and suppliers, changes in the general economic conditions that affect exchange rates, changes in interest rates and/or consumer spending either in the United States or non-United 1 States markets in which the Company operates, unanticipated expenses, client preferences which can be affected by competition, and/or changes in the competitive frame, and the ability to project risk factors which may vary (Certain of these factors are discussed in greater detail elsewhere herein.) EXECUTIVE OFFICERS OF GREY AS OF MARCH 1, 2003
Year First Became EXECUTIVE OffiCERS(a) Position Age Executive Officer - --------------------- -------- --- ----------------- Robert L. Berenson......... Vice Chairman -- General Manager 63 1978 Lester M. Feintuck......... Senior Vice President Chief Financial Officer -- US, Controller 49 1998 Steven G. Felsher.......... Vice Chairman, Chief Financial Officer -- Worldwide, Secretary & Treasurer 53 1989 John A. Grudzina(b)........ Senior Vice President General Counsel 49 2003 W. Jonathan T. Hirst(b).... Senior Vice President Director of International Finance 53 2003 Neil I. Kreisberg.......... Group Executive Vice President Executive Managing Director, Procter & Gamble 58 2002 Edward H. Meyer............ Chairman of the Board, President & Chief Executive Officer 76 1959 Stephen A. Novick.......... Vice Chairman, Chief Creative Officer 62 1984
- --------------- (a) All executive officers are elected annually by the Board of Directors of Grey ("Board"). Each executive officer has been with Grey for a period greater than five years. There exists no family relationship between any of Grey's directors or executive officers and any other director or executive officer or person nominated or chosen to become a director or executive officer. (b) Messrs. Grudzina and Hirst were elected by the Board on March 25, 2003. ITEM 2. PROPERTIES Substantially all offices of the Company are located in leased premises. The Company's principal office is at 777 Third Avenue, New York, New York, where it occupies approximately 439,000 square feet of space. The Company's lease covering this space expires at the end of 2009. The Company also has leases covering other offices, including in Atlanta, New York, Los Angeles, Amsterdam, Auckland, Beijing, Brussels, Buenos Aires, Copenhagen, Dusseldorf, Hong Kong, Istanbul, Jakarta, Johannesburg, Kuala Lumpur, London, Madrid, Melbourne, Mexico City, Milan, Oslo, Paris, San Francisco, San Juan, Sao Paolo, Stockholm, Tokyo, Toronto and Washington D.C. The Company considers all space leased by it to be adequate for the operation of its business and does not foresee any significant difficulty in meeting its space requirements. ITEM 3. LEGAL PROCEEDINGS Since March 2001, the Company has been cooperating with a criminal investigation being conducted by U.S. Department of Justice Antitrust Division. The investigation relates to the Graphic Services Department ("Department") of the Company's New York Division of Grey Worldwide and several former vendors of the Department. Since March 2002, federal criminal charges have been pending against Mr. Mitchell Mosallem, who served as director of the Department until December 31, 2001. Those charges allege, among other things, that Mosallem and others (including other employees in the Department) conspired (1) to restrain trade by rigging bids and allocating contracts for certain graphic services performed for a client of the Company; (2) to charge clients of the Company in excess of amounts appropriately chargeable, including charges for cost 2 overruns on unrelated work and the cost of certain entertainment or other goods or services provided to Mosallem and other Company employees; and (3) to obtain kickbacks from former vendors of the Department. In November 2002, two of Mosallem's codefendants -- a vendor known as The Color Wheel, Inc. and its principal owner, Haluk Ergulec -- pleaded guilty to various charges, including conspiracy to defraud the Company and its clients. In that connection, the government filed with the court a written plea agreement identifying the Company as a victim of Ergulec's offenses and requiring Ergulec to pay $1.1 million to the Company in restitution. Several other individuals associated with former vendors to the Department have pleaded guilty to federal charges relating to the allegations against Mosallem. The government also has indicated that it is examining whether there is Company responsibility in this matter. In February 2002, the Company hired from outside the Company a new Director of the Department. In addition, Deloitte & Touche was retained on behalf of the Company to conduct a comprehensive review of the Department, to recommend improved policies and procedures, and to assist in the determination of remedial action as appropriate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is traded on The NASDAQ Stock Market's National Market and listed on the NASDAQ Stock Market under the symbol GREY. As of March 1, 2003, there were 382 holders of record of the Common Stock and 179 holders of record of the Limited Duration Class B Common Stock. The following table sets forth certain information about dividends paid, and the bid prices on the NASDAQ Stock Market during the periods indicated with respect to the Common Stock:
BID PRICES* DOLLARS PER SHARE ----------------- DIVIDENDS HIGH LOW PER SHARE ------ ------ --------- 2002 First Quarter............................................ $686 $593 $1.00 Second Quarter........................................... 834 650 1.00 Third Quarter............................................ 745 516 1.00 Fourth Quarter........................................... 623 551 1.00 2001 First Quarter............................................ $770 $470 $1.00 Second Quarter........................................... 734 575 1.00 Third Quarter............................................ 688 467 1.00 Fourth Quarter........................................... 678 501 1.00
- --------------- * Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. 3 ITEM 6. SELECTED FINANCIAL DATA
2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Commissions and fees..... $1,199,708 $1,217,013 $1,247,448 $1,067,212 $ 935,181 Expenses................. 1,146,958 1,196,763 1,182,512 1,034,339 882,524 Income (loss) of consolidated companies before taxes on income................. 42,972 (4,116) 54,224 38,270 59,152 Provision for taxes on income................. 21,529 14,087 29,752 27,400 29,856 Net income (loss)........ 18,255 (24,428) 19,404 6,401 25,877 Earnings (loss) per common share(a) Basic.................. 13.28 (18.46) 15.70 5.13 20.81 Diluted(b)............. 12.08 (18.46) 14.41 4.86 18.98 Weighted average number of common shares outstanding Basic.................. 1,245,856 1,237,880 1,230,696 1,237,007 1,220,767 Diluted(b)............. 1,380,698 1,237,880 1,349,979 1,333,379 1,345,928 Working capital (deficiency)........... (94,823) (91,518) (51,421) (56,887) 3,464 Total assets............. 2,073,839 1,899,806 1,989,320 1,809,254 1,489,653 Long-term debt........... 128,025 128,025 128,025 78,025 78,025 Redeemable preferred stock at redemption value.................. 9,652 8,180 9,995 10,150 10,333 Common stockholders' equity................. 177,505 141,760 171,935 171,365 173,389 Cash dividends per share of Common Stock and Limited Duration Class B Common Stock......... 4.00 4.00 4.00 4.00 4.00
- --------------- (a) After giving effect to amounts attributable to redeemable preferred stock and for diluted earnings per common share to the assumed (i) exercise of dilutive stock options, (ii) issuance of shares pursuant to the Company's Senior Management Incentive Plan and (iii) conversion of the 8 1/2% Convertible Subordinated Debentures. (b) Due to the anti-dilutive result of the diluted EPS calculation for 2001, basic and diluted EPS are the same. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees ("gross income") decreased marginally in 2002 and decreased 2.4% in 2001 as compared to the respective prior years. Absent exchange rate fluctuations, gross income decreased 2.0% in 2002 and increased 1.5% in 2001. In 2002, 2001 and 2000, respectively, 46.3%, 44.3% and 46.8% of consolidated gross income was attributable to North American operations and 53.7%, 55.7% and 53.2%, respectively, to international operations. In 2002, gross income from North American operations increased 3.0% versus 2001 and was down 7.7% in 2001 versus 2000. Gross income from international operations decreased 4.9% (6.0% absent exchange rate fluctuations) in 2002 when compared to 2001 and increased 2.2% (9.1% absent exchange rate fluctuations) in 2001 when compared to 2000. The slight decrease in gross income 4 in 2002 reflects generally weak economic conditions in selected Northern European and Latin American countries offset by a growth performance of the North American operations and the positive impact of a weakening dollar. The decrease in gross income in 2001 reflects a reduction in client spending principally attributable to overall economic weakness and its impact on the Company's business. Furthermore, in response to the difficult times, the Company closed, downsized or disposed of a number of units which also contributed to the decrease in gross income. Salaries and employee related expenses decreased 2.6% in 2002 as compared to 2001, and office and general expenses decreased 7.4% in 2002 as compared to 2001. The decreases in 2002 reflect the continued commitment of the Company to align its costs with its gross income and the elimination of certain costs, principally the result of the write-off of leasehold improvements and fixed assets related to disposal of more than 160,000 square feet of leased space in the fourth quarter of 2001, and the absence of goodwill amortization expense in 2002 compared with amortization of $14.4 million in 2001 and $12.1 million in 2000. Inflation did not have a material effect on gross income or expenses in 2002, 2001 or 2000. Other expense -- net decreased by $14.6 million in 2002 and increased by $13.7 million in 2001 as compared to the respective prior periods. The decrease in 2002 reflects the absence of a non-cash charge, mentioned below, partially offset by lower interest income. The increase in 2001 consists, primarily, of a non-cash charge taken in the fourth quarter for the write-down of investments in Internet-related early stage businesses and certain marketable securities, and lower interest income because of reduced cash balances as well as lower interest rates. The tax provision returned to historical levels with an effective tax rate of 50.1% in 2002, consistent with the tax rate in 2001, exclusive of the non-cash charge incurred in 2001. The tax provision of $14.1 million in 2001 reflects the effect of the non-cash charge for which essentially no tax benefit was recorded. The effective tax rate, absent the non-cash charge, in 2001 was 50.1% as compared to 54.9% in 2000, principally because of a decrease in overall foreign corporate tax rates. Minority interest decreased by $1.0 million in 2002 and decreased by $1.4 million in 2001, as compared to the respective prior years. Equity in earnings of nonconsolidated affiliated companies increased $2.0 million in 2002 and decreased $2.5 million in 2001 as compared to the respective prior years. The changes in 2002 and in 2001 were primarily due to changes in the level of profits of consolidated and nonconsolidated companies. The Company reported net income of $18.3 million in 2002 as compared to a net loss of $24.4 million in 2001 and net income of $19.4 million in 2000. Diluted earnings per common share was $12.08 in 2002 as compared to diluted loss per share of $18.46 in 2001 and diluted earnings per share of $14.41 in 2000. For the purpose of computing basic earnings per common share, the Company's net income was adjusted by (i) dividends paid on the Company's preferred stock and (ii) the change in redemption value of the Company's preferred stock. For the purpose of computing diluted earnings per common share for 2002 and 2000, net income was adjusted by the interest savings, net of tax, on the assumed conversion of the Company's 8 1/2% Convertible Subordinated Debentures. For the purpose of computing diluted earnings per common share for 2001, the interest savings, net of tax on the assumed conversion of the 8 1/2% Convertible Subordinated Debentures had an anti-dilutive effect and was excluded from the diluted EPS calculation. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $351.0 million and $276.6 million at December 31, 2002 and 2001, respectively, and the Company's investments in marketable securities were $7.2 million and $11.1 million at December 31, 2002 and 2001, respectively. The continued high level of cash and cash equivalents reflects the Company's ongoing focus on cash management. Working capital decreased by $3.3 million to a deficit of $94.8 million at December 31, 2002 versus a deficit of $91.5 million at December 31, 2001. The decrease in working capital is due to the expected settlement of an obligation in the second quarter of 2003 related to an acquisition made in a previous year which was reclassified from a non-current liability to a current liability earlier in 2002. 5 Domestically, the Company had available committed bank lines of credit totaling $110.0 million at December 31, 2002 and $90.0 million at December 31, 2001. These lines of credit were partially utilized during both 2002 and 2001 to support selected international subsidiaries in the amounts of $10.0 million and $18.3 million at December 31, 2002 and 2001, respectively. The borrowings under these lines of credit bore interest rates of 5.3% and 5.2% for the years ended December 31, 2002 and 2001, respectively. The commitment and related fees paid for the lines of credit were $0.1 million and $0.6 million in 2002 and 2001, 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. Amounts outstanding under such facilities at December 31, 2002 and 2001 were $57.0 million and $62.4 million, respectively. The changes in the level of short-term borrowing and bank overdrafts are primarily due to timing difference on the payments of media and other vendors. A significant part of the Company's business involves it in the purchase of media time and space in many markets from various media suppliers on behalf of clients. Consistent with industry practices, in a number of countries, the Company occasionally, directly or through a local media buying operation, is required to guarantee payment to the media suppliers in the form of performance bonds, letters of credit or other similar financial instruments which relate to liabilities shown in the Accounts Payable section of the Consolidated Balance Sheet. In addition, from time to time, the Company may guarantee certain financial and other obligations of its consolidated subsidiaries. These instruments may at times absorb some of the Company's credit capacity. The Company estimates that it will be required to make future payments to acquire additional shares of subsidiary companies or to complete earn-out agreements pursuant to certain acquisition arrangements not reflected as liabilities on its consolidated balance sheet of approximately $60.0 million. Of such amount, approximately 54% is estimated to be paid from 2005 and beyond and the remainder over the period from 2003 to 2005. The foregoing information is estimated and the actual payments made will be dependent on future events including profit and other performance measures of a number of subject companies, the fulfillment and amendment of certain contractual obligations by third parties, the movement of exchange rates, the timing of when the Company or other parties choose to exercise certain contractual rights and other variables. Historically, cash flows from operations, bank and other borrowings have been sufficient to meet the Company's dividend, capital expenditure, acquisition and working capital needs. The Company expects that such sources will be sufficient to meet its near-term cash requirements and will enable the Company to meet its longer-term obligations. The Company has two loans outstanding from the Prudential Insurance Company of America. The first loan of $75.0 million from December 1997 bears interest at the rate of 6.94% and is repayable in three equal annual installments, commencing in December 2003. This loan was renegotiated in March 2003, with a fixed interest rate of 7.41%, and principal repayments of $25.0 million in March, 2007, 2008 and 2009, respectively. The second loan of $50.0 million was taken in November 2000, bears interest at the rate of 8.17% and is repayable in two equal annual installments, commencing in November 2006. The loans and the availability of the Company's committed lines of credit contain certain covenants related to the Company's capital, debt load and cash flow. As of December 31, 2002 and December 31, 2001, the Company was in compliance with these covenants. The Company's business generally has been seasonal with greater gross income earned in the second and fourth quarters, particularly the fourth quarter. As a result, Cash and cash equivalents, Accounts Receivable, Accounts Payable and Accrued Expenses are typically higher on the Company's year-end balance sheet than at the end of any of the preceding three quarters. CRITICAL ACCOUNTING POLICIES The Company's discussion and analysis of financial condition and results from operations are based on the consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally 6 accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company's critical accounting policies include: REVENUE RECOGNITION Income derived from advertising placed with media is generally recognized based upon the publication or broadcast dates. Income resulting from expenditures billable to clients is generally recognized when the service is performed and billed. Media income and income resulting from expenditures billable to clients is clearly defined and determinable. Labor based income is recognized in the month of service as service is provided throughout the life of each contract. At the end of the reporting period, labor based contracts are examined to determine what was earned and what is collectible on such earned amounts for the purposes of recognizing revenue amounts appropriate for the period. Income from performance-based incentive fees is generally recorded at the end of a contract period when the amount to be received can be reasonably estimated. IMPAIRMENT OF INTANGIBLES The Company assesses the fair value and recoverability of intangible assets, primarily goodwill, in accordance with Statement of Financial Accounting Standards No. 142 ("FAS 142"), Goodwill and Other Intangible Assets which was adopted January 1, 2002. When assessing impairment, the carrying value of the assets less non-debt liabilities is compared to the fair value of the business units holding the goodwill at a regional level: North America, Europe, Asia and Latin America. (For the purposes of the calculation, Asia and Latin America are then combined with North America and Europe reflecting the need to support multi-national clients in those markets.) The excess of carrying value over fair value is deemed to be impaired and written-off. The Company has completed its transitional test and has also completed its annual impairment test of goodwill and intangible assets with indefinite lives as of March 31, 2002, and no impairment was identified. The 2001 and 2000 results on a historical basis do not reflect the provisions of FAS 142. Had the Company adopted FAS 142 on January 1, 2000, the historical net income and basic and diluted net income per common share would have been changed to the adjusted amounts indicated below:
TWELVE MONTHS ENDED DECEMBER 31, 2001 ------------------------------------------------------ BASIC EARNINGS PER DILUTED EARNINGS PER NET INCOME COMMON SHARE COMMON SHARE ---------- ------------------ -------------------- Reported net income..................... $(24,428) $(18.46) $(18.46) Goodwill amortization................... 14,390 11.07 11.07 -------- ------- ------- Adjusted net income..................... $(10,038) $ (7.39) $ (7.39) ======== ======= =======
TWELVE MONTHS ENDED DECEMBER 31, 2000 ------------------------------------------------------ BASIC EARNINGS PER DILUTED EARNINGS PER NET INCOME COMMON SHARE COMMON SHARE ---------- ------------------ -------------------- Reported net income..................... $19,404 $15.70 $14.41 Goodwill amortization................... 12,108 9.36 8.54 ------- ------ ------ Adjusted net income..................... $31,512 $25.06 $22.95 ======= ====== ======
DEFERRED TAXES The Company recognizes deferred tax assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The net deferred tax assets are regularly reviewed for recoverability and a valuation allowance is established, based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. As of December 31, 7 2002, the Company had $51.0 million of deferred tax assets net of a valuation reserve of $26.9 million, which it believes to be appropriate. For further detail on accounting policies, please refer to the Notes to the Company's Consolidated Financial Statements. FASB STATEMENTS In December 2002, the Financial Accounting Standard Board, issued Statement of Financial Accounting Standards No. 148 ("FAS 148"), Accounting for Stock-Based Compensation -- Transition and Disclosure which amends Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based Compensation. FAS 148 provides alternative methods of transition to FAS 123's fair value method of accounting for stock-based employee compensation and amends the disclosure provisions of FAS 123. While the statement does not require companies to account for employee stock options using the fair value method, the Company adopted FAS 123 effective January 1, 2003, using the prospective method as provided for in FAS 148 and adopted the disclosure requirements of FAS 148, for 2003. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's results may be affected by currency exchange rate fluctuations given the Company's extensive international operations. Generally, the foreign currency exchange risk is limited to net income of each operation because the Company's revenues and expenses, by country, are almost exclusively denominated in the local currency of each respective country with both revenue and expense items matched. Occasionally, the Company enters into foreign currency contracts for known cash flows related to repatriation of earnings from its international subsidiaries or identified liabilities in foreign currencies. The term of each such foreign currency contract entered into in 2002 was for less than three months. At December 31, 2002 and 2001, there were no foreign currency contracts open. The Company had no derivative contracts outstanding at December 31, 2002 or 2001, respectively. The Company has investments in private equity securities, corporate bonds and equity securities that may be subject to changes in general economic conditions and fluctuations in interest rates. Excess funds are invested in short term liquid securities and money market funds. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is presented in this report beginning on Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to the directors of Grey is incorporated herein by reference to the Company's proxy statement ("Proxy Statement") to be sent to its stockholders in connection with its 2003 Annual Meeting and will be included under the caption "Election of Director". Information with respect to Grey's executive officers is set forth in Part I of this report, and is incorporated herein by reference to the Proxy Statement and will be included under the caption "Section 16 (a) Beneficial Ownership Reporting Compliance". ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the Proxy Statement and will be included under the caption "Management Remuneration and Other Transactions". 8 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the Proxy Statement and will be included under the captions "Election of Director" and "Voting Securities". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to the Proxy Statement and will be included under the captions "Election of Director" and "Voting Securities". ITEM 14. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. The Company's management, including its Chief Executive Officer and Chief Financial Officer, have evaluated, as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"), the effectiveness of the Company's disclosure controls and procedures. Based on such evaluation, it is, as of the Evaluation Date, the belief of such officers that the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company required to be included in the Company's reports filed or submitted under the Securities Exchange Act of 1934. (b) Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect such controls. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) (2) The information required by this subsection of this Item is presented in the index to Financial Statements on Page F-1. (3) The information required by this subsection of this Item is provided in the Index of Exhibits at Page E-1 of this report. Such index provides a listing of exhibits filed with this report and those incorporated herein by reference. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GREY GLOBAL GROUP INC. By: /s/ EDWARD H. MEYER ------------------------------------ Edward H. Meyer, Chairman, Chief Executive Officer & President Dated: March 26, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities and on the date indicated. /s/ MARK N. KAPLAN Dated: March 26, 2003 - -------------------------------------------------- Mark N. Kaplan, Director /s/ VICTOR J. BARNETT Dated: March 26, 2003 - -------------------------------------------------- Victor J. Barnett, Director /s/ DANIEL S. SHAPIRO Dated: March 26, 2003 - -------------------------------------------------- Daniel S. Shapiro, Director /s/ EDWARD H. MEYER Dated: March 26, 2003 - -------------------------------------------------- Edward H. Meyer, Director; Principal Executive Officer /s/ STEVEN G. FELSHER Dated: March 26, 2003 - -------------------------------------------------- Steven G. Felsher, Principal Financial Officer /s/ LESTER M. FEINTUCK Dated: March 26, 2003 - -------------------------------------------------- Lester M. Feintuck, Principal Accounting Officer
10 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Edward H. Meyer, certify that: 1. I have reviewed this annual report on Form 10-K of Grey Global Group Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 26, 2003 /s/ Edward H. Meyer -------------------------------------- Name: Edward H. Meyer Title: Chief Executive Officer 11 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven G. Felsher, certify that: 1. I have reviewed this annual report on Form 10-K of Grey Global Group Inc; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 26, 2003 /s/ Steven G. Felsher --------------------------------- Name: Steven G. Felsher Title: Chief Financial Officer 12 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 15(a)(1) AND (2) AND ITEM 15(d) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA LIST OF FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2002 GREY GLOBAL GROUP INC. NEW YORK, NEW YORK FORM 10-K -- ITEM 8, ITEM 15(a)(1) AND (2) GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES INDEX TO FINANCIAL STATEMENTS The following consolidated financial statements of Grey Global Group Inc. and consolidated subsidiary companies are included in Item 8: Report of Independent Auditors.............................. F-2 Consolidated Balance Sheets -- December 31, 2002 and 2001... F-3 Consolidated Statements of Operations -- Years Ended December 31, 2002, 2001 and 2000.......................... F-4 Consolidated Statements of Common Stockholders' Equity -- Years Ended December 31, 2002, 2001 and 2000.... F-5 Consolidated Statements of Cash Flows -- Years Ended December 31, 2002, 2001 and 2000.......................... F-6 Notes to Consolidated Financial Statements -- December 31, 2002...................................................... F-7
All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. Summarized financial information and financial statements for nonconsolidated foreign investee companies accounted for by the equity method have been omitted because such companies, considered individually or in the aggregate, do not constitute a significant subsidiary. F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors Grey Global Group Inc. We have audited the accompanying consolidated balance sheets of Grey Global Group Inc. and consolidated subsidiary companies as of December 31, 2002 and 2001, and the related consolidated statements of operations, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Grey Global Group Inc. and consolidated subsidiary companies at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. As discussed in Note A to the consolidated financial statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets". ERNST & YOUNG LLP New York, New York February 26, 2003 F-2 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 2002 2001 ------------ ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents................................. $ 351,006 $ 276,602 Marketable securities..................................... 1,733 1,260 Accounts receivable....................................... 1,030,665 950,925 Expenditures billable to clients.......................... 78,364 77,293 Other current assets...................................... 100,189 99,949 ---------- ---------- Total current assets........................................ 1,561,957 1,406,029 Investments in and advances to nonconsolidated affiliated companies................................................. 14,750 14,679 Fixed assets-net............................................ 139,941 155,249 Marketable securities....................................... 5,522 9,861 Intangibles................................................. 243,499 211,812 Other assets-including loans to executive officers of $5,047 in 2002 and $5,247 in 2001................................ 108,170 102,176 ---------- ---------- Total assets................................................ $2,073,839 $1,899,806 ========== ========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $1,292,808 $1,165,958 Notes payable to banks.................................... 67,046 80,789 Accrued expenses and other................................ 270,860 226,412 Income taxes payable...................................... 26,066 24,388 ---------- ---------- Total current liabilities................................... 1,656,780 1,497,547 Other liabilities -- including deferred compensation of $57,766 in 2002 and $52,856 in 2001....................... 78,900 102,141 Long-term debt.............................................. 128,025 128,025 Minority interest........................................... 22,977 22,153 Redeemable preferred stock -- at redemption value; par value $0.01 per share; authorized 500,000 shares; issued and outstanding 30,000 shares in 2002 and 2001................ 9,652 8,180 Common stockholders' equity: Common Stock -- par value $0.01 per share; authorized 50,000,000 shares; issued 1,265,905 shares in 2002 and 1,244,603 shares in 2001............................... 13 12 Limited Duration Class B Common Stock -- par value $0.01 per share; authorized 10,000,000 shares; issued 234,705 shares in 2002 and 248,275 shares in 2001.............. 2 2 Paid-in additional capital................................ 54,488 48,784 Retained earnings......................................... 188,956 177,503 Accumulated other comprehensive loss: Cumulative translation adjustment...................... (22,743) (40,216) Unrealized loss on marketable securities............... (1,081) (1,112) ---------- ---------- Total accumulated other comprehensive loss................ (23,824) (41,328) ---------- ---------- Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock.......................... (4,726) (4,726) ---------- ---------- 214,909 180,247 Less -- cost of 195,444 and 202,469 shares of Common Stock and 26,937 shares of Limited Duration Class B Common Stock held in treasury at December 31, 2002 and 2001, respectively........................................... 37,404 38,487 ---------- ---------- Total common stockholders' equity........................... 177,505 141,760 Retirement plans, leases and contingencies ---------- ---------- Total liabilities and common stockholders' equity........... $2,073,839 $1,899,806 ========== ==========
See notes to consolidated financial statements. F-3 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 ------------------------------------------ 2002 2001 2000 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Commissions and fees..................................... $1,199,708 $1,217,013 $1,247,448 Expenses: Salaries and employee related expenses................. 780,882 801,512 799,956 Office and general expenses............................ 366,076 395,251 382,556 ---------- ---------- ---------- 1,146,958 1,196,763 1,182,512 ---------- ---------- ---------- 52,750 20,250 64,936 Other expense -- net..................................... 9,778 24,366 10,712 ---------- ---------- ---------- Income (loss) of consolidated companies before taxes on income................................................. 42,972 (4,116) 54,224 Provision for taxes on income............................ 21,529 14,087 29,752 ---------- ---------- ---------- Income (loss) of consolidated companies.................. 21,443 (18,203) 24,472 Minority interest applicable to consolidated companies... (4,005) (5,034) (6,385) Equity in earnings (loss) of non-consolidated affiliated companies.............................................. 817 (1,191) 1,317 ---------- ---------- ---------- Net income (loss)........................................ $ 18,255 $ (24,428) $ 19,404 ========== ========== ========== Earnings (loss) per Common Share: Basic.................................................. $ 13.28 $ (18.46) $ 15.70 Diluted................................................ $ 12.08 $ (18.46) $ 14.41
See notes to consolidated financial statements. F-4 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
PAID-IN COMMON ADDITIONAL COMPREHENSIVE RETAINED STOCK CAPITAL INCOME EARNINGS ------ ---------- ------------- -------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Balance at December 31, 1999................ $1,490 $39,763 $191,042 Comprehensive income: Net income.............................. $ 19,404 19,404 Other comprehensive loss: Translation adjustment................ (11,926) Unrealized loss on marketable securities, net of reclassification adjustment for losses included in net income of $860................. (7,195) -------- Other comprehensive loss................ (19,121) -------- Total comprehensive income................ $ 283 ======== Cash dividends -- Common Shares -- $4.00 per share............................... (4,983) Cash dividends -- Redeemable Preferred Stock -- $8.00 per share................ (240) Common Shares acquired -- at cost......... Decrease in redemption value of Redeemable Preferred Stock......................... 155 Restricted stock activity................. 856 Tax benefit from restricted stock......... 11 Common Shares issued upon exercise of stock options........................... 605 Common Shares issued in accordance with Employee Stock Ownership Plan........... Senior Management Incentive Plan activity................................ 1 3,293 Reduction of par value from $1.00 per share to $0.01 per share................ (1,476) 1,476 ------ ------- -------- Balance at December 31, 2000................ 15 46,004 205,378 COMMON STOCK HELD IN TREASURY -------------------- LOANS TO ACCUMULATED OTHER SHARES AMOUNT OFFICERS COMPREHENSIVE LOSS TOTAL -------- --------- -------- ------------------ -------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Balance at December 31, 1999................ 245,451 $(40,601) $(4,726) $(15,603) $171,365 Comprehensive income: Net income.............................. 19,404 Other comprehensive loss: Translation adjustment................ Unrealized loss on marketable securities, net of reclassification adjustment for losses included in net income of $860................. Other comprehensive loss................ (19,121) (19,121) Total comprehensive income................ Cash dividends -- Common Shares -- $4.00 per share............................... (4,983) Cash dividends -- Redeemable Preferred Stock -- $8.00 per share................ (240) Common Shares acquired -- at cost......... 6,040 (2,642) (2,642) Decrease in redemption value of Redeemable Preferred Stock......................... 155 Restricted stock activity................. (3,496) 423 1,279 Tax benefit from restricted stock......... 11 Common Shares issued upon exercise of stock options........................... (6,986) 874 1,479 Common Shares issued in accordance with Employee Stock Ownership Plan........... (3,323) 1,934 1,934 Senior Management Incentive Plan activity................................ 3,294 Reduction of par value from $1.00 per share to $0.01 per share................ ------- -------- ------- -------- -------- Balance at December 31, 2000................ 237,686 (40,012) (4,726) (34,724) 171,935
See notes to consolidated financial statements. F-5
PAID-IN COMMON ADDITIONAL COMPREHENSIVE RETAINED STOCK CAPITAL INCOME EARNINGS ------ ---------- ------------- -------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Comprehensive income: Net (loss) income....................... $(24,428) (24,428) Other comprehensive loss: Translation adjustment................ (12,828) Unrealized loss on marketable securities, net of reclassification adjustment for losses included in net loss of $208................... 6,224 -------- Other comprehensive loss................ (6,604) -------- Total comprehensive loss.................. $(31,032) ======== Cash dividends -- Common Shares -- $4.00 per share............................... (5,022) Cash dividends -- Redeemable Preferred Stock -- $8.00 per share................ (240) Decrease in redemption value of Redeemable Preferred Stock......................... 1,815 Restricted stock activity................. 1,701 Common Shares issued upon exercise of stock options........................... 937 Common Shares issued in accordance with Employee Stock Ownership Plan........... Senior Management Incentive Plan activity................................ 142 Rounding.................................. (1) ------ ------- -------- Balance at December 31, 2001................ 14 48,784 177,503 COMMON STOCK HELD IN TREASURY -------------------- LOANS TO ACCUMULATED OTHER SHARES AMOUNT OFFICERS COMPREHENSIVE LOSS TOTAL -------- --------- -------- ------------------ -------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Comprehensive income: Net (loss) income....................... (24,428) Other comprehensive loss: Translation adjustment................ Unrealized loss on marketable securities, net of reclassification adjustment for losses included in net loss of $208................... Other comprehensive loss................ (6,604) (6,604) Total comprehensive loss.................. Cash dividends -- Common Shares -- $4.00 per share............................... (5,022) Cash dividends -- Redeemable Preferred Stock -- $8.00 per share................ (240) Decrease in redemption value of Redeemable Preferred Stock......................... 1,815 Restricted stock activity................. (2,313) 212 1,913 Common Shares issued upon exercise of stock options........................... (4,984) 719 1,656 Common Shares issued in accordance with Employee Stock Ownership Plan........... (983) 594 594 Senior Management Incentive Plan activity................................ 142 Rounding.................................. (1) ------- -------- ------- -------- -------- Balance at December 31, 2001................ 229,406 (38,487) (4,726) (41,328) 141,760
See notes to consolidated financial statements. F-6
PAID-IN COMMON ADDITIONAL COMPREHENSIVE RETAINED STOCK CAPITAL INCOME EARNINGS ------ ---------- ------------- -------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Comprehensive income: Net income.............................. $ 18,255 18,255 Other comprehensive income: Translation adjustment................ 17,473 Unrealized loss on marketable securities, net of reclassification adjustment for losses included in net loss of $348................... 31 -------- Other comprehensive income.............. 17,504 -------- Total comprehensive income................ $ 35,758 ======== Cash dividends -- Common Shares -- $4.00 per share............................... (5,090) Cash dividends -- Redeemable Preferred Stock -- $8.00 per share................ (240) Increase in redemption value of Redeemable Preferred Stock......................... (1,472) Restricted stock activity................. 1,804 Common Shares issued upon exercise of stock options........................... 1 1,187 Senior Management Incentive Plan activity................................ 2,711 Rounding.................................. 2 ------ ------- -------- Balance at December 31, 2002................ $ 15 $54,488 $188,956 ====== ======= ======== COMMON STOCK HELD IN TREASURY -------------------- LOANS TO ACCUMULATED OTHER SHARES AMOUNT OFFICERS COMPREHENSIVE LOSS TOTAL -------- --------- -------- ------------------ -------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Comprehensive income: Net income.............................. 18,255 Other comprehensive income: Translation adjustment................ Unrealized loss on marketable securities, net of reclassification adjustment for losses included in net loss of $348................... Other comprehensive income.............. 17,504 17,504 Total comprehensive income................ Cash dividends -- Common Shares -- $4.00 per share............................... (5,090) Cash dividends -- Redeemable Preferred Stock -- $8.00 per share................ (240) Increase in redemption value of Redeemable Preferred Stock......................... (1,472) Restricted stock activity................. (5,093) 807 2,611 Common Shares issued upon exercise of stock options........................... (1,932) 276 1,464 Senior Management Incentive Plan activity................................ 2,711 Rounding.................................. 2 ------- -------- ------- -------- -------- Balance at December 31, 2002................ 222,381 $(37,404) $(4,726) $(23,824) $177,505 ======= ======== ======= ======== ========
See notes to consolidated financial statements. F-7 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ----------------------------------- 2002 2001 2000 --------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) OPERATING ACTIVITIES Net income (loss)........................................... $ 18,255 $ (24,428) $ 19,404 Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of acquisitions: Depreciation and amortization of fixed assets............... 41,430 50,492 40,179 Amortization of intangibles................................. -- 14,390 12,108 Write-down of impaired goodwill............................. -- 7,005 -- Deferred compensation....................................... 7,920 2,225 12,922 Equity in earnings (loss) of non-consolidated affiliated companies, net of dividends received of $589 in 2002, $1,236 in 2001, and $599 in 2000.......................... (228) 2,427 (718) Loss (gains) from the sale of marketable securities......... 348 208 (886) Loss on the write-down of investments and marketable securities................................................ 349 21,554 11,941 Minority interest applicable to consolidated companies...... 4,005 5,034 6,385 Amortization of restricted stock expense.................... 2,605 1,838 975 Deferred income taxes....................................... (4,052) (2,283) (8,705) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable................ (72,243) 37,779 (113,155) Decrease (increase) in expenditures billable to clients... 2,371 13,346 (47,017) Decrease (increase) in other current assets............... 1,769 8,039 (21,290) Decrease (increase) in other assets....................... 15,598 (2,255) (22,869) Increase (decrease) in accounts payable................... 115,028 (62,880) 142,526 Increase (decrease) in accrued expenses and other......... 20,044 (24,374) 38,234 Increase (decrease) in income taxes payable............... 621 (2,458) 12,263 (Decrease) increase in other liabilities.................. (9,600) (1,043) 24,383 -------- --------- --------- Net cash provided by operating activities................... 144,220 44,616 106,680 INVESTING ACTIVITIES Purchases of fixed assets................................... (26,422) (57,978) (69,897) Trust fund deposits......................................... (3,681) (4,095) (5,621) Decrease (increase) in investments in and advances to non-consolidated affiliated companies..................... 674 (241) 2,481 Purchases of marketable securities.......................... -- -- (2,741) Proceeds from the sales of marketable securities............ 3,224 4,928 8,627 Purchases of investment securities.......................... (128) (1,561) (15,573) Increase in intangibles, primarily goodwill................. (21,106) (44,785) (47,103) -------- --------- --------- Net cash used in investing activities....................... (47,439) (103,732) (129,827) FINANCING ACTIVITIES (Repayments of) net proceeds from short-term borrowings..... (20,699) 33,182 (12,311) Proceeds from term loan..................................... -- - 50,000 Common Shares acquired for treasury......................... -- (122) (2,642) Cash dividends paid on Common Shares........................ (5,090) (5,022) (4,983) Cash dividends paid on Redeemable Preferred Stock........... (240) (240) (240) Net proceeds from issuance of Restricted Stock.............. 6 791 314 Proceeds from exercise of stock options..................... 1,464 1,656 1,479 Borrowings under life insurance policies.................... 843 811 614 -------- --------- --------- Net cash (used in) provided by financing activities......... (23,716) 31,056 32,231 Effect of exchange rate changes on cash..................... 1,339 (5,088) (5,890) -------- --------- --------- Increase (decrease) in cash and cash equivalents............ 74,404 (33,148) 3,194 Cash and cash equivalents at beginning of year.............. 276,602 309,750 306,556 -------- --------- --------- Cash and cash equivalents at end of year.................... $351,006 $ 276,602 $ 309,750 ======== ========= =========
See notes to consolidated financial statements. F-8 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. Material intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. COMMISSIONS AND FEES AND ACCOUNTS RECEIVABLE Income derived from advertising placed with media is generally recognized based upon the publication or broadcast dates. Income resulting from expenditures billable to clients is generally recognized when the services are performed and billed. Labor based income is recognized in the month of service. Income from performance-based incentive fees is generally recorded at the end of a contract period when the amount to be received can be reasonably estimated. Payroll costs are expensed as incurred. Accounts receivable include both the income recognized as well as the actual media and production costs which are paid for by the Company and rebilled to clients at the Company's cost. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less from the purchase date to be cash equivalents. The carrying amount of cash equivalents approximates fair value because of the short maturities of those instruments. INVESTMENTS IN AND ADVANCES TO NONCONSOLIDATED AFFILIATED COMPANIES The Company generally carries its investments in nonconsolidated affiliated companies on the equity method. Certain investments which are not material in the aggregate are carried at cost. FIXED ASSETS Depreciation of furniture, fixtures and equipment is provided for over their estimated useful lives ranging from three to ten years and has been computed principally by the straight-line method. Amortization of leaseholds and leasehold improvements is provided for principally over the terms of the related leases, which are not in excess of the lives of the assets. FOREIGN CURRENCY TRANSLATION All balance sheet accounts of the Company's international operations are translated at the exchange rate in effect at each year end and statement of operation accounts are translated at the weighted average exchange rates prevailing during the year. Resulting translation adjustments are recorded as a component of other comprehensive income (loss). Foreign currency transaction gains and losses are reported in income. During 2002, 2001 and 2000, foreign currency transaction gains and losses were not material. F-9 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTANGIBLES Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 ("FAS 142"), Goodwill and Other Intangible Assets. FAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under the new rules, the excess of purchase price over the underlying fair value of the net assets of consolidated subsidiaries and nonconsolidated investments are recorded as goodwill by the Company. Other intangible assets are recognized separately from goodwill if at acquisition; they can be separated from the entity and be available for sale or exchange, or control over future economic benefits through legal or contractual rights can demonstrated. Goodwill and other intangible assets deemed to have indefinite lives are reviewed annually or upon indications of impairment. Intangible assets with determinable lives are amortized over their useful life. The amount of goodwill associated with consolidated subsidiaries and nonconsolidated investments was:
2002 2001 -------- -------- Balance at beginning of year................................ $211,812 $192,110 Additions................................................... 21,106 44,785 Amortization................................................ -- (14,390) Impairment.................................................. -- (7,005) Currency effect............................................. 10,581 (3,688) -------- -------- Balance at end of year...................................... $243,499 $211,812 ======== ========
As part of the annual evaluation, the carrying value of goodwill is compared to the fair value of the business units holding the goodwill at a regional level: North America, Europe, Asia and Latin America. For the purposes of the calculation, Asia and Latin America are then combined with North America and Europe reflecting the need to support multi-national clients in those markets. The excess of carrying value over fair value is deemed to be impaired and written-off. The Company completed the transitional and annual impairment tests of goodwill and intangible assets with indefinite lives as of March 31, 2002, and no impairment was identified. The 2001 and 2000 results on a historical basis do not reflect the provisions of FAS 142. Had the Company adopted FAS 142 on January 1, 2000, the historical net income and basic and diluted net income per common share would have been the adjusted amounts indicated below:
TWELVE MONTHS ENDED DECEMBER 31, 2001 ------------------------------------------------------ BASIC EARNINGS PER DILUTED EARNINGS PER NET INCOME COMMON SHARE COMMON SHARE ---------- ------------------ -------------------- Reported net income..................... $(24,428) $(18.46) $(18.46) Goodwill amortization................... 14,390 11.07 11.07 -------- ------- ------- Adjusted net income..................... $(10,038) $ (7.39) $ (7.39) ======== ======= =======
TWELVE MONTHS ENDED DECEMBER 31, 2000 ------------------------------------------------------ BASIC EARNINGS PER DILUTED EARNINGS PER NET INCOME COMMON SHARE COMMON SHARE ---------- ------------------ -------------------- Reported net income..................... $19,404 $15.70 $14.41 Goodwill amortization................... 12,108 9.36 8.54 ------- ------ ------ Adjusted net income..................... $31,512 $25.06 $22.95 ======= ====== ======
F-10 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INCOME TAXES The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides for appropriate foreign withholding taxes on unremitted earnings of consolidated and nonconsolidated foreign companies. MARKETABLE SECURITIES The Company has designated all its marketable securities as available-for-sale. Available-for-sale securities are carried at fair value, based on publicly quoted market prices, with unrealized gains and losses reported as other comprehensive income (loss). Securities are written-off or written-down to their realizable value when other than temporary impairments are indicated. INVESTMENT SECURITIES Investment securities are primarily investments in private companies and are included in Other Assets. Because quoted market prices are not available, such investments are recorded at cost net of impairment write-downs, if necessary. STOCK-BASED COMPENSATION As permitted by Financial Accounting Standards Statement No. 123, Accounting for Stock-Based Compensation, the Company accounts for stock-based awards in accordance with APB Opinion No. 25, Accounting For Stock Issued to Employees. No compensation expense is recorded for options granted at fair market value at the date of grant. The excess of the fair market value of restricted stock over the cash consideration received is amortized as compensation over the period of restriction. The future obligation to issue stock, pursuant to the Company's Senior Management Incentive Plan, is included in Paid-in Additional Capital and results in periodic charges to compensation. EARNINGS PER COMMON SHARE The computation of basic earnings per common share is based on the weighted average number of common shares outstanding and for diluted earnings per common share includes adjustments for the effect of the assumed exercise of dilutive stock options, the shares issuable pursuant to the Company's Senior Management Incentive Plan (see Notes to Consolidated Financial Statements) and the assumed conversion of the 8 1/2% Convertible Subordinated Debentures. For the purpose of computing basic earnings per common share, the Company's net income is decreased for dividends on the Preferred Stock and increased or decreased by the change in redemption value of the Preferred Stock during the relevant period. For the purpose of computing diluted earnings per common share, net income is also adjusted by the interest savings, net of tax, on the assumed conversion of the Company's 8 1/2% Convertible Subordinated Debentures. RECENT ACCOUNTING PRONOUNCEMENTS In December 2002, the Financial Accounting Standard Board, issued Statement of Financial Accounting Standards No. 148 ("FAS 148"), Accounting for Stock-Based Compensation -- Transition and Disclosure which amends Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting for Stock-Based Compensation. FAS 148 provides alternative methods of transition to FAS 123's fair value method of accounting for stock-based employee compensation and amends the disclosure provisions of FAS 123. While the statement does not require companies to account for employee stock options using the fair value method, F-11 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Company adopted FAS 123, effective January 1, 2003, using the prospective method as provided for in FAS 123 and to adopt the disclosure requirements of FAS 148 in 2003. B. INTERNATIONAL OPERATIONS The following financial data is applicable to the Company's consolidated international subsidiaries:
2002 2001 2000 -------- -------- -------- Current assets....................................... $855,126 $742,415 $736,295 Current liabilities.................................. 770,743 730,910 776,271 Other assets -- net of other liabilities............. 153,704 170,702 252,810 Net income (loss).................................... 7,551 (4,201) 16,774
Consolidated retained earnings at December 31, 2002 include equity in unremitted earnings of nonconsolidated international companies of approximately $13,354. C. OTHER EXPENSE -- NET Details of other (expense) income -- net are:
2002 2001 2000 -------- -------- -------- Interest income...................................... $ 5,642 $ 12,282 $ 14,526 Interest expense..................................... (15,735) (15,519) (15,100) Write-down of investments and marketable securities......................................... (349) (21,554) (11,941) (Loss) gain from the sale of marketable securities... (348) (208) 886 Dividends from affiliates............................ 11 16 6 Other expense -- net................................. 1,001 617 911 -------- -------- -------- $ (9,778) $(24,366) $(10,712) ======== ======== ========
D. FIXED ASSETS Components of fixed assets -- at cost are:
2002 2001 --------- --------- Furniture, fixtures and equipment........................... $ 230,883 $ 225,917 Leaseholds and leasehold improvements....................... 123,318 114,052 --------- --------- 354,201 339,969 Accumulated depreciation and amortization................... (214,260) (184,720) --------- --------- $ 139,941 $ 155,249 ========= =========
During the year ended December 31, 2001, the Company recorded a non-cash charge of $5,400 for the write-off of leasehold improvements and fixed assets related to the disposal of more than 160,000 square feet of leased space. E. ACQUISITIONS AND RELATED COSTS For the years ended December 31, 2002, 2001 and 2000, the Company completed a number of acquisitions which enhanced its core advertising agency capabilities in selected markets and expanded its presence in specialized communications areas. Furthermore, the Company increased its stakes in majority-owned subsidiaries in certain markets. All acquisitions and increased investments were accounted for under F-12 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the purchase method and goodwill arising from these transactions is reviewed for impairment in accordance with the Company's policy. The purchase price and corresponding goodwill in connection with a number of the acquisitions may be increased by contingent payouts to certain of the sellers depending on the future earnings of the acquired entities. The aggregate purchase price for acquisitions and increased investments made in 2002 was $21,106. There were no individually material acquisitions in 2002. The aggregate purchase price for acquisitions and increased investments made in 2001 was $29,785. In addition, in 2001 the Company recorded a liability of $15,000 for a deferred purchase commitment, which was paid in 2002, in connection with an acquisition made in a prior year. None of the acquisitions were significant on an individual basis and the results of the operations from these acquired entities for the period were not material. In 2000, the aggregate purchase price for acquisitions and increased investments was $85,082. In July 2000, the Company completed the acquisition of Callegari Berville ("CB"), a French company for $43,000, in cash, in exchange for a 100% ownership. The Company also recorded a liability for acquisition related guaranteed deferred payments of $22,000 due and included in current liabilities in 2002. CB's net assets included $13,000 of cash which was included in the consolidated balance sheet at December 31, 2000. Pro-forma results of operations for 2002, 2001 and 2000 would not be materially different from the reported results. The Company estimates that it will be required to make future payments to acquire additional shares of subsidiary companies or to complete earn-out agreements pursuant to certain acquisition arrangements not reflected as liabilities on its consolidated balance sheet of approximately $60,007. Of such amount, approximately 54% is estimated to be paid from 2005 and beyond and the remainder over the period from 2003 to 2005. The foregoing information is estimated and the actual payments made will be dependent on future events including profit and other performance measures of a number of subject companies, the fulfillment and amendment of certain contractual obligations by third parties, the movement of exchange rates, the timing of when the Company or other parties choose to exercise certain contractual rights and other variables. Accordingly, these future payments are recorded as purchase price when paid. F. MARKETABLE SECURITIES AND OTHER INVESTMENT SECURITIES The marketable securities and other investment securities, by type of investment, held by the Company at December 31, 2002 and 2001 are as follows:
2002 2001 Marketable securities: ------ ------- Maturities of one year or less: Money market funds..................................... $ 547 $ 945 Equity securities...................................... 1,186 315 ------ ------- 1,733 1,260 Maturities greater than one year: Corporate bonds........................................ 5,522 9,861 ------ ------- Total marketable securities................................. $7,255 $11,121 ====== ======= Investment securities, primarily private equity securities................................................ $4,548 $ 4,426 ====== =======
The Company had unrealized losses of $1,081 and $1,112 at December 31, 2002 and 2001, respectively, related primarily to investments in corporate bonds. The reduction in 2002 and 2001 in unrealized losses is attributable to the write-down of certain marketable securities. At December 31, 2002 and 2001, the F-13 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company's investments in marketable securities, classified as long-term, had an average maturity of approximately 7.30 and 4.53 years, respectively. During the year ended December 31, 2001, the Company took a non-cash charge for the write-down of investments in Internet-related early stage businesses and certain marketable securities in the amount of $21,554. G. CREDIT ARRANGEMENTS AND LONG-TERM DEBT At December 31, 2002 and 2001, the Company had a revolving line of credit totaling $110,000 and $90,000, respectively. The amount drawn down on the revolver at December 31, 2002 and 2001 was $10,039 and $18,300, respectively. The Company had other lines of credit available to it in foreign countries in connection with short-term borrowing and bank overdrafts utilized in the ordinary course of business. The Company had $57,007 and $62,489 outstanding under other uncommitted lines of credit at December 31, 2002 and 2001, respectively. The weighted average interest rate for the borrowings under the uncommitted lines of credit was 5.19% and 5.97% at December 31, 2002 and 2001, respectively. The carrying amount of the debt outstanding under both the committed and uncommitted lines of credit approximates fair value because of the short maturities of the underlying notes. Consistent with industry practices in a number of countries, the Company, from time to time, directly or through a local media buying operation, is required to guarantee payment to the media suppliers in the form of performance bonds, letters of credit or other similar financial instruments which relate to liabilities shown in the Accounts Payable section of the Consolidated Balance Sheet. Occasionally, the Company enters into foreign currency contracts for known cash flows related to the repatriation of earnings from its international subsidiaries. The terms of each foreign currency contract entered into in 2002 and 2001 were for less than three months. At December 31, 2002 and December 31, 2001, there were no foreign currency contracts open. The Company has two outstanding loans from the Prudential Insurance Company of America ("Prudential"). The first loan of $75,000 from December 1997 has a fixed interest rate of 6.94% with the principal repayable in equal installments of $25,000 in December 2003, 2004 and 2005. This loan was renegotiated in March of 2003, with a fixed interest rate of 7.41%, with principle repayments of $25,000 in December 2007, 2008 and 2009, respectively. The second loan of $50,000 from November 2000 has a fixed interest rate of 8.17% and is repayable in two equal installments of $25,000 in November 2006 and 2007. The fair value of the renegotiated first loan and second loan is estimated to be $128,225 and $133,700 at December 31, 2002 and 2001, respectively. This estimate was determined using a discounted cash flow analysis using current interest rates for debt having similar terms and remaining maturities. The loans and the availability of the Company's committed lines of credit contain certain covenants related to the Company's capital, debt load and cash flow. As of December 31, 2002 and December 31, 2001, the Company was in compliance with these covenants. The remaining portion of long-term debt consists of 8 1/2% Convertible Subordinated Debentures, due December 31, 2003, which are currently convertible into 8.45 shares of Common Stock and an equal number of shares of Limited Duration Class B Common Stock ("Class B Common Stock"), subject to certain adjustments, for each $1 principal amount of such debentures. It is expected that working capital will not be utilized upon conversion at December 31, 2003 and, accordingly, the debentures remain classified as long-term debt. The debentures were issued in exchange for cash and a $3,000, 9% promissory note from the Chairman and Chief Executive Officer of the Company, payable on December 31, 2004 (included in Other Assets at December 31, 2002 and 2001). During each of the years 2002, 2001 and 2000, the Company paid to the officer interest of $257 pursuant to the terms of the debentures and the officer paid to the Company interest of $270 pursuant to the terms of the 9% promissory note. F-14 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-term debt at December 31, 2002 and 2001 is as follows:
2002 2001 -------- -------- Term loans.................................................. $125,000 $125,000 Convertible debentures...................................... 3,025 3,025 -------- -------- Long-term debt.............................................. $128,025 $128,025 ======== ========
The scheduled maturity of long-term debt is as follows:
YEARS ENDING DECEMBER 31 AMOUNT - ------------ -------- 2003...................................................... $ 3,025 2006...................................................... 25,000 2007...................................................... 50,000 2008...................................................... 25,000 2009...................................................... 25,000 -------- $128,025 ========
During 2002 and 2001, the Company borrowed against the cash surrender value of the life insurance policies that it owns on the life of its Chairman and Chief Executive Officer. The amounts borrowed at December 31, 2002 and 2001 are, respectively, $25,970 with an interest rate of 7.40% and $23,882 with an interest rate of 7.85%. The amounts borrowed are carried as a reduction of the related cash surrender value included in Other Assets. Of the amounts borrowed in 2002 and 2001, the Company received $843 and $811 in cash, respectively, and $1,245 was used in each year to pay premiums on the underlying life insurance policies. For the years 2002, 2001 and 2000, the Company made interest payments on all third party debt of $15,735, $15,519 and $15,115, respectively. H. REDEEMABLE PREFERRED STOCK As of December 31, 2002 and 2001, the Company had outstanding 20,000 shares of Series I Preferred Stock, and 5,000 shares each of Series II and Series III Preferred Stock. The holder of the Series I, Series II and Series III Preferred Stock is the Chairman and Chief Executive Officer of the Company. The terms of each class of Preferred Stock, including the basic economic terms relating thereto, are essentially the same. The redemption date for the Series I, Series II and Series III Preferred Stock is fixed at April 7, 2004, unless redeemed earlier under circumstances described below. 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. 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. The holder of 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 Class B Common Stock to the extent such dividends exceed the per share preferential dividend. In connection with his ownership of the Series I, Series II and Series III Preferred Stock, the holder issued to the Company full recourse promissory notes totaling $763 (included in Other Assets at December 31, 2002 and 2001) with a F-15 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) maturity date of April 2004. The interest paid by the holder to the Company in 2002, 2001 and 2000 pursuant to the terms of these notes was approximately $69 in each year. In accordance with the terms of the respective Certificates of Designation and Terms of each Series of Preferred Stock ("Certificates"), the Board of Directors determined the change in redemption value would not reflect a 1994 write-off of goodwill but rather reflect amortization as if the Company had continued to write-off goodwill in accordance with historical amortization schedules. Following the distribution of Class B Common Stock, the holder of the Preferred Stock became entitled to eleven votes per share on all matters submitted to the vote of stockholders. The holder of the Series I Preferred Stock is entitled, as well, to vote as a single class to elect or remove one-quarter of the Board of Directors, to approve the merger or consolidation of the Company or the sale by it of all or substantially all of its assets, and to approve the authorization or issuance of any other class of Preferred Stock having equivalent voting rights. In the event of the liquidation of the Company, the holder of the Preferred Stock is entitled to a preferential liquidation distribution of $1.00 per share in addition to all accrued and unpaid preferential dividends. The total carrying value of the Preferred Stock (applicable to those shares outstanding at each respective year-end) increased by $1,472 in 2002 and decreased by $1,815 in 2001, respectively. The change in carrying value represents the change in aggregate redemption value during those periods. This change is referred to as "Additional Capital Applicable to Redeemable Preferred Stock" in the respective Certificates. I. COMMON STOCK The Company has authorized and outstanding two classes of common stock, Common Stock and Class B Common Stock. In 2000, the Company decreased the par value of each class of Common Stock to $0.01 par value per share. In 1999, each class of Common Stock had a $1.00 par value per share. The Class B Common Stock has the same dividend and liquidation rights as the Common Stock, and a holder of each share of Class B Common Stock is entitled to ten votes on all matters submitted to stockholders. The shares of Class B Common Stock are restricted as to transferability and upon transfer, except to specified limited classes of transferees, will convert into shares of Common Stock which have one vote per share. The Class B Common Stock will automatically convert to Common Stock on April 3, 2006. J. STOCK INCENTIVE PLAN The Company's 1994 Stock Incentive Plan ("Stock Incentive Plan") is the Company's active restricted stock and stock option plan. Under the Stock Incentive Plan, awards in the form of incentive or nonqualified stock options or restricted stock are available to be granted through June 2004 to officers and other key employees. A maximum of 500,000 shares of Common Stock is available for grant under the Stock Incentive Plan. Stock options cannot be granted at a price less than 100% of the fair market value of the shares on the date of grant. A committee of the Board of Directors ("Committee") determines the terms and conditions under which the awards may be granted, vest or are exercisable. Options must be exercised within ten years of the date of grant. Shares of restricted stock may be sold to participants at a purchase price determined by the Committee (which may be less than fair market value per share). The Stock Incentive Plan replaced the Restricted Stock Plan, the Executive Growth Plan, and the Nonqualified Stock Option Plan (collectively, the "Prior Plans"), and any shares available for granting of awards under the Prior Plans are no longer available for such awards. Options granted pursuant to the Prior Plans remain outstanding and in full force, and shares reserved thereunder remain so for such purposes. Under the Prior Plans, nonqualified and incentive stock options were granted to employees eligible to receive options F-16 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) at prices not less than 100% of the fair market value of the shares on the date of grant. Options must be exercised within ten years of grant and for only specified limited periods beyond termination of employment. Transactions involving nonqualified options under the Stock Incentive and Prior Plans were:
NUMBER WEIGHTED AVERAGE OF SHARES EXERCISE PRICE --------- ---------------- Outstanding, December 31, 1999............................. 178,886 $231 Granted.................................................... 24,189 433 Exercised.................................................. (7,052) 210 Forfeited.................................................. (5,899) 297 ------- Outstanding, December 31, 2000............................. 190,124 255 Granted.................................................... 800 621 Exercised.................................................. (7,586) 214 Forfeited.................................................. (3,350) 335 ------- Outstanding, December 31, 2001............................. 179,988 257 GRANTED.................................................... 8,406 660 EXERCISED.................................................. (9,914) 168 FORFEITED.................................................. (2,750) 389 ------- OUTSTANDING, DECEMBER 31, 2002............................. 175,730 280 =======
There were 121,736, 115,121, and 108,164 options exercisable and 260,119, 265,775, and 265,123 options available for grant at December 31, 2002, 2001 and 2000, respectively. The weighted average fair value of the options granted during 2002, 2001 and 2000 was $258, $296 and $235, respectively. The remaining weighted average contractual life and weighted average exercise price of options outstanding as of December 31, 2002 and the weighted average exercise price for options exercisable at December 31, 2002 are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- NUMBER OF WEIGHTED AVERAGE WEIGHTED NUMBER OF WEIGHTED SHARES REMAINING AVERAGE SHARES AVERAGE RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ------------------------ ----------- ---------------- -------------- ----------- -------------- $149-168.............. 61,033 1.4 years $149 61,033 $149 187-196.............. 650 3.0 years 192 650 192 235.............. 29,982 3.2 years 235 26,186 235 272-282.............. 300 4.3 years 276 -- -- 312-340.............. 53,238 3.7 years 329 33,250 333 403-640.............. 24,084 7.5 years 454 617 464 644-702.............. 6,443 9.0 years 670 -- -- ------- ------- Total.............. 175,730 121,736 ======= =======
In 2002, 5,593 shares of Restricted Stock were issued at a price of $1.00 per share. In 2001, 2,063 shares of Restricted Stock were issued at a price of $1.00 per share. In 2000, 4,821 shares of Restricted Stock were issued at a price of $1.00 per share. All stock is issued with restrictions as to transferability with various expiration dates between two and five years and is subject to forfeiture. In 2002, 3,857 restricted shares lapsed and no shares were forfeited and held in Treasury. In 2001, 100 restricted shares lapsed and 500 shares were forfeited and held in Treasury. F-17 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Compensation to employees under the Stock Incentive and Prior Plans of $4,947 in 2002, $3,728 in 2001 and $4,342 in 2000, representing the excess of the market value of restricted stock, at the date of issuance, over any cash consideration received, is carried as a reduction of Paid-In Additional Capital and is charged to income ($2,631 in 2002, $1,944 in 2001 and $1,275 in 2000) over the related required period of service of the respective employees. PRO FORMA INFORMATION Pro forma information regarding net income and earnings per common share has been determined as if the Company had accounted for its employee stock options under the fair value method. The approximate fair value for these options was estimated at the date of grant using a Black-Scholes option valuation model with the following weighted average assumptions for the years 2002, 2001 and 2000, respectively; risk-free interest rates of 4.96%, 4.73% and 6.60%; dividend yields of 0.61%, 0.65% and 0.93%; volatility factors of the expected market price of the Company's Common Stock of .30, .32 and .39; and a weighted-average expected life for the options of 7.0 years for 2002, and 10 years for 2001 and 2000. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restriction and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
2002 2001 2000 ------- -------- ------- Net Income (as reported)............................... $18,255 $(24,428) $19,404 Pro forma adjustment................................... (977) 1,196 (1,069) ------- -------- ------- Pro forma net income (loss)............................ $17,278 $(25,624) $18,335 Pro forma earnings per common share: Basic................................................ $ 12.53 $ (19.38) $ 14.87 Diluted.............................................. $ 11.41 $ (19.38) $ 13.66
F-18 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) K. COMPUTATION OF EARNINGS PER COMMON SHARE The following table shows the amounts used in computing earnings per common share and the effect on income and the weighted average number of shares of dilutive potential common stock.
FOR THE YEAR ENDED DECEMBER 31 ------------------------------------ 2002 2001 2000 ---------- ---------- ---------- BASIC EARNINGS PER COMMON SHARE Weighted-average shares.......................... 1,245,856 1,237,880 1,230,696 ---------- ---------- ---------- Net income (loss)................................ $ 18,255 $ (24,428) $ 19,404 Effect of dividend requirements and the change in redemption value of redeemable preferred stock.......................................... (1,713) 1,575 (85) ---------- ---------- ---------- NET EARNINGS (LOSS) USED IN COMPUTATION.......... $ 16,542 $ (22,853) $ 19,319 ---------- ---------- ---------- PER SHARE AMOUNT................................. $ 13.28 $ (18.46) $ 15.70 ========== ========== ========== DILUTED EARNINGS PER COMMON SHARE Weighted-average shares used in Basic............ 1,245,856 1,237,880 1,230,696 Net effect of dilutive stock options and stock incentive plans(1)............................. 83,714 --(2) 68,155 Assumed conversion of 8.5% Convertible Subordinated Debentures........................ 51,128 --(2) 51,128 ---------- ---------- ---------- ADJUSTED WEIGHTED-AVERAGE SHARES................. 1,380,698 1,237,880 1,349,979 ---------- ---------- ---------- Net earnings (loss) used in Basic................ $ 16,542 $ (22,853) $ 19,319 8.5% Convertible Subordinated Debentures interest net of income tax effect....................... 143 -- 140 ---------- ---------- ---------- NET EARNINGS (LOSS) USED IN COMPUTATION.......... $ 16,685 $ (22,853) $ 19,459 ---------- ---------- ---------- PER SHARE AMOUNT................................. $ 12.08 $ (18.46) $ 14.41 ========== ========== ==========
- --------------- (1) For the year ended December 31, 2002, 20,211 shares were expected to be issued pursuant to the terms of the Senior Management Incentive Plan. Due to the anti-dilutive result of the diluted EPS calculation for 2001, shares issued pursuant to the terms of the Senior Management Incentive Plan were excluded from the calculation. For the year ended December 31, 2000, 15,501 shares were expected to be issued pursuant to the terms of the Senior Management Incentive Plan. (2) For the year ended December 31, 2001, the assumed exercise of stock options, issuances under stock incentive plans and the assumed conversion of the 8 1/2% Convertible Subordinated Debentures each had an anti-dilutive effect. As such, these items have been excluded from the diluted EPS calculation. F-19 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) L. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. At December 31, 2002 and 2001, the Company had deferred tax assets and deferred tax liabilities as follows:
DEFERRED TAX ASSETS (LIABILITIES) ------------------- 2002 2001 -------- -------- Deferred compensation....................................... $ 31,581 $ 27,996 Accrued expenses............................................ 10,036 8,964 Depreciation................................................ 1,944 2,778 Foreign net operating losses................................ 33,084 33,285 Tax on unremitted foreign earnings and other................ 1,282 (84) -------- -------- 77,927 72,939 Valuation allowance......................................... (26,891) (27,305) -------- -------- Net deferred tax assets..................................... $ 51,036 $ 45,634 ======== ======== Included in: Other current assets...................................... $ 13,611 $ 13,163 Other assets.............................................. 37,425 32,471 -------- -------- $ 51,036 $ 45,634 ======== ========
The components of income (loss) of consolidated companies before taxes on income are as follows:
2002 2001 2000 ------- -------- ------- Domestic............................................... $22,477 $(15,999) $13,645 Foreign................................................ 20,495 11,883 40,579 ------- -------- ------- $42,972 $ (4,116) $54,224 ======= ======== =======
Provisions (benefits) for Federal, foreign, state and local income taxes consisted of the following:
2002 2001 2000 ------------------ ------------------ ------------------ CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED ------- -------- ------- -------- ------- -------- Federal..................... $10,189 $(1,952) $ 3,932 $(4,938) $15,694 $(9,353) Foreign..................... 9,611 (1,601) 10,951 140 16,979 953 State and local............. 5,781 (499) 4,287 (285) 5,784 (305) ------- ------- ------- ------- ------- ------- $25,581 $(4,052) $19,170 $(5,083) $38,457 $(8,705) ======= ======= ======= ======= ======= =======
The Company has not recognized a tax benefit on capital losses relating to the write-down of investments as the realization thereof is not certain. F-20 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effective tax rate varied from the statutory Federal income tax rate as follows:
2002 2001 2000 ---- ------ ---- Statutory Federal tax rate.................................. 35.0% 35.0% 35.0% State and local income taxes, net of Federal income tax benefits.................................................. 8.0 (63.2) 6.6 Difference in foreign tax rates inclusive of net operating losses without tax benefit................................ 5.4 (187.5) 11.4 Withholding tax on unremitted foreign earnings.............. 0.9 (0.1) 0.1 Other -- net................................................ 0.8 3.5 1.8 Capital loss and write-down of investments.................. -- (129.9) -- ---- ------ ---- 50.1% (342.2)% 54.9% ==== ====== ====
During the years 2002, 2001 and 2000, the Company made income tax payments of $17,409, $28,212 and $29,141, respectively. The tax benefit resulting from the difference between compensation expense deducted for tax purposes and compensation expense charged to income for restricted stock and nonqualified stock options is recorded as an increase to Paid-in Additional Capital. At December 31, 2002, the Company had cumulative net operating losses attributable to foreign subsidiaries of approximately $115,000. The duration over which the tax benefits attributable to these losses may be realized varies on a country by country basis, but in no instance will any of the benefits expire before 2004. Since a portion of the benefits may fail to be realized, a valuation allowance has been reflected. M. RETIREMENT PLANS, DEFERRED COMPENSATION, EXECUTIVE OFFICER LOANS, LEASES AND CONTINGENCIES 1. The Company's Profit Sharing Plan is available to eligible employees of Grey and qualifying subsidiaries meeting certain eligibility requirements. This plan provides for contributions by the Company at the discretion of the Board of Directors, subject to maximum limitations, as well as employee pre-tax contributions. The Company also maintains a noncontributory Employee Stock Ownership Plan covering eligible employees of the Company and qualifying subsidiaries, under which the Company may make contributions in stock or cash to an Employee Stock Ownership Trust (ESOT) in amounts each year as determined at the discretion of the Board of Directors. The Company did not contribute to the ESOT in 2002. The Company made stock contributions to the ESOT in 2001 and 2000. The Company and the ESOT have certain rights to purchase shares from participants whose employment has terminated. In addition to the two plans noted above, a number of subsidiaries maintain separate profit sharing and retirement arrangements. Furthermore, the Company also provides additional retirement and deferred compensation benefits to certain executive officers and employees. The Company maintains a Senior Management Incentive Plan ("Plan") in which deferred compensation is granted to senior executive or management employees deemed important to the continued success of the Company. The Plan has operated as an ongoing series of individual plans each with terms of five years. The latest plan in the series commenced in 1998 and provides for awards to be made through 2002. Awards vest to participants after the conclusion of the fifth year of continued employment following admission to the plan, including the year the participant was admitted. The amount recorded as an expense related to the Plan amounted to $5,423, $0 and $8,209 in 2002, 2001 and 2000, respectively. Approximately $2,712, $0 and $2,975 of plan expense incurred in 2002, 2001 and 2000, respectively, will be payable in Common Stock in accordance with the terms of the Plan. The awards payable in Common Stock were converted into an equivalent number of shares of Common Stock, based on the average of the market values on the last 15 business days of the calendar year. The net increase to Paid-in Additional Capital for the 2002 Plan is $2,711 and relates to the future obligation to issue Common Stock. At F-21 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2002, approximately 19,853 shares are payable in Common Stock pursuant to the Plan of which 14,358 were vested. 2. In 1995, the Company and its Chairman and Chief Executive Officer entered into an agreement extending the term of his employment agreement with the Company through December 31, 2002. In 2001, the agreement was amended, extending the term of his employment agreement through December 31, 2004. This agreement further provides for the deferral of certain compensation otherwise payable to the Chairman and Chief Executive pursuant to his employment agreement and the payment of such deferred compensation into a grantor trust established with United States Trust Company of New York. The purpose of the trust arrangement is to ensure the Company's ability to deduct compensation paid to the Chairman and Chief Executive Officer without the application of Section 162(m) of the Internal Revenue Code ("Section"). The Section, under certain circumstances, denies a tax deduction to an employer for certain compensation expenses in excess of $1,000 per year paid by a publicly held corporation to certain of its executives. Amounts deferred and paid into the trust, as adjusted for the earnings and gains or losses on the trust assets, will be paid to the Chairman and Chief Executive Officer or to his estate, as the case may be, following the expiration of his employment agreement, or the termination of his employment by reason of death or disability. In 1998, the Company began making payments to the grantor trust which are to be used to fund a pension obligation to be payable to the Chairman and Chief Executive Officer over the eleven year period following the normal expiration of his current employment agreement ("pension period"). The initial pension deposit was for $1,040 with annual pension deposits of $360 ratably payable through 2004. The amount of the pension to be paid to the Chairman and Chief Executive Officer will depend on, and be limited to, the funds in the grantor trust during the pension period. In addition, upon termination of his employment prior to the commencement of the pension period or upon his death, any undistributed funds in the grantor trust would be paid to him or his estate, as the case may be, in satisfaction of any future obligations with respect to this pension. At December 31, 2002 and 2001, the value of the trust was $32,189 and $28,622, respectively, and is included in Other Assets and the Company's related deferred compensation obligation for the same amount is included in Other Liabilities. Amounts charged to expense related to the foregoing plans and benefits aggregated $35,955 in 2002, $28,876 in 2001 and $40,917 in 2000. 3. An executive officer has outstanding loans with the Company totaling $500 as of December 31, 2002 and $700 as of December 31, 2001 which are reflected in Other Assets. In 2002, $200 of the loan was forgiven, and included in salaries and employee related expenses by the Company. The second installment of $500 will be forgiven on December 31, 2004, assuming his continued employment through that date. In connection with a 1992 exercise of stock options, the Company received a cash payment of $67 and a note from the Chairman and Chief Executive Officer of the Company in the amount of $3,170, due in December 2001, bearing interest at the rate of 6.06%, the then current, comparable U.S. Treasury Note rate. In addition, and in accordance with the terms of the option agreement, the holder of the options issued to the Company a promissory note in the principal amount of $2,340 bearing interest at the same U.S. Treasury Note rate of 6.06%, payable in December 2001, to settle his obligation to provide the Company with funds necessary to pay the required withholding taxes due upon the exercise of the options. A portion of the second note ($1,556) equal to the tax benefit received by the Company upon exercise and the full amount of the note for $3,170 are reflected in a separate component of common stockholders' equity. Both notes were modified in 2001 to extend their due dates to November 2006 and modify the interest rate to the comparable U.S. Treasury Note rate at the time of extension of 3.93%. The interest paid to the Company by the holder pursuant to the terms of the two notes issued in connection with the option exercise was $217 in 2002 and $334 in 2001 and 2000. F-22 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. Rental expense amounted to approximately $63,155 in 2002, $62,251 in 2001 and $55,321 in 2000. Approximate minimum rental commitments, excluding escalations, under non-cancelable operating leases are as follows: 2003........................................................ $ 61,608 2004........................................................ 56,758 2005........................................................ 51,474 2006........................................................ 47,161 2007........................................................ 44,140 Beyond 2007................................................. 76,635 -------- $337,776 ========
5. Since March 2001, the Company has been cooperating with a criminal investigation being conducted by U.S. Department of Justice Antitrust Division. The investigation relates to the Graphic Services Department ("Department") of the Company's New York Division of Grey Worldwide and several former vendors of the Department. Since March 2002, federal criminal charges have been pending against Mr. Mitchell Mosallem, who served as Director of the Department until December 31, 2001. Those charges allege, among other things, that Mosallem and others (including other employees in the Department)conspired (1) to restrain trade by rigging bids and allocating contracts for certain graphic services performed for a client of the Company; (2) to charge clients of the Company in excess of amounts appropriately chargeable, including charges for cost overruns on unrelated work and the cost of certain entertainment or other goods or services provided to Mosallem and other Company employees; and (3) to obtain kickbacks from former vendors of the Department. In November 2002, two of Mosallem's codefendants -- a vendor known as The Color Wheel, Inc. and its principal owner, Haluk Ergulec -- pleaded guilty to various charges, including conspiracy to defraud the Company and its clients. In that connection, the government filed with the court a written plea agreement identifying the Company as a victim of Ergulec's offenses and requiring Ergulec to pay $1.1 million to the Company in restitution. Several other individuals associated with former vendors to the Department have pleaded guilty to federal charges relating to the allegations against Mosallem. The government also has indicated that it is examining whether there is Company responsibility in this matter. In February 2002, the Company hired from outside the Company a new Director of the Department. In addition, Deloitte & Touche was retained on behalf of the Company to conduct a comprehensive review of the Department, to recommend improved policies and procedures, and to assist in the determination of remedial action as appropriate. N. QUARTERLY FINANCIAL DATA (UNAUDITED) A summary of the quarterly unaudited results of operations for the years ended December 31, 2002 and 2001 follows:
FOR THE THREE MONTHS ENDED ------------------------------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ------------------- ------------------- ------------------- ------------------- 2002 2001 2002 2001 2002 2001 2002 2001 -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Commissions and fees............. $285,581 $304,851 $290,082 $314,260 $290,441 $295,964 $333,604 $301,938 Income (loss) from operations(1).................. 12,948 5,699 6,919 9,727 8,409 6,645 24,474 (1,821) Net income (loss)................ 4,314 245 1,670 2,427 2,755 1,510 9,516 (28,610) Earnings (loss) per Common Share: Basic.......................... $ 3.21 $ 0.27 $ 1.26 $ 1.89 $ 1.92 $ 1.33 $ 6.90 $ (21.88) Diluted........................ $ 2.92 $ 0.27 $ 1.16 $ 1.73 $ 1.76 $ 1.23 $ 6.27 $ (21.88)
F-23 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - --------------- Rounding differences may arise upon accumulation of quarterly per share data. (1) Income of consolidated companies before taxes on income and other expense -- net. In the fourth quarter of 2001, the Company took a non-cash charge of $32,200 consisting of write-offs or write-downs of investments in Internet-related early stage businesses, certain marketable securities and impaired goodwill, and the write-off of leasehold improvements and fixed assets related to disposal of more than 160,000 square feet of leased space. F-24 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) O. INDUSTRY SEGMENT AND RELATED INFORMATION The Company is not engaged in more than one industry segment. The Company is domiciled in the United States and evaluates performance by geographic region based on profit or loss before income taxes. Commissions and fees are attributed to the geographic region that generates billings. The percentages shown in the caption for commissions and fees indicate the approximate proportion of each amount that relates to the United States only. The percentages are based on a 3 year average for 2002, 2001 and 2000. Commissions and fees, operating profit, interest income/expense, and related identifiable assets at December 31, 2002, 2001 and 2000, are summarized below according to geographic region:
NORTH AMERICA EUROPE OTHER ------------------------------ ------------------------------ ------------------- 2002 2001 2000 2002 2001 2000 2002 2001 -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Commissions and fees....... $555,234 $539,169 $584,396 $517,643 $534,697 $532,096 $126,831 $143,147 -------- -------- -------- -------- -------- -------- -------- -------- Operating profit (loss).... 35,409 8,566 22,830 14,414 12,965 42,031 2,927 (1,281) Interest (expense) income -- net............ (7,166) (3,220) 4,240 (4,014) 806 (1,082) 1,089 (823) Other (expense) income..... 181 (18,009) (10,137) 133 (2,690) 38 0 (430) -------- -------- -------- -------- -------- -------- -------- -------- (Loss) income of consolidated companies before taxes on income... $ 28,423 $(12,663) $ 16,933 $ 10,533 $ 11,081 $ 40,987 $ 4,016 $ (2,534) ======== ======== ======== ======== ======== ======== ======== ======== Equity in earnings of nonconsolidated affiliated companies..... Identifiable assets........ $866,713 $883,454 $954,575 $991,769 $833,285 $880,674 $200,607 $168,388 Investments in and advances to nonconsolidated affiliated companies..... Total assets............... OTHER CONSOLIDATED -------- ------------------------------------ 2000 2002 2001 2000 -------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Commissions and fees....... $130,956 $1,199,708 $1,217,013 $1,247,448 -------- ---------- ---------- ---------- Operating profit (loss).... 75 52,750 20,250 64,936 Interest (expense) income -- net............ (3,732) (10,091) (3,237) (574) Other (expense) income..... (39) 314 (21,129) (10,138) -------- ---------- ---------- ---------- (Loss) income of consolidated companies before taxes on income... $ (3,696) $ 42,974 $ (4,116) $ 54,224 ======== ========== ========== ========== Equity in earnings of nonconsolidated affiliated companies..... $ 817 $ (1,191) $ 1,317 ========== ========== ========== Identifiable assets........ $137,873 $2,059,089 $1,885,127 $1,973,122 Investments in and advances to nonconsolidated affiliated companies..... 14,750 14,679 16,198 ---------- ---------- ---------- Total assets............... $2,073,839 $1,899,806 $1,989,320 ========== ========== ==========
Commissions and fees from one client amounted to 10.1%, 9.2% and 10.2% of the consolidated total in 2002, 2001 and 2000, respectively. Commissions and fees from the United States amounted to 94.0%, 93.7% and 94.1% of the North American total in 2002, 2001 and 2000, respectively. F-25 INDEX TO EXHIBITS
NUMBER ASSIGNED TO EXHIBIT (I.E. 601 OF REGULATION S-K) DESCRIPTION OF EXHIBITS - -------------------- ----------------------- 3.01 Restated Certificate of Incorporation of Grey Global Group Inc. ("Grey"). (Incorporated herein by reference to Exhibit 3.1 to Grey's Current Report on Form 8-K, dated July 13, 2000, filed with the SEC pursuant to Section 13 of the 1934 Act.) 3.02 By-Laws of Grey as amended. 4.01 Stockholder Exchange Agreement, dated as of April 7, 1994, by and between Grey and Edward H. Meyer. (Incorporated herein by reference to Exhibit 10(a) of Grey's Current Report on Form 8-K, dated April 7, 1994, filed with the SEC pursuant to Section 13 of the 1934 Act.) 4.02 Purchase Agreement, dated as of December 10, 1983, between Grey and Edward H. Meyer relating to the sale to Mr. Meyer of Grey's 8 1/2% Convertible Debentures, of even date therewith ("Convertible Debenture"). (Incorporated herein by reference to Exhibit 3.08 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1983.) 4.03 Extension Agreement, dated as of November 19, 1991 between Grey and Edward H. Meyer relating to the extension of the maturity dates of the Convertible Debenture and related Promissory Note. (Incorporated herein by reference to Exhibit 3.07 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.) 4.04 Form of Convertible Debenture. (Incorporated herein by reference to Exhibit 3.09 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1983.) 4.05 Extension Agreements dated as of July 29, 1996 between Grey and Edward H. Meyer relating to the extension of the maturity dates of the Convertible Debenture and related Promissory Note. (Incorporated herein by reference to Exhibit 4.01 and 4.02 to Grey's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.) 9.01 Voting Trust Agreement, dated as of December 1, 1989, among the several Beneficiaries, Grey and Edward H. Meyer as Voting Trustee. (Incorporated herein by reference to Exhibit 9.03 to Grey's Annual report on Form 10-K for the fiscal year ended December 31, 1989.) 9.02 Amended and Restated Voting Trust Agreement, dated as of February 24, 1986, as amended and restated as of August 31, 1987 and again amended and restated as of March 21, 1994, among the several Beneficiaries where-under, Grey and Edward H. Meyer as Voting Trustee. (Incorporated herein by reference to Exhibit 9.04 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) 10.01* Employment Agreement, dated as of February 9, 1984, between Grey and Edward H. Meyer ("Meyer Employment Agreement"). (Incorporated herein by reference to Exhibit 10.01 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1983.) 10.02* Amendments Two through Eleven to Meyer Employment Agreement. (Incorporated herein by reference to Exhibit 10.02 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Exhibit 10.03 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Exhibit 1 to Grey's Current Report on Form 8-K, dated May 9, 1988, filed with the SEC pursuant to Section 13 of the 1934 Act, Exhibit 2 to Grey's Current Report on Form 8-K, dated May 9, 1988, filed with the SEC pursuant to Section 13 of the 1934 Act, Exhibit I to Grey's Current Report on Form 8-K, dated June 9, 1989, filed with the SEC pursuant to Section 13 of the 1934 Act, Exhibit 10.07 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, Exhibit 10.03 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Exhibit 10.03 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Exhibit 10.01 to Grey's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and Exhibit 10.03 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, respectively.)
E-1
NUMBER ASSIGNED TO EXHIBIT (I.E. 601 OF REGULATION S-K) DESCRIPTION OF EXHIBITS - -------------------- ----------------------- 10.03* Deferred Compensation Trust Agreement dated March 22, 1995 ("Trust Agreement"), by and between Grey and United States Trust Company of New York. (Incorporated herein by reference to Exhibit 10.04 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) 10.04* First and Second Amendments to Trust Agreement (Incorporated herein by reference to Exhibit 10.05 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and Exhibit 10.02 to Grey's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, respectively.) 10.05* Employment Agreement dated as of July 21, 2000, by and between Grey and Steven G. Felsher. (Incorporated herein by reference to Exhibit 10.05 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.) 10.06* Grey Advertising Inc. Book Value Preferred Stock Plan, as amended. (Incorporated herein by reference to Exhibit 4.1 to Grey's Current Report on Form 8-K, dated June 14, 1983, filed with the SEC pursuant to Section 13 of the 1934 Act.) 10.07* Grey Advertising Inc. Amended and Restated Senior Executive Officer Pension Plan. (Incorporated herein by reference to Exhibit 10.08 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.) 10.08* Grey Advertising Inc. 1998 Senior Management Incentive Plan (Incorporated herein by reference to Exhibit A to Grey's Annual Meeting Proxy Statement dated August 17, 1998.) 10.09* Stock Option Agreement, dated as of October 13, 1984, by and between Grey and Edward H. Meyer ("1984 Option Agreement"). (Incorporated herein by reference to Exhibit 10.15 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.) 10.10* Promissory Notes I and II dated as of November 26, 2001 from Edward H. Meyer to Grey delivered pursuant to the 1984 Option Agreement. (Incorporated herein by reference to Exhibit 10.11 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.) 10.11* Stock Option Agreement, effective as of January 5, 1995, by and between Grey and Edward H. Meyer. (Incorporated herein by reference to Exhibit 13 to Amendment No. 8 to the Statement on Schedule 13D, dated as of March 10, 1995, filed by Edward H. Meyer.) 10.12* Stock Option Agreement effective as of November 26, 1996, by and between Grey and Edward H. Meyer. (Incorporated herein by reference to Exhibit 15 to Amendment No. 10 to the Statement on Schedule 13D, dated as of February 11, 1997, filed by Edward H. Meyer.) 10.13* Stock Option Agreement, effective as of January 23, 1998, by and between Grey and Edward H. Meyer. (Incorporated herein by reference to Exhibit 16 to Amendment No. 11 to the Statement on Schedule 13D, dated as of March 13, 1998, filed by Edward H. Meyer.) 10.14 Registration Rights Agreement, dated as of June 5, 1986, between Grey and Edward H. Meyer. (Incorporated herein by reference to Exhibit 12 to Amendment No. 8 to the Statement on Schedule 13D, dated as of March 10, 1995, filed by Edward H. Meyer.) 10.15* Grey Advertising Inc. amended and restated 1994 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.02 to Grey's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 10.16 Note Agreement, dated as of December 23, 1997, by and between Grey and the Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.20 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.)
E-2
NUMBER ASSIGNED TO EXHIBIT (I.E. 601 OF REGULATION S-K) DESCRIPTION OF EXHIBITS - -------------------- ----------------------- 10.17 Note Agreement, dated as of November 13, 2000 by and between Grey and the Prudential Insurance Company of America ("2000 Note Agreement")(Incorporated herein by reference to Exhibit 99.1 to Grey's Current Report on Form 8-K dated November 13, 2000, filed with the SEC pursuant to Section 13 of the 1934 Act.) 10.18 First through third Amendments dated as of December 31, 2000, December 31, 2001 and March 14, 2003 respectively, to the 2000 Note Agreement. 10.19 Note Agreement dated as of March 14, 2003 by and between Grey and Prudential Insurance Company of America. 10.20 Credit Agreement dated as of December 21, 2001, among Grey, HSBC Bank USA, Fleet National Bank and JP Morgan Chase Bank. (Incorporated herein by reference to Exhibit 10.19 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.) 10.21 Extension Agreement dated as of December 20, 2002 among Grey, HSBC Bank USA, Fleet National Bank and JP Morgan Chase Bank. 10.22* Bonuses -- Grey has paid bonuses to certain of its executive officers (including those who are directors) and employees in prior years including 2002, and may do so in future years. Bonuses have been and may be in the form of cash, shares of stock or both although Grey presently does not have any plans to pay stock bonuses. Bonuses are not granted pursuant to any formal plan. 10.23* Director's Fees -- It is the policy of Grey to pay each of its non-employee directors a fee of $4,500 per fiscal quarter and a fee of $4,000 for each meeting of the Board of Directors attended. This policy is not embodied in any written document. 10.24* Deferred Compensation Agreement, dated December 23, 1981, between Grey and Mark N. Kaplan, regarding deferral of payment of director's fees to which Mr. Kaplan may become entitled. (Incorporated herein by reference to Exhibit 10.18 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.25* On March 23, 1978, Grey's Board of Directors, at a meeting thereof held on such date, approved an arrangement whereby Grey is required to accrue for Edward H. Meyer, the difference between the amount contributed by Grey on behalf of Mr. Meyer under the Profit Sharing Plan and Grey's Employee Stock Ownership Plan, and the amount which would have been contributed to such plans on his behalf had such plans not contained maximum annual limitations on contributions and credits, as required by the Employee Retirement Income Security Act of 1974. Such accrual is to be paid to Mr. Meyer as if it had been contributed to his account under the Profit Sharing Plan. Such arrangement is not embodied in any written document. 10.26 Lease, dated as of July 1, 1978, by and between Grey and William Kaufman and J. D. Weiler, regarding space at 777 Third Avenue, New York, New York ("Main Lease"). (Incorporated herein by reference to Exhibit 10.21 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.27 First through Eighteenth Amendments to Main Lease (Incorporated herein by reference to Exhibits 10.22, 10.23, 10.24, 10.25, 10.26, 10.27, 10.28 and 10.29 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982, Exhibit 10.30 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1983, Exhibits 10.33 and 10.34 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1984, Exhibits 10.35 and 10.36 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Exhibit 10.36 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, Exhibit 10.27 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and Exhibit 10.26 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, respectively.) 21.01 Subsidiaries of Grey
E-3
NUMBER ASSIGNED TO EXHIBIT (I.E. 601 OF REGULATION S-K) DESCRIPTION OF EXHIBITS - -------------------- ----------------------- 23.01 Consent of Independent Auditors 99.01 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------- * Management contract or compensatory plan or arrangement identified in compliance with Item 14(c) of the rules governing the preparation of this report. 10K-Exhibits E-4 EX-3.02 3 y84535exv3w02.txt BY-LAWS OF GREY AS AMENDED EXHIBIT 3.02 BY-LAWS OF GREY GLOBAL GROUP INC. (A DELAWARE CORPORATION) ARTICLE I MEETING OF STOCKHOLDERS SECTION 1. Annual Meeting. The annual meeting of the stockholders of GREY GLOBAL GROUP INC. (hereinafter called the "Corporation") for the election of directors and for the transaction of such other business as may come before the meeting shall be held on such date and at such time as shall be designated by the Board. SECTION 2. Special Meetings. Special meetings of the stockholders, unless otherwise prescribed by statute, may be called at any time by the Board, the Chairman of the Board or the President. SECTION 3. Notice of Meetings. Notice of the place, date and time of the holding of each annual and special meeting of the stockholders and, in the case of a special meeting, the purpose or purposes thereof, shall be given personally or by mail in a postage prepaid envelope to each stockholder of record entitled to vote at such meeting, not less than ten nor more than fifty days before the date of such meeting. If mailed, it shall be deposited in the mails within the above mentioned period and directed to such stockholder at his address as it appears on the records of the Corporation, unless he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, in which case it shall be directed to him at such other address. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy and shall not, at the beginning of such meeting, object to the transaction of any business because the meeting is not lawfully called or convened, or who shall, either before or after the meeting, submit a signed waiver of notice, in person or by proxy. Unless the Board, after the adjournment of any meeting, shall fix after the adjournment a new record date for an adjourned meeting, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. SECTION 4. Place of Meetings. Meetings of the stockholders may be held at such place, within or without the State of Delaware, as the Board or the officer calling the same shall specify in the notice of such meeting, or as shall be specified in a duly executed waiver of notice thereof. SECTION 5. Quorum. At all meetings of the stockholders the holders of a majority of the votes of the shares of stock of the Corporation issued and outstanding and entitled to vote shall be present in person or by proxy to constitute a quorum for the transaction of any business, except when stockholders are required to vote by class, in which event a majority of the issued and outstanding shares of the appropriate class shall be present in person or by proxy, or except as otherwise provided by statute or in the Certificate of Incorporation. In the absence of a quorum, the holders of a majority of the votes of the shares of stock present in person or by proxy and entitled to vote, or, if no stockholder entitled to vote is present, any officer of the Corporation may adjourn the meeting from time to time. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 6. Organization. At each meeting of the stockholders the Chairman of the Board, or in his absence or inability to act, the President, or in the absence or inability to act of the Chairman of the Board and the President, any person chosen by a majority of those stockholders entitled to vote who are present, in person or by proxy, shall act as chairman of the meeting. The Secretary, or, in his absence or inability to act, an Assistant Secretary or any person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes thereof. SECTION 7. Order of Business. The order of business at all meetings of the stockholders shall be a determined by the chairman of the meeting. SECTION 8. Voting. Except as otherwise provided by statute, the Certificate of Incorporation, or any certificate duly filed in the State of Delaware pursuant to Section 151 of the Delaware General Corporation Law, each holder of record of shares of stock of the Corporation having voting power shall be entitled to one vote for every share of such stock standing in his name on the record of stockholders of the Corporation on the date fixed by the Board as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or if such record date shall not have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons (not unreasonable in number, as shall be determined by the chairman of such meeting) to act for him by a proxy signed by such stockholder or his attorney-in-fact. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated in the order of business for so delivering such proxies. No proxy shall be valid after the expiration of three years from the data thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where an irrevocable proxy is given and is permitted by law. Except as otherwise provided by statute, these By-Laws, or the Certificate of Incorporation, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes, or when stockholders are required to vote by class, by a majority of the votes of the appropriate class, cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by written ballot. On a vote by written ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. SECTION 9. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 10. Inspectors. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the number of shares represented at a meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors may, but need not, be stockholders. SECTION 11. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the 2 Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II BOARD OF DIRECTORS SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. SECTION 2. Number, Qualifications, Election and Term of Office. The number of directors of the Corporation shall be five, but, by vote of a majority of the entire Board or amendment of these By-Laws and subject to the provisions of Section 11 of this Article II, the number thereof may be increased or decreased to a greater or lesser number, although not greater than fifteen nor fewer than three. All of the directors shall be of full age. Directors need not be stockholders. Except as otherwise provided by statute or these By-Laws, the directors shall be elected at the annual meeting of the stockholders for the election of directors, or a special meeting of the stockholders called for the purpose of election of directors. The Board shall be divided into three classes to consist of two directors in each of the first and second classes and one director in the third class. The number of directors in each class shall be determined by the Board and the entire Board, as nearly as practicable, shall be equally divided among the three classes. The term of office of the directors of the first class will expire at the annual meeting of stockholders to be held in 1976; the term of office of the directors of the second class shall expire at the annual meeting of stockholders to be held in 1977; and the term of office of the directors of the third class shall expire at the annual meeting of stockholders to be held in 1978. At each annual election of directors directors shall be chosen for a full three-year term to succeed those directors whose terms expire in the year of such election. SECTION 3. Place of Meetings. Meetings of the Board may be held at such place, within or without the State of Delaware, as the Board may from time to time determine or as shall be specified in the notice or waiver of notice of such meeting. SECTION 4. First Meeting. The Board shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. Such meeting may be held at any other time or place (within or without the State of Delaware) which shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article II. SECTION 5. Regular Meetings. Regular meetings of the Board shall be held at such time and place as the Board may from time to time determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board need not be given except as otherwise required by statute or these By-Laws. SECTION 6. Special Meetings. Special meetings of the Board may be called by two or more directors of the Corporation or by the Chairman of the Board or the President. SECTION 7. Notice of Meetings. Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place (within or without the State of Delaware) of the meeting. Notice of each such meeting shall be delivered to each director either personally or by telephone, 3 telegraph, cable or wireless, at least twenty-four hours before the time at which such meeting is to be held or by first-class mail, postage prepaid, addressed to him at his residence, or usual place of business, deposited in the mails at least three days before the day on which such meeting is to be held. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him. Except as otherwise specifically required by these By-Laws, a notice or waiver of notice of any regular or special meeting need not state the purpose of such meeting. SECTION 8. Quorum and Manner of Acting. A majority of the entire Board shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and, except as otherwise expressly required by statute or the Certificate of Incorporation, the act of a majority of the directors present at any meeting shall be the act of the Board. In the event that a quorum is present at any meeting of the Board and the number of directors voting in favor of any matter equals the number voting against such matter, the Chairman of the Board, in such circumstance, shall be entitled to cast an additional vote thereon and the majority vote of the directors present, including the additional vote of the Chairman of the Board, shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat, or if no director be present, the Secretary may adjourn such meeting to another time and place, or such meeting, unless it be the first meeting of the Board, need not be held. Notice of such adjourned meeting need not be given if the time and place to which the meeting is to be adjourned were announced at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Except as provided in Article III of these By-Laws, the directors shall act only as a Board and the individual directors shall have no power as such. SECTION 9. Organization. At each meeting of the Board, the Chairman of the Board (or, in his absence or inability to act, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat. The Secretary (or, in his absence or inability to act, any person appointed by the chairman) shall act as secretary of the meeting and keep the minutes thereof. SECTION 10. Resignations. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Board, the Chairman of the Board, the President or the Secretary. Any such resignation shall take affect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 11. Vacancies. Vacancies may be filled by a majority of the directors then in office, though less then a quorum, or by a sole remaining director, and the directors so chosen shall hold office until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filing any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any holder or holders of at least ten percent of the votes of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Except as otherwise provided in these By-Laws, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have full power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section for the filling of other vacancies. SECTION 12. Removal of Directors. Except as otherwise provided in the Certificate of Incorporation or in these By-Laws, any director may be removed, either with or without cause, at any time, by the affirmative vote of a majority of the votes of the issued and outstanding stock entitled to vote for the election of directors of the Corporation given at a special meeting of the stockholders called and held for that purpose; and the vacancy in the Board caused by any such removal may be filled by such stockholders at such meeting; or, if the stockholders shall fail to fill such vacancy, as provided in these By-Laws. 4 SECTION 13. Compensation. The Board shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity, provided no such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 14. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 15. Action by Conference Telephone. Members of the Board or any committee may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting may hear each other, and such participation shall constitute presence in person at such meeting. ARTICLE III EXECUTIVE AND OTHER COMMITTEES SECTION 1. Executive and Other Committees. The Board may, by resolution passed by a majority of the whole Board, designate an Executive Committee and one or more other committees, each committee to consist of two or more of the directors of the Corporation. Except as may be otherwise provided in the resolution designating any committee, at all meetings of any committee the presence of members (or alternate members, if any) consisting of a majority of the total authorized membership of such committee shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of the majority of the members (or such alternates) present at any meeting at which a quorum is present, but in no event less than two, shall be the act of the committee. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any committee, to the extent provided in the resolution creating the same, shall have and may exercise the powers of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that no committee shall have power or authority to amend the Certificate of Incorporation, adopt an agreement of merger or consolidation, recommend to the stockholders the dissolution of the Corporation or a revocation of a dissolution, or amend these By-Laws. The Executive Committee, if any, shall have the power and authority to declare a dividend or authorize the issuance of stock of the Corporation. Each committee shall keep written minutes of its proceedings and shall report such minutes to the Board when required. All such proceedings shall be subject to revision or alteration by the Board; provided however that third parties shall not be prejudiced by such revision or alteration. SECTION 2. General. A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Article II, Section 7. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or exercise any authority of the Board. 5 ARTICLE IV OFFICERS AND AGENTS SECTION 1. Number and Qualifications. The officers of the Corporation shall include the Chairman of the Board, the President, one or more Vice Chairmen, one or more Executive Vice Presidents, the Treasurer, Controller, and the Secretary. Any two or more offices may be held by the same person. Such officers shall be elected from time to time by the Board, each to hold office until the meeting of the Board following the next annual meeting of the stockholders, or until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws. The Chairman of the Board or the President may appoint such other agents (including one or more Senior Vice Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers) as may be necessary or desirable for the business of the Corporation. Such other agents shall have such duties and shall hold their offices for such terms as may be prescribed by the appointing authority. SECTION 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Board, the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer or agent of the Corporation may be removed, either with or without cause, at any time, by the vote of the majority of the entire Board at any meeting of the Board or, except in the case of an officer or agent elected or appointed by the Board, by the Chairman of the Board or the President. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed. SECTION 4. Vacancies. A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in these By-Laws for the regular election or appointment to such office. SECTION 5. The Chairman of the Board. The Chairman of the Board shall be the chief administrative officer of the Corporation and shall have general and active supervision and direction over the business and affairs of the Corporation and over its several officers, agents and employees, subject however, to the discretion of the President and the control of the Board. He shall, if present, preside at each meeting of the Board and, in the absence or inability to act of the President, of the stockholders. At the request of the President, or in case of his absence or inability to act, the Chairman of the Board shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon, the President. The Chairman of the Board shall see that all orders and directions of the stockholders, the Board, and the President are carried into effect. He may sign, execute and deliver, in the name of the Corporation, all certificates, deeds, mortgages, bonds, contracts and other instruments authorized by the Board, except as otherwise provided by statute. He may affix the seal of the Corporation to any instrument that shall require it. In general, he shall perform all duties incident to the office of the Chairman of the Board and position of chief administrative officer and such other duties as from time to time may be assigned to him by the Board, the President or these By-Laws. SECTION 6. The President. The President shall be the chief executive officer of the Corporation and shall have the general and active management of the business of the Corporation and general and active supervision and direction over the other officers, agents and employees and shall see that their duties are properly performed. He shall, if present, preside at each meeting of the stockholders and, in the absence or inability to act of the Chairman of the Board, of the Board, and shall be an ex officio member of all committees of the Board except the Compensation and Audit Committees, if such committees are established and/or maintained by the Board. He shall perform all duties incident to the office of President and position of chief executive officer and such other duties as may from time to time be assigned to him by the Board or these By-Laws. He may sign, execute and deliver, in the name of the Corporation, all certificates, deeds, mortgages, bonds, contracts and other instruments authorized by the Board, except as otherwise provided by statute. He may affix the seal of the Corporation to any instrument that shall require it. 6 SECTION 7. Vice Chairmen and Executive Vice Presidents. At the request of the Chairman of the Board, or in case of the Chairman of the Board's absence or inability to act, at the request of the President, or in the case of the President's absence or inability to act, when designated by the Board, a Vice Chairman or an Executive Vice President shall perform the duties of the Chairman of the Board, and, when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board. A Vice Chairman or an Executive Vice President may sign, execute and deliver, in the name of the Corporation, certificates, deeds, mortgages, bonds, contracts and other instruments authorized by the Board, except as otherwise required by statute. A Vice Chairman or an Executive Vice President may affix the seal of the Corporation to any instrument that shall require it. In general, a Vice Chairman or an Executive Vice President shall perform all duties incident to the respective offices of the Vice Chairman or Executive Vice President and such other duties as from time to time may be assigned to him by the Board, the President, the Chairman of the Board or these By-Laws. In the absence or inability of the Chairman of the Board and the President to preside at the Board of Directors, a Vice Chairman or an Executive Vice President shall be designated by the Board to preside at meetings of the Board. SECTION 8. The Treasurer. The Treasurer shall: (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) cause all moneys and other valuables to be deposited to the credit of the Corporation in such depositories as may be designated by the Board; (d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investment of its funds as authorized by the Board, taking proper vouchers therefor; and (f) in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board, the President or the Chairman of the Board. SECTION 9. The Controller. The Controller shall: (a) report to the Treasurer; (b) have control of all the books of account of the Corporation; (c) keep a true and accurate record of all property owned by it, of its debts and of its revenues and expenses; (d) keep all accounting records of the Corporation (other than the accounts of receipts and disbursements and those relating to the deposits of money and other valuables of the Corporation which shall be kept by the Treasurer); and (e) in general, perform all duties incident to the office of Controller and such other duties as from time to time may be assigned to him by the Board, the President, the Chairman of the Board or the Treasurer. SECTION 10. The Secretary. The Secretary shall: (a) keep or cause to be kept, in one or more books provided for the purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation; affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided); and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board, the President or the Chairman of the Board. SECTION 11. Officers' Bonds or Other Security. If required by the Board, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties in such amount and with such surety or sureties as the Board may require. SECTION 12. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board; provided, however, that the Board may delegate to the Chairman of the Board or the President the power to fix the compensation of officers and agents appointed by the Chairman of the Board or the President, as the case may be. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation, but any such officer who shall also be a director shall not have any vote in the determination of the amount of compensation paid to him. 7 ARTICLE V INDEMNIFICATION The Corporation shall, to the fullest extent permitted by the General Corporation Law of the State of Delaware, indemnify members of the Board and may, if authorized by the Board, indemnify its officers and any and all person whom it shall have power to indemnify, against any and all expenses, liabilities or other matters. ARTICLE VI CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 1. Execution of Contracts. Except as otherwise required by statute, the Certificate of Incorporation or these By-Laws, any contracts or other instruments may be executed and delivered in the name and on behalf of the Corporation by the Chairman of the Board, the President, a Vice Chairman, or an Executive Vice President or such officer or officers (including any assistant officer) or agent of the Corporation as the Board may from time to time direct. Such authority may be general or confined to specific instances as the Board may determine. Unless authorized by the Board or expressly permitted by these By- Laws, an officer or agent or employee, other than the Chairman of the Board, the President, a Vice Chairman or an Executive Vice President shall not have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it pecuniarily liable for any purpose or to any amount. SECTION 2. Loans. Unless the Board shall otherwise determine, either (a) the Chairman of the Board, the President, singly, or (b) any two Vice Chairmen or Executive Vice Presidents, jointly, or (c) any Vice Chairman or Executive Vice President, together with the Treasurer, may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or other property of the Corporation, except when authorized by the Board. SECTION 3. Checks, Drafts, etc. All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation by such persons and in such manner as shall from time to time be authorized by the Board. SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may from time to time designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer or agent of the Corporation, or in such other manner as the Board may determine by resolution. SECTION 5. General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-Laws, as it may deem expedient. SECTION 6. Proxies in Respect of Securities of Other Corporations. Unless otherwise provided by resolution adopted by the Board at Directors, any officer of the Corporation may, from time to time, in the name and on behalf of the Corporation (a) cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or 8 consent in writing, in the name of the Corporation as such holder, to any action by such other corporation, and execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises and (b) appoint an attorney or attorneys or agent or agents of the Corporation, to take any of such actions and instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. ARTICLE VII SHARES, ETC. SECTION 1. Stock Certificates. Each holder of stock of the Corporation shall be entitled to have a certificate, in such form as shall be approved by the Board, certifying the number of shares of stock of the Corporation owned by him. The certificates representing shares of stock shall be signed in the name of the Corporation by the Chairman of the Board or the President or a Vice Chairman or an Executive Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed). Any signature of such certificates may be facsimile, engraved or printed. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature shall have been placed upon such certificates no longer holds such office, the shares represented thereby may nevertheless be issued by the Corporation with the same effect as if such officer were still in office at the date of their issue. SECTION 2. Books of Account and Record of Stockholders. The books and records of the Corporation may be kept at such places, within or without the State of Delaware, as the Board may from time to time determine. The stock record books and the blank stock certificate books shall be kept by the Secretary or by any other officer or agent designated by the Board. SECTION 3. Transfers of Shares. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only upon authorization by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation may hold any such stockholder of record liable for calls and assessments and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person whether or not it shall have express or other notice thereof. Whenever any transfers of shares shall be made for collateral security and not absolutely, and both the transferor and transferee request the Corporation to do so, such fact shall be stated in the entry of the transfer. SECTION 4. Regulations. The Board may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them. SECTION 5. Lost, Destroyed or Mutilated Certificates. The holder of any certificate representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost, stolen or destroyed, or which shall have been mutilated, and the Board may, in its discretion, require such owner or his legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificates, or the issue of a new certificate. Anything herein to the contrary notwithstanding, the Board, in its absolute 9 discretion, may refuse to issue any such new certificate, except pursuant to legal proceedings under the laws of the State of Delaware. SECTION 6. Stockholder's Right of Inspection. Any stockholder of record of the Corporation, in person or by attorney or other agent, shall upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where any attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in the State of Delaware or at its principal place of business. SECTION 7. Fixing of Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than fifty nor less than ten days before the date of such meeting, nor more than fifty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. ARTICLE VIII OFFICES SECTION 1. Registered Office and Registered Agent. The registered office of the Corporation in the State at Delaware shall be at 1209 Orange Street, in the City of Wilmington, in the County of New Castle. The name of the resident agent at such address shall be The Corporation Trust Company. SECTION 2. Other Offices. The Corporation may also have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board shall from time to time determine or the business of the Corporation may require. ARTICLE IX FISCAL YEAR The fiscal year of the Corporation shall be determined by the Board. ARTICLE X SEAL The Board shall provide a corporate seal, which shall be in the form of the name of the Corporation, the year of its incorporation, and the words "Corporate Seal, Delaware". ARTICLE XI AMENDMENTS Subject to the provisions of the Certificate of Incorporation, these By-Laws may be amended or repealed, or new By-Laws may be adopted, at any annual or special meeting of the stockholders, by a majority of the total votes of the stockholders or when stockholders are required to vote by class by a majority of the appropriate class, present in person or by proxy and entitled to vote on such action; provided, however, that the 10 notice of such meeting shall have been given as provided in these By-Laws, which notice shall mention that amendment or repeal of these By-Laws, or the adoption of new By-Laws, is one of the purposes of such meeting. These By-Laws may also be amended or repealed, or new By-Laws may be adopted, by the Board at any meeting thereof provided that By-Laws adopted by the Board may be amended or repealed by the stockholders as hereinabove provided. 11 EX-10.18 4 y84535exv10w18.txt FIRST THROUGH THIRD AMENDMENTS TO NOTE AGREEMENT Exhibit 10.18 AMENDMENT TO NOTE AGREEMENTS THIS AMENDMENT WITH RESPECT TO NOTE AGREEMENTS (this "Amendment") is entered into as of December 31, 2000 between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential") and GREY GLOBAL GROUP INC., a Delaware corporation formerly known as "Grey Advertising Inc." (the "Company"). WHEREAS, the Company and Prudential are parties to (a) that certain Note Agreement, dated as of December 23, 1997 (as amended, supplemented and in effect as of the date of effectiveness hereof, the "1997 Agreement"), relating to the issue and sale of the Company's 6.94% Senior Notes Due December 23, 2005, and (b) that certain Note Agreement, dated as of November 13, 2000 (as amended, supplemented and in effect as of the date of effectiveness hereof, the "2000 Agreement"; together with the 1997 Agreement, the "Note Agreements") relating to the issue and sale of the Company's 8.17% Senior Notes Due November 13, 2007; and WHEREAS, the Company has requested the amendment of certain provisions of the Note Agreements, and Prudential has indicated its willingness to agree to such amendments subject to certain limitations and conditions, as provided for herein. NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Amendments to Note Agreements. Prudential and the Company hereby ------------------------------ agree as follows: (a) Paragraphs 6B of the respective Note Agreements are hereby amended by deleting the period currently ending such paragraphs and replacing them, in each case, with the following proviso, in its entirety: "; provided, that, for purposes of determining compliance with the foregoing limitation, the amount of `total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted hereby shall not exceed $7,762,000.". (b) Paragraphs 6C of the respective Note Agreements are hereby amended by adding, immediately below the second paragraph thereof, the following new third paragraph thereof, in its entirety: "In addition, also for purposes of this paragraph 6C only, Consolidated Cash Flow determined on any date prior to October 1, 2001 shall be adjusted upward (to the extent otherwise reduced thereby) to include amounts in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided, that, the aggregate amount of all such upward adjustments permitted hereby shall not exceed $11,941,320.". (c) Paragraphs 6D of the respective Note Agreements are hereby amended by deleting the period currently ending such paragraphs and replacing them, in each case, with the following proviso, in its entirety: "; provided, that, for purposes of determining compliance with the foregoing limitation, the amount of `total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted hereby shall not exceed $7,762,000.". (d) The definition of the term "FIXED CHARGE COVERAGE RATIO" set forth in paragraph 10B of the 2000 Agreement is hereby replaced in its entirety with the following definition, in its entirety: ""FIXED CHARGES COVERAGE RATIO" means, at any time, the ratio of (a) the sum of (i) Consolidated Cash Flow and (ii) Fixed Charges for such period that were actually paid during such period to (b) Fixed Charges for such period; provided, that, for purposes of determining compliance with paragraph 6F hereof for any date prior to October 1, 2001, Consolidated Cash Flow shall be adjusted upward (to the extent otherwise reduced thereby) to include amounts in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted hereby shall not exceed $11,941,320.". (e) The Note Agreements and any and all other documents heretofore, now or hereafter executed and delivered pursuant to the terms of the Note Agreements are hereby amended so that any reference to the Note Agreements, or either of them, shall mean a reference to the Note Agreements as amended hereby. Except as expressly modified and amended in this Amendment all of the terms, provisions and conditions of the Note Agreements and the agreements and instruments relating thereto shall remain unchanged and in full force and effect. 2. Representations, Warranties and Acknowledgment of the Company ------------------------------------------------------------- The Company hereby: (a) represents and warrants as of the date hereof that (i) no Default or Event of Default has occurred and is continuing, and (ii) no material adverse change has occurred in the financial condition, assets, or prospects of the Company and its Subsidiaries, taken as a whole, since March 31, 2000; and (b) confirms and acknowledges that it has no defenses, offsets or counterclaims against any of its obligations under or in respect of the Note Agreements and that all amounts outstanding under and in respect of the Notes and the Note Agreements are owing to holders of the Notes without defense, offset or counterclaim. 2 3. Effectiveness of Amendment -------------------------- This Amendment shall become effective upon receipt by Prudential of counterparts of this Amendment, executed and delivered by each of the parties hereto. 4. Miscellaneous ------------- (a) Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Note Agreements. (b) The Note Agreement, as amended by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) This Amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. GREY GLOBAL GROUP INC., a Delaware corporation By: /s/ STEVEN G. FELSHER ------------------------ Title: Executive Vice President ------------------------- THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ WILLIAM C. PAPPAS ------------------------------ Title: Vice President ------------------------------ 3 SECOND AMENDMENT TO NOTE AGREEMENTS THIS SECOND AMENDMENT WITH RESPECT TO NOTE AGREEMENTS (this "Amendment") is entered into as of December 31, 2001 between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential") and GREY GLOBAL GROUP INC., a Delaware corporation formerly known as "Grey Advertising Inc." (the "Company"). WHEREAS, the Company and Prudential are parties to (a) that certain Note Agreement, dated as of December 23, 1997 and amended as of December 31, 2000 (as amended, supplemented and in effect as of the dated of effectiveness hereof, the "1997 Agreement"), relating to the issue and sale of the Company's 6.94% Senior Notes Due December 23, 2005, and (b) that certain Note Agreement, dated as of November 13, 2000 and amended as of December 31, 2000 (as amended, supplemented and in effect as of the date of effectiveness hereof, the "2000 Agreement"; together with the 1997 Agreement, the "Note Agreements") relating to the issue and sale of the Company's 8.17% Senior Notes Due November 13, 2007; and WHEREAS, the Company has requested the amendment of certain provisions of the Note Agreement, and Prudential has indicated its willingness to agree to such amendments subject to certain limitations and conditions, as provided for herein. NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Amendments to Note Agreements. Prudential and the Company hereby ------------------------------ agrees as follows: (a) Paragraphs 6B of the respective Note Agreements are hereby amended by deleting the period currently ending such paragraphs and adding, in each case, the following proviso, in its entirety: "; and provided still further, that, for purposes of determining the compliance with the foregoing limitation, the amount of `total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of certain non-cash charges specified in Exhibit I hereto (the "2001 NON-CASH CHARGES") that were reported and taken in the Company's fourth fiscal quarter of 2001; provided, however, that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,209,000.". (b) Paragraphs 6C of the respective Note Agreements are hereby amended by adding, immediately below the last paragraph thereof, the following new fourth paragraph thereof, in its entirety: "Furthermore, also for purposes of this paragraph 6C only, Consolidated Cash Flow determined on any date prior to October 1, 2002 shall be adjusted upward (to the extent otherwise reduced thereby) to include amounts attributable to the 2001 Non-Cash Charges reported and taken in the Company's fourth fiscal quarter of 2001; provided that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,169,000.". (c) Paragraphs 6D of the respective Note Agreements are hereby amended by deleting the period currently ending such paragraphs and adding, in each case, the following proviso, in its entirety: "; and provided still further, that, for purposes of determining compliance with the foregoing limitation, the amount of `total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) attributable to the 2001 Non-Cash Charges reported and taken in the Company's fourth fiscal quarter of 2001; provided, however, that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,209,000.". (d) The 1997 Note Agreement is hereby amended by inserting: (1) at the end of paragraph 6 thereof (and immediately preceding paragraph 7 thereof), the following new paragraph 6F in its entirety: "6F. FIXED CHARGES COVERAGE RATIO. The Company will not, at any time, permit the Fixed Charges Coverage Ratio to be less than 1.6 to 1.0."; and (2) in paragraph 10B thereof, each inserted in the appropriate position determined by alphabetical order, each of the following defined terms and definitions in there entirety: ""FIXED CHARGES" means, with respect to any period, the sum of (a) Interest Charges for such period, and (b) Lease Rentals for such period. FIXED CHARGES COVERAGE RATIO" mean, at any time, the ratio of (a) the sum of (i) Consolidated Cash Flow and (ii) Fixed Charges for such period that were actually paid during such period to (b) Fixed Charges for such period; provided, that: (1) for purposes of determining compliance with paragraph 6F hereof for any date prior to October 1, 2001, Consolidated Cash Flow shall be adjusted upward (to the extent otherwise reduced thereby) to include amounts in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted by this clause shall not exceed $11,941,320; and (2) for purposes of determining compliance with paragraph 6F hereof for any date during the period from October 1, 2001 to October 1, 2002, Consolidated Cash Flow shall be adjusted upward (to the extent otherwise reduced thereby) to include amounts attributable to the 2001 Non-Cash Charges reported and taken in the Company's fourth fiscal quarter of 2001; provided further, that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,169,000. "INTEREST CHARGES" means, with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with generally accepted accounting 2 principles): (a) all interest in respect of Debt of the Company and its Subsidiaries (including imputed interest on Capitalized Lease Obligations) deducted in determining Consolidated Net Income for such period, together with all interest capitalized or deferred during such period and not deducted in determining Consolidated Net Income for such period, and (b) all debt discount and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period. "LEASE RENTALS" means, with respect to any period, the sum of the rental and other obligations required to be paid during such period by the Company or any Subsidiary as lessee under all leases of real or personal property (other than those in respect of Capitalized Lease Obligations), excluding any amount required to be paid by the lessee (whether or not therein designated as rental or additional rental) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges; PROVIDED that, if at the date of determination, any such rental or other obligations (or portion thereof) are contingent or not otherwise definitely determinable by the terms of the related lease, the amount of such obligations (or such portion thereof) (i) shall be assumed to be equal to the amount of such obligations for the period of 12 consecutive calendar months immediately preceding the date of determination or (ii) if the related lease was not in effect during such preceding 12-month period, shall be the amount estimated (on a reasonable basis and in good faith) and set forth in an Officer's Certificate to be delivered to the holder(s) of the Notes.". (e) The definition of the term "FIXED CHARGES COVERAGE RATIO" set forth in paragraph 10B of the 2000 Agreement is hereby replaced in its entirety with the following definition, in its entirety: ""FIXED CHARGES COVERAGE RATIO" mean, at any time, the ratio of (a) the sum of (i) Consolidated Cash Flow and (ii) Fixed Charges for such period that were actually paid during such period to (b) Fixed Charges for such period; provided, that: (1) for purposes of determining compliance with paragraph 6F hereof for any date prior to October 1, 2001, Consolidated Cash Flow shall be adjusted upward (to the extent otherwise reduced thereby) to include amounts in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted by this clause shall not exceed $11,941,320; and (2) for purposes of determining compliance with paragraph 6F hereof for any date during the period from October 1, 2001 to October 1, 2002, Consolidated Cash Flow shall be adjusted upward (to the extent otherwise reduced thereby) to include amounts attributable to the 2001 Non-Cash Charges reported and taken in the Company's fourth fiscal quarter of 2001; provided further, that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,169,000.". (f) Paragraphs 10B of the Note Agreements are hereby amended by adding the following defined term thereto, in the appropriate position determined by alphabetical order, in its entirety: 3 ""2001 NON-CASH CHARGES" shall have the meaning ascribed thereto in the Second Amendment With Respect To Note Agreements dated as of December 31, 2001 between Prudential and the Company." (g) The Note Agreement and any and all other documents heretofore, now or hereafter executed and delivered pursuant to the terms of the Note Agreements are hereby amended so that any reference to the Note Agreements, or either of them, shall mean a reference to the Note Agreements as amended hereby. Except as expressly modified and amended in this Second Amendment all of the terms, provisions and conditions of the Note Agreements and the agreements and instruments relating thereto shall remain unchanged and in full force and effect. 2. Representations, Warranties and Acknowledgment of the Company ------------------------------------------------------------- The Company hereby: (a) represents and warrants as of the date hereof that (i) no Default or Event of Default has occurred and is continuing, and (ii) no material adverse change has occurred in the financial condition, assets, or prospects of the Company and its Subsidiaries, taken as a whole, since December 31, 2001; and (b) confirms and acknowledges that it has no defenses, offsets or counterclaims against any of its obligations under or in respect of the Note Agreements and that all amounts outstanding under and in respect of the Notes and the Note Agreements are owing to holders of the Notes without defense, offset or counterclaim. 3. Effectiveness of Amendment -------------------------- This Second Amendment shall become effectives upon receipt by Prudential of (a) counterparts of this Amendment, executed and delivered by each of the parties hereto, and (b) an amendment fee in the amount of $10,000, due and payable by the Company to Prudential simultaneously with Prudential's execution of this Amendment. 4. Miscellaneous ------------- (a) Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Note Agreements. (b) Each Note Agreement, as amended by this Second Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) This Second Amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same agreement. [Signature Blocks Follow] 4 IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed and delivered by their respective officers thereunto duly authorized as of the dated first above written. GREY GLOBAL GROUP INC., A Delaware corporation By: /s/ STEVEN G. FELSHER -------------------------------- Title: Executive Vice President ------------------------------- THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ WILLIAM C. PAPPAS --------------------------------- Title: Vice President ------------------------------- 5 EXHIBIT I GREY GLOBAL GROUP 4TH QUARTER 2001 WRITE-OFFS/DOWNS DECEMBER 31, 2001 IN THOUSANDS ------------ Venture Portfolio Investments $19,764 Goodwill 7,005 Real Estate 5,400 ----- Total $32,169 ======= EXECUTION COPY THIRD AMENDMENT TO NOTE AGREEMENT THIS THIRD AMENDMENT TO NOTE AGREEMENT (this "Amendment") is entered into as of March 14, 2003 between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential") and GREY GLOBAL GROUP INC., a Delaware corporation (the "Company"). WHEREAS, the Company and Prudential are parties to that certain Note Agreement, dated as of November 13, 2000 (as amended, supplemented and in effect as of the date of effectiveness hereof, the "Note Agreement") relating to the issue and sale of the Company's 8.17% Senior Notes Due November 13, 2007; and WHEREAS, the Company and Prudential have agreed to certain amendments to the Note Agreement, subject to certain limitations and conditions, as provided for herein. NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Amendments to Note Agreement. Prudential and the Company hereby ----------------------------- agree as follows: (a) Paragraph 5A of the Note Agreement is hereby deleted in its entirety, and replaced with the following new Paragraph 5A, in it's entirety: "5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to each holder of Notes in quadruplicate: (i) as soon as practicable and in any event within 60 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of income and cash flows and a consolidated statement of stockholders' equity of the Company and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and substantially in the same form as at the time required for Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments; provided, however, that delivery pursuant to clause (iii) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i); (ii) as soon as practicable and in any event within 90 days after the end of each fiscal year, consolidated statements of income and cash flows and a consolidated statement of stockholders' equity of the Company and its Subsidiaries for such year, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in reasonable detail and substantially in the same form as at the time required for Annual Reports on Form 10-K filed with the Securities and Exchange Commission and reported on by independent public accountants of recognized national standing selected by the Company whose report shall be without limitation as to the scope of the audit; provided, however, that delivery pursuant to clause (iii) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii); (iii) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (iv) promptly upon receipt thereof, a final copy of each other report submitted to the Company by independent accountants in connection with any annual audit made by them of the books of the Company, and notice of the submission by independent accountants of any final report in connection with any interim or special audit of the books of the Company or any of its Subsidiaries; and (v) if such holder is a Significant Holder, with reasonable promptness, such other financial data as such Significant Holder may reasonably request. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each holder of Notes an Officer's Certificate demonstrating (with computations in reasonable detail) compliance by the Company and its Subsidiaries with the provisions of paragraphs 6A (identifying the nature of any Liens permitted by the provisions of paragraph 6A (vi) or (vii) securing Debt in excess of $250,000), 6B, 6C, 6D, 6F and 6G, stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto, and stating further that, to the best of such officer's knowledge, the Company during such period has observed or performed all its covenants and other agreements, and satisfied every condition contained in this Agreement or the Notes to be performed, observed or satisfied by it. Together with each delivery of financial statements required by clause (ii) above, the Company will deliver to each holder of the Notes a certificate of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Event of Default or Default, or, if they have obtained knowledge of any Event of Default or Default, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Company also covenants that: 2 (A) within five days after any Responsible Officer obtains knowledge of an Event of Default or Default, it will deliver to each holder of Notes an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto; and (B) it will promptly deliver notice (accompanied in each case by an Officer's Certificate specifying the nature and period of existence of such event or circumstances and what action the Company proposes to take with respect thereto) to each Significant Holder of Notes of: (1) any (a) default or event of default under any contractual obligation of the Company or any Subsidiary or (b) litigation, investigation or proceeding that may exist at any time between the Company or any Subsidiary and any Governmental Authority, that, in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole; (2) any litigation or proceeding affecting the Company or any Subsidiary (a) in which the amount involved is $10,000,000 (or the equivalent) or more and not covered by insurance, (b) in which injunctive or similar relief is sought, or (c) which relates to this Agreement or the Notes; and (3) any development or event that has or could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole.". (b) Paragraph 5D of the Note Agreement is hereby amended by deleting the word "corporations" at the end thereof, and replacing it with the following, in it's entirety: "companies and, to the extent such self insurance is included, such self insurance shall be maintained and funded, if applicable, in accordance with the customary practices for such self-insurance programs)". (c) Paragraphs 5F and 5G of the Note Agreement are hereby deleted in their entirety, and replaced with the following new Paragraphs 5F and 5G, in their entirety: "5F. PAYMENT OF TAXES, CLAIMS AND OTHER OBLIGATIONS. The Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property, and all of it's other material obligations of whatever nature, before any penalty or significant interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets if the failure to pay such tax, assessment, charge or claim would result in liability to the Company or a Subsidiary and would materially adversely affect the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole; provided, that no such charge or claim need be paid if being contested in good faith by appropriate proceedings and if such accrual, reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor. 3 5G. COMPLIANCE WITH LAWS, ETC. The Company will comply and cause its Subsidiaries to comply with all contractual obligations and the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including ERISA and those relating to environmental protection and employee safety), the noncompliance with which would materially adversely affect the business, condition (financial or other) or operations of the Company and its Subsidiaries taken as a whole. The Company will promptly give notice to each Significant Holder of any of the following events, in each case as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the Pension Benefit Guaranty Corporation (or any successor) or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan, or (ii) the institution of any proceedings or the taking of any other action by the Pension Benefit Guaranty Corporation (or any successor) or the Company or any ERISA Affiliate or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan, which notice shall in each case be accompanied by an Officer's Certificate specifying the nature and period of existence of such occurrence and what action the Company proposes to take with respect thereto.". (d) Clause (x) of Paragraph 6A of the Note Agreement is hereby amended by deleting the text "$40,000,000" set forth therein and replacing it with the following: "$50,000,000". (e) Paragraph 6B of the Note Agreement is hereby deleted in its entirety, and replaced with the following new Paragraph 6B, in its entirety: "6B. LIMITATION ON TOTAL BORROWED FUNDS. The Company will not at any time permit Total Borrowed Funds to exceed 125% of Consolidated Net Worth; provided, that, for purposes of determining compliance with the foregoing limitation, the amount of `total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted hereby shall not exceed $7,762,000; and provided still further, that, for purposes of determining the compliance with the foregoing limitation, the amount of `total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of certain non-cash charges in respect of venture portfolio investments, goodwill and real estate (the "2001 NON-CASH CHARGES") that were reported and taken in the Company's fourth fiscal quarter of 2001; provided, however, that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,209,000.". (f) Paragraph 6D of the Note Agreement is hereby deleted in its entirety, and replaced with the following new Paragraph 6D, in its entirety: "6D. LIMITATIONS ON PRIORITY DEBT. The Company covenants that it will not, and will not permit any of its Subsidiaries to, incur, assume or otherwise become liable with respect to any Priority Debt unless, at the time of incurrence thereof and after giving effect thereto and to the application of the proceeds thereof, such Debt is permitted under the provisions of paragraph 6B and paragraph 6C and the aggregate principal amount of Priority 4 Debt then outstanding does not exceed 20% of Consolidated Net Worth; provided, that, for purposes of determining compliance with the foregoing limitation, the amount of `total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted hereby shall not exceed $7,762,000; and provided still further, that, for purposes of determining compliance with the foregoing limitation, the amount of `total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) attributable to the 2001 Non-Cash Charges reported and taken in the Company's fourth fiscal quarter of 2001; provided, however, that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,209,000.". (g) Paragraph 6 of the Note Agreement is hereby amended by adding at the end thereof, immediately prior to Paragraph 7 of the Note Agreement, the following new paragraphs 6G and 6H, in their entirety: "6G. 2001 CREDIT AGREEMENT. The Company and its Subsidiaries shall not fail to comply with Sections 6.1, 6.4(c), 6.5, 6.6, 6.7(b), 6.8, 6.9, 6.11, 6.12 or 6.15 of the 2001 Credit Agreement, which Sections (in each case as modified by any amendments thereto entered into and effective after the date of this Agreement; provided that true and correct copies of any such amendment shall have been received by the Required Holders from the Company) are hereby incorporated herein "mutatis mutandis" by this reference (together with any related definitional provisions from the 2001 Credit Agreement (in each case as modified by any amendments thereto entered into and effective after the date of this Agreement; provided that true and correct copies of any such amendment shall have been received by the Required Holders from the Company), for the sole purpose of interpreting any such terms used in said sections). 6H. OPTIONAL PAYMENTS AND MODIFICATIONS OF CERTAIN DEBT INSTRUMENTS. Make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to any Indebtedness in respect of any private placement or public offering of notes or debt securities, if, at the time thereof or after giving effect thereto, a Default of Event of Default shall have occurred and be continuing or the Company shall not be in pro forma compliance with the financial covenants incorporated pursuant to paragraph 6G above.". (h) Clause (v) of Paragraph 7A of the Note Agreement is hereby deleted in its entirety, and replaced with the following new clause (v), in its entirety: " (v) the Company fails to perform or observe any agreement contained in the second sentence or paragraph 5E (with respect to the Company only), clause (A) of the last paragraph of paragraph 5A (with respect to notices of Defaults (other than Defaults under paragraph 7A(vi)) and Events of Default) or paragraph 6; or". (i) The definition of the term "REINVESTMENT YIELD" set forth in paragraph 10A of the Note Agreement is hereby replaced in its entirety with the following definition, in its entirety: 5 " "REINVESTMENT YIELD" shall mean, with respect to the Called Principal of any Note, 0.5% plus the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City local time) on the Business Day next preceding the Settlement Date with respect to such Called Principal for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date on the Treasury Yield Monitor page of Standard & Poor's MMS - Treasury Market Insight (or, if Standard & Poor's shall cease to report such yields in MMS - Treasury Market Insight or shall cease to be Prudential Capital Group's customary source of information for calculating yield-maintenance amounts on privately placed notes, then such source as is then Prudential Capital Group's customary source of such information), or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15(519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between yields reported for various maturities. The Reinvestment Yield will be rounded to that number of decimal places as appears in the Notes.". (j) The definitions of the terms "CAPITAL STOCK", "CONSOLIDATED CASH FLOW", and "PERSON", set forth in paragraph 10B of the Note Agreement are hereby respectively replaced in their entirety with the following definitions, each in its respective entirety: ""CAPITAL STOCK" shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.". ""CONSOLIDATED CASH FLOW" for any period shall mean the sum of Consolidated Net Income, depreciation expenses, amortization costs (including amortization of restricted stock and employee stock options granted as compensation to employees), deferred compensation expenses (net of deferred compensation due and payable within one year), intangibles-related asset impairment charges for such period attributable to the purchase price of acquisitions, minority interests and changes in deferred taxes, less any equity in the earnings of unconsolidated affiliated entities (net of dividends received), all as computed and consolidated for the Company and its Subsidiaries for such period in accordance with generally accepted accounting principles.". ""PERSON" shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company or similar entity, a trust, an unincorporated organization and a government or any department or agency thereof.". (k) The Note Agreement is hereby further amended by inserting in the appropriate position determined by alphabetical order, each of the following defined terms and definitions in their respective entirety: 6 ""2001 CREDIT AGREEMENT" shall mean, the Company's $110,000,000 Credit Agreement, dated as of December 21, 2001, with JPMorgan Chase Bank, as administrative agent, and the other parties signatory thereto (as amended, modified, supplemented and in effect from time to time).". ""2001 NON-CASH CHARGES" shall have the meaning ascribed thereto in paragraph 6B.". ""GOVERNMENTAL AUTHORITY" shall mean, any nation or government, any state or political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising legislative, executive, judicial, taxing, regulatory or administrative authority or functions of or pertaining to government, any securities exchange and any self regulatory organization (including the National Association of Insurance Commissioners).". ""INSOLVENCY" shall mean, with respect to any Multiemployer Plan, the condition that such plan is insolvent within the meaning of Section 4245 of ERISA.". ""REORGANIZATION" shall mean, with respect to any Multiemployer Plan , the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.". ""REPORTABLE EVENT" shall mean any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the 30 day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of Pension Benefit Guaranty Corporation Reg. Section 4043.". (l) Schedule 6A to the Note Agreement is hereby replaced in its entirety with Schedule 6A attached to this Amendment. (m) The Note Agreement and any and all other documents heretofore, now or hereafter executed and delivered pursuant to the terms of the Note Agreement, are hereby amended so that any reference to the Note Agreement shall mean a reference to the Note Agreement as amended hereby. Except as expressly modified and amended in this Amendment all of the terms, provisions and conditions of the Note Agreement and the agreements and instruments relating thereto shall remain unchanged and in full force and effect. 2. Representations, Warranties and Acknowledgment of the Company ------------------------------------------------------------- The Company hereby: (a) represents and warrants as of the date hereof that (i) no Default or Event of Default has occurred and is continuing, and (ii) no material adverse change has occurred in the financial condition, assets, or prospects of the Company and its Subsidiaries, taken as a whole, since September 30, 2002; and (b) confirms and acknowledges that it has no defenses, offsets or counterclaims against any of its obligations under or in respect of the Note Agreement and that all amounts outstanding under and in respect of the Notes and the Note Agreement are owing to holders of the Notes without defense, offset or counterclaim. 3. Effectiveness of Amendment -------------------------- This Amendment shall become effective upon receipt by Prudential of counterparts of this Amendment, executed and delivered by each of the parties hereto. 7 4. Miscellaneous ------------- (a) Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Note Agreement. (b) The Note Agreement, as amended by this Amendment, is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) This Amendment may be executed in any number of counterparts and by any combination of the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. GREY GLOBAL GROUP INC. By: /s/ STEVEN G. FELSHER -------------------------------- Title: Executive Vice President ------------------------------ THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ CHRISTOPHER H. CAREY ------------------------------- Title: Vice President ----------------------------- SCHEDULE 6A [Identical to Schedule 6A to the 2003 Note Agreement - Info To Come] 9 EX-10.19 5 y84535exv10w19.txt NOTE AGREEMENT EXHIBIT 10.19 CONFORMED COPY GREY GLOBAL GROUP INC. $75,000,000 7.41% SENIOR NOTES DUE MARCH 14, 2009 ------------------------ NOTE AGREEMENT ------------------------ DATED AS OF MARCH 14, 2003 TABLE OF CONTENTS (NOT PART OF AGREEMENT)
PAGE ---- 1. AUTHORIZATION OF ISSUE OF NOTES........................ 1 2. EXCHANGE OF NOTES...................................... 1 3. CONDITIONS OF CLOSING.................................. 1 4. PREPAYMENTS............................................ 2 5. AFFIRMATIVE COVENANTS.................................. 3 6. NEGATIVE COVENANTS..................................... 6 7. EVENTS OF DEFAULT...................................... 9 8. REPRESENTATIONS, COVENANTS AND WARRANTIES.............. 11 9. REPRESENTATIONS OF THE PURCHASER....................... 14 10. DEFINITIONS............................................ 14 11. MISCELLANEOUS.......................................... 20
PURCHASER SCHEDULE SCHEDULE 6A -- INTERNATIONAL SCHEDULE OF LIENS SCHEDULE 8G -- LIST OF AGREEMENTS RESTRICTING DEBT EXHIBIT A -- FORM OF NOTE EXHIBIT B -- FORM OF OPINION OF COMPANY'S COUNSEL
GREY GLOBAL GROUP INC. 777 THIRD AVENUE NEW YORK, NY 10017 As of March 14, 2003 The Prudential Insurance Company of America c/o Prudential Capital Group 1114 Avenue of the Americas 30th Floor New York, New York 10036 Ladies and Gentlemen: The undersigned, Grey Global Group Inc. (herein called the "COMPANY"), hereby agrees with you as follows: 1. Authorization of Issue of Notes. The Company will authorize the issue of its senior promissory notes in the aggregate principal amount of $75,000,000, to be dated the date of issue thereof, to mature March 14, 2009, to bear interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the rate of 7.41% per annum and on overdue payments at the rate specified therein, and to be substantially in the form of Exhibit A attached hereto. The term "NOTES" as used herein shall include each such senior promissory note delivered pursuant to any provision of this Agreement and each such senior promissory note delivered in substitution or exchange for any other Note pursuant to any such provision. 2. Exchange of Notes. Subject to the terms and conditions herein set forth, the Company hereby agrees to issue to you and you agree to accept from the Company, in exchange for the Company's 1997 Notes, one or more Notes (in the aggregate principal amount of $75,000,000) registered in your name and in the denominations specified in the Purchaser Schedule attached hereto. Such exchange(s) will occur on the date of closing, at the offices of Prudential Capital Group, 1114 Avenue of the Americas, 30th Floor, New York, New York. The date of closing shall be March 14, 2003 (herein called the "CLOSING" or the "DATE OF CLOSING"). 3. Conditions of Closing. Your obligation to exchange the 1997 Notes for the Notes issued by the Company hereunder is subject to the satisfaction, on or before the date of closing, of the following conditions: 3A. Opinion of Company's Counsel. You shall have received from Skadden, Arps, Slate, Meagher & Flom, counsel for the Company, a favorable opinion satisfactory to you and substantially in the form of Exhibit B attached hereto. 3B. Representations and Warranties; No Default. The representations and warranties contained in paragraph 8 shall be true on and as of the date of closing, except to the extent of changes caused by the transactions herein contemplated; there shall exist on the date of closing no Event of Default or Default; and the Company shall have delivered to you an Officer's Certificate, dated the date of closing, to both such effects. 3C. Purchase Permitted By Applicable Laws. The purchase of and payment for the Notes to be purchased by you on the date of closing on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, section 5 of the Securities Act or Regulation U, T or X of the Board of Governors of the Federal Reserve System) and shall not subject you to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and you shall have received such certificates or other evidence as you may request to establish compliance with this condition. 3D. Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in substance and form to you, and you shall have received all such counterpart originals or certified or other copies of such documents as you may reasonably request. 3E. Structuring Fee. The Company shall have paid you, on or before the date of closing, in immediately available funds, a structuring fee in the amount of $50,000. 3F. Notes. You shall have received the Notes from the Company, in the aggregate principal amount of $75,000,000, in form and substance satisfactory to you, and substantially in the form of Exhibit A attached hereto. 4. Prepayments. The Notes shall be subject to prepayment with respect to the required prepayments specified in paragraph 4A and the optional prepayments permitted by paragraph 4B. 4A. Required Prepayments. Until the Notes shall be paid in full, the Company shall apply to the prepayment of the Notes, without premium, the sum of $25,000,000 on March 14 in each of the years 2007 and 2008, and such principal amounts of the Notes, together with interest thereon to the prepayment dates, shall become due on such prepayment dates. Any remaining principal balance of the Notes, together with interest accrued thereon, shall become due on the maturity date of the Notes. 4B. Optional Prepayment With Yield-Maintenance Amount. The Notes shall be subject to prepayment, in whole at any time or from time to time in part (in multiples of $5,000,000), at the option of the Company, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to each Note. Any partial prepayment of the Notes pursuant to this paragraph 4B shall be applied in satisfaction of required payments of principal in inverse order of their scheduled due dates. 4C. Notice of Optional Prepayment. The Company shall give the holder of each Note irrevocable written notice of any prepayment pursuant to paragraph 4B not less than 10 Business Days prior to the prepayment date, specifying such prepayment date and the principal amount of the Notes, and of the Notes held by such holder, to be prepaid on such date and stating that such prepayment is to be made pursuant to paragraph 4B. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the Yield-Maintenance Amount, if any, with respect thereto, shall become due and payable on such prepayment date. The Company shall, on or before the day on which it gives written notice of any prepayment pursuant to paragraph 4B, give telephonic notice of the principal amount of the Notes to be prepaid and the prepayment date to each Significant Holder which shall have designated a recipient of such notices in the Purchaser Schedule attached hereto or by notice in writing to the Company. 4D. Partial Payments Pro Rata. Upon any partial prepayment of the Notes pursuant to paragraph 4A or 4B, the principal amount so prepaid shall be allocated to all Notes at the time outstanding (including, for the purpose of this paragraph 4D only, all Notes prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates other than by prepayment pursuant to paragraph 4A or 4B) in proportion to the respective outstanding principal amounts thereof. 4E. Retirement of Notes. The Company shall not, and shall not permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated final maturity (other than by prepayment pursuant to paragraph 4A or 4B or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement, except as provided in paragraph 4D. 2 5. Affirmative Covenants. 5A. Financial Statements. The Company covenants that it will deliver to each holder of Notes in quadruplicate: (i) as soon as practicable and in any event within 60 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of income and cash flows and a consolidated statement of stockholders' equity of the Company and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and substantially in the same form as at the time required for Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments; provided, however, that delivery pursuant to clause (iii) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i); (ii) as soon as practicable and in any event within 90 days after the end of each fiscal year, consolidated statements of income and cash flows and a consolidated statement of stockholders' equity of the Company and its Subsidiaries for such year, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in reasonable detail and substantially in the same form as at the time required for Annual Reports on Form 10-K filed with the Securities and Exchange Commission and reported on by independent public accountants of recognized national standing selected by the Company whose report shall be without limitation as to the scope of the audit; provided, however, that delivery pursuant to clause (iii) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii); (iii) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission); (iv) promptly upon receipt thereof, a final copy of each other report submitted to the Company by independent accountants in connection with any annual audit made by them of the books of the Company, and notice of the submission by independent accountants of any final report in connection with any interim or special audit of the books of the Company or any of its Subsidiaries; and (v) if such holder is a Significant Holder, with reasonable promptness, such other financial data as such Significant Holder may reasonably request. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each holder of Notes an Officer's Certificate demonstrating (with computations in reasonable detail) compliance by the Company and its Subsidiaries with the provisions of paragraphs 6A (identifying the nature of any Liens permitted by the provisions of paragraph 6A (vi) or (vii) securing Debt in excess of $250,000), 6B, 6C, 6D, 6F and 6G, stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto, and stating further that, to the best of such officer's knowledge, the Company during such period has observed or performed all its covenants and other agreements, and satisfied every condition contained in this Agreement or the Notes to be performed, observed or satisfied by it. Together with each delivery of financial statements required by clause (ii) above, the Company will deliver to each holder of the Notes a certificate of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Event of Default or Default, or, if they have obtained knowledge of any Event of Default or Default, specifying the nature and period of 3 existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Company also covenants that: (A) within five days after any Responsible Officer obtains knowledge of an Event of Default or Default, it will deliver to each holder of Notes an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto; and (B) it will promptly deliver notice (accompanied in each case by an Officer's Certificate specifying the nature and period of existence of such event or circumstances and what action the Company proposes to take with respect thereto) to each Significant Holder of Notes of: (1) any (a) default or event of default under any contractual obligation of the Company or any Subsidiary or (b) litigation, investigation or proceeding that may exist at any time between the Company or any Subsidiary and any Governmental Authority, that, in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole; (2) any litigation or proceeding affecting the Company or any Subsidiary (a) in which the amount involved is $10,000,000 (or the equivalent) or more and not covered by insurance, (b) in which injunctive or similar relief is sought, or (c) which relates to this Agreement or the Notes; and (3) any development or event that has or could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. 5B. Information Required by Rule 144A. The Company covenants that it will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term "QUALIFIED INSTITUTIONAL BUYER" shall have the meaning specified in Rule 144A under the Securities Act. 5C. Inspection of Property; Books and Records. The Company covenants that it will permit any Person (other than a Competitor) designated by you, at your expense, to visit and inspect any of the properties of the Company and its Subsidiaries, to examine the corporate books and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants, all at such reasonable times and as often as you may reasonably request and upon reasonable notice. The Company further covenants to afford any other Significant Holder of a Note (other than a Competitor) the benefits of this paragraph 5C so long as such Significant Holder agrees to execute a confidentiality agreement consistent with the provisions of paragraph 11H and reasonably satisfactory to the Company. The Company will maintain or cause to be maintained the books of record and account of the Company and its Subsidiaries in good order in accordance with sound business and financial practice and its financial statements to be prepared in accordance with generally accepted accounting principles. 5D. Maintenance of Properties; Insurance. The Company will maintain or cause to be maintained in good repair, working order and condition all properties used or useful in the business of the Company and its Subsidiaries (ordinary wear and tear excepted) and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof, all to the extent material to the business and operations of the Company and its Subsidiaries taken as a whole. The Company will procure and maintain in full force and effect all franchises, certificates, licenses, permits and other authorizations from governmental political subdivisions or regulatory authorities and all patents, trademarks, service marks, trade names, 4 copyrights, licenses and other rights, in each case where the failure to so procure or maintain would have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and businesses of its Subsidiaries against loss or damage or liability to others of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such type and in such amounts as are customarily carried under similar circumstances by such other corporations (which may include reasonable and prudent levels of self insurance and deductibles as are customarily provided in the insurance programs maintained by such other companies and, to the extent such self insurance is included, such self insurance shall be maintained and funded, if applicable, in accordance with the customary practices for such self-insurance programs). 5E. Conduct of Business and Corporate Existence, Etc. The Company and its Subsidiaries will continue to be predominantly engaged in business of the same general type as is now conducted by the Company and its Subsidiaries. Subject to the provisions of paragraph 6E, the Company will (i) at all times preserve and keep in full force and effect its and its Subsidiaries' corporate existence, rights and franchises where the failure to so preserve and keep in full force and effect would have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole, and (ii) qualify, and cause each of its Subsidiaries to qualify, to do business in any jurisdiction where the failure to do so would have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. 5F. Payment of Taxes, Claims and Other Obligations. The Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property, and all of it's other material obligations of whatever nature, before any penalty or significant interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets if the failure to pay such tax, assessment, charge or claim would result in liability to the Company or a Subsidiary and would materially adversely affect the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole; provided, that no such charge or claim need be paid if being contested in good faith by appropriate proceedings and if such accrual, reserve or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor. 5G. Compliance With Laws, Etc. The Company will comply and cause its Subsidiaries to comply with all contractual obligations and the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including ERISA and those relating to environmental protection and employee safety), the noncompliance with which would materially adversely affect the business, condition (financial or other) or operations of the Company and its Subsidiaries taken as a whole. The Company will promptly give notice to each Significant Holder of any of the following events, in each case as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the Pension Benefit Guaranty Corporation (or any successor) or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan, or (ii) the institution of any proceedings or the taking of any other action by the Pension Benefit Guaranty Corporation (or any successor) or the Company or any ERISA Affiliate or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan, which notice shall in each case be accompanied by an Officer's Certificate specifying the nature and period of existence of such occurrence and what action the Company proposes to take with respect thereto. 5H. Covenant to Secure Notes Equally. The Company covenants that if it or any Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6A (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C), it will make or cause to be made 5 effective provision satisfactory in form and substance to the Required Holder(s) whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured. Securing the Notes as provided in this paragraph 5H shall not permit the existence of any Lien not permitted by paragraph 6A. 6. Negative Covenants. 6A. Limitations on Liens. The Company covenants that neither it nor any of its Subsidiaries will create, assume or suffer to exist any Lien upon any of its property or assets (including, without limitation, any capital stock of a Subsidiary owned by the Company or any Subsidiary), whether now owned or hereafter acquired and whether or not provision is made for equally and ratably securing the Notes as provided in paragraph 5H; provided, however, that the foregoing restriction and limitation shall not apply to the following Liens: (i) Liens for taxes, assessments or governmental charges or levies not yet delinquent or which are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with, and as permitted by, paragraph 5F; (ii) Liens imposed by law, such as carriers', landlords', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings as permitted by paragraph 5F; Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; servitudes, easements, rights-of-way, restrictions, minor defects or irregularities in title and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere in any material way with the use thereof in the business of the Company or its Subsidiaries; and other Liens incidental to the conduct of the Company's or any Subsidiary's business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than vendors' liens in respect of current accounts payable not overdue and extended in the ordinary course of business), and which do not in the aggregate materially detract from the value of its property or assets, or materially impair the use thereof in the operation of its business; (iii) Liens on property or assets of a Subsidiary to secure obligations of such Subsidiary to the Company or any other Subsidiary; (iv) deposits, bonding arrangements and Liens to secure the performance of (or to secure obligations in respect of letters of credit posted to secure the performance of) bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (v) Liens securing Debt of Subsidiaries of the nature and not exceeding the respective amounts specified on Schedule 6A; (vi) any Lien on any asset of any Person existing at the time such Person is acquired by or merged or consolidated with the Company or a Subsidiary and not created in contemplation of such event and which Lien does not extend to any other property; (vii) any Lien existing on any asset prior to the acquisition thereof by the Company or a Subsidiary and not created in contemplation of such acquisition and which Lien does not extend to any other property; (viii) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this paragraph 6A; provided that the principal amount secured and then outstanding is not increased and the Lien is not extended to other property; 6 (ix) any Lien existing on assets of a Non-Qualifying Subsidiary Group provided, that any Lien on assets of a Non-Qualifying Subsidiary Group first permitted by this subparagraph (ix) shall remain a permitted Lien, notwithstanding the fact that such Non-Qualifying Subsidiary Group shall cease to qualify as such; (x) Liens in connection with loans on life insurance policies 7524455, 7524456 and 7524457 issued by Penn Mutual Life Insurance Company (the "Policies"); provided that, (A) the aggregate amount borrowed under the Policies may not exceed the lesser of (1) the cash value of the Policies and (2) $50,000,000, (B) such loans shall be without recourse to the Company and may be secured solely by the cash value (and death benefits) of the Policies, and (C) any Lien created in connection therewith shall not extend to any other property of the Company; and (xi) other Liens securing Priority Debt the existence of which is permitted under the provisions of paragraphs 6B, 6C and 6D. 6B. Limitation on Total Borrowed Funds. The Company will not at any time permit Total Borrowed Funds to exceed 125% of Consolidated Net Worth; provided, that, for purposes of determining compliance with the foregoing limitation, the amount of 'total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted hereby shall not exceed $7,762,000; and provided still further, that, for purposes of determining the compliance with the foregoing limitation, the amount of "total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of certain non-cash charges in respect of venture portfolio investments, goodwill and real estate (the "2001 NON-CASH CHARGES") that were reported and taken in the Company's fourth fiscal quarter of 2001; provided, however, that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,209,000. 6C. Limitation on Debt to Cash Flow. The Company will not permit the ratio of Total Borrowed Funds to Consolidated Cash Flow for any period of four consecutive complete fiscal quarters of the Company to exceed 3.0 to 1. For purposes of this paragraph 6C only, Consolidated Cash Flow shall be adjusted to include and give effect on a pro forma basis (x) to additional cash flows of all entities or businesses to be acquired with the proceeds of any such Funded Debt and to exclude the cash flows of all operations or businesses no longer owned by the Company and its Subsidiaries and (y) to treat all Funded Debt then existing and any Funded Debt then being incurred as being outstanding for any such four quarter period. 6D. Limitations on Priority Debt. The Company covenants that it will not, and will not permit any of its Subsidiaries to, incur, assume or otherwise become liable with respect to any Priority Debt unless, at the time of incurrence thereof and after giving effect thereto and to the application of the proceeds thereof, such Debt is permitted under the provisions of paragraph 6B and paragraph 6C and the aggregate principal amount of Priority Debt then outstanding does not exceed 20% of Consolidated Net Worth; provided, that, for purposes of determining compliance with the foregoing limitation, the amount of 'total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) in respect of non-cash charges relating to write-downs of investments in internet-related businesses made prior to January 1, 2001; provided further, that, the aggregate amount of all such upward adjustments permitted hereby shall not exceed $7,762,000; and provided still further, that, for purposes of determining compliance with the foregoing limitation, the amount of 'total assets' of the Company and its Subsidiaries used to determine Consolidated Net Worth shall be adjusted upward to add-back (to the extent otherwise reduced thereby) amounts (net of taxes) attributable to the 2001 Non-Cash Charges reported and taken in the Company's fourth fiscal quarter of 2001; provided, however, that, the aggregate amount of such upward adjustments attributable to the 2001 Non-Cash Charges permitted hereby shall not exceed $32,209,000. 7 6E. Merger, Consolidation, Sale or Transfer of Assets. The Company covenants that it will not, and will not permit any of its Subsidiaries to, be a party to any merger, amalgamation, consolidation, reorganization, reconstruction or arrangement with any other Person or sell, lease or transfer or otherwise dispose of all or substantially all of its assets to any Person, except that: (i) any Subsidiary may merge or consolidate with the Company (provided the Company shall be the continuing or surviving corporation) or any one or more other Subsidiaries; (ii) any Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets to the Company or to any other Subsidiary, whether by dissolution, liquidation or otherwise; (iii) any Subsidiary may merge or consolidate with, or sell, lease, transfer or otherwise dispose of all or substantially all of its assets to, any other Person; and (iv) the Company may merge or consolidate or amalgamate with any other corporation, or enter into a plan of reconstruction, reorganization or arrangement, or sell, transfer, or otherwise dispose of all or substantially all of its assets, provided that the Company shall be the continuing or surviving corporation, or the continuing, surviving or acquiring corporation shall be a corporation organized under the laws of any State of the United States or the District of Columbia which shall expressly assume in writing (in an instrument satisfactory in form and substance to the Required Holder(s)) all of the obligations of the Company under this Agreement and the Notes; and in the case of any of the transactions (a) described in clause (iii) above, at the time of such merger, consolidation, amalgamation, reorganization, sale, transfer or disposition and after giving effect thereto there shall exist no Default or Event of Default, and, with respect to any such transaction involving a Subsidiary Group, the Company shall have delivered to the holders of the Notes an Officer's Certificate to the effect that the foregoing provisions have been complied with, and (b) described in clause (iv) above, at the time of such merger, consolidation, amalgamation, reorganization, sale, transfer or disposition and after giving effect thereto there shall exist no Default or Event of Default, and the Company shall have delivered to the holders of the Notes an opinion of independent counsel (who may be counsel for the Company) and an Officer's Certificate each to the effect that the foregoing provisions have been complied with 6F. Fixed Charges Coverage Ratio. The Company will not, at any time, permit the Fixed Charges Coverage Ratio to be less than 1.6 to 1.0. 6G. 2001 Credit Agreement. The Company and its Subsidiaries shall not fail to comply with Sections 6.1, 6.4(c), 6.5, 6.6, 6.7(b), 6.8, 6.9, 6.11, 6.12 or 6.15 of the 2001 Credit Agreement, which Sections (in each case as modified by any amendments thereto entered into and effective after the date of this Agreement; provided that true and correct copies of any such amendment shall have been received by the Required Holders from the Company) are hereby incorporated herein "mutatis mutandis" by this reference (together with any related definitional provisions from the 2001 Credit Agreement (in each case as modified by any amendments thereto entered into and effective after the date of this Agreement; provided that true and correct copies of any such amendment shall have been received by the Required Holders from the Company), for the sole purpose of interpreting any such terms used in said sections). 6H. Optional Payments and Modifications of Certain Debt Instruments. Make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to any Indebtedness in respect of any private placement or public offering of notes or debt securities, if, at the time thereof or after giving effect thereto, a Default of Event of Default shall have occurred and be continuing or the Company shall not be in pro forma compliance with the financial covenants incorporated pursuant to paragraph 6G above. 8 7. Events of Default. 7A. Acceleration. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) the Company defaults in the payment of any principal of or Yield-Maintenance Amount payable with respect to any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or (ii) the Company defaults in the payment of any interest on any Note for more than 5 days after the date due; or (iii) the Company or any Subsidiary defaults (whether as primary obligor or as guarantor or other surety) in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or the Company or any Subsidiary fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or to permit the holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation to become due (or to be repurchased by the Company or any Subsidiary) prior to any stated maturity; provided that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing or permitting acceleration (or resale to the Company or any Subsidiary) shall occur and be continuing exceeds $10,000,000 (or the equivalent amount in any foreign currency); or (iv) any representation or warranty made by the Company herein or by the Company or any of its officers in any writing furnished in connection with or pursuant to this Agreement and which is material shall be false in any material respect on the date as of which made; or (v) the Company fails to perform or observe any agreement contained in the second sentence or paragraph 5E (with respect to the Company only), clause (A) of the last paragraph of paragraph 5A (with respect to notices of Defaults (other than Defaults under paragraph 7A(vi)) and Events of Default) or paragraph 6; or (vi) the Company fails to perform or observe any other agreement, term or condition contained herein and such failure shall not be remedied within 30 days after any Responsible Officer obtains actual knowledge thereof; or (vii) the Company or any Subsidiary Group makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or (viii) any decree or order for relief in respect of the Company or any Subsidiary Group is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "BANKRUPTCY LAW"), of any jurisdiction; or (ix) the Company or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Subsidiary Group, or of any substantial part of the assets of the Company or any Subsidiary Group, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary Group under the Bankruptcy Law of any other jurisdiction; or 9 (x) any such petition or application is filed, or any such proceedings are commenced, against the Company or any Subsidiary Group and the Company or member of such Subsidiary Group by any act indicates its approval thereof, consent thereto or acquiescence therein on behalf of such Subsidiary Group, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xii) any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary decreeing a split-up of the Company or such Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Subsidiary whose assets represent a substantial part, of the consolidated assets of the Company and its Subsidiaries (determined in accordance with generally accepted accounting principles) or which requires the divestiture of assets, or stock of a Subsidiary, which shall have contributed a substantial part of the consolidated net income of the Company and its Subsidiaries (determined in accordance with generally accepted accounting principles) for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (xiii) a final judgment in an amount in excess of $10,000,000 (or the equivalent amount in any foreign currency) over the amount as to which insurance coverage has been acknowledged by a solvent insurer is rendered against the Company or any Subsidiary and, within 45 days after entry thereof, such judgment is not discharged or execution thereof stayed pending appeal, or within 45 days after the expiration of any such stay, such judgment is not discharged; or (xiv) any Plan shall fail to maintain the minimum funding standard required by Section 412 of the Code for any plan year, or any Plan shall become the subject of termination proceedings under ERISA, or the Company or any ERISA affiliate shall withdraw from a Multiemployer Plan in whole or in part or any Plan or Multiemployer Plan shall be terminated; and as a result of any one or more of the foregoing there exists a liability of the Company or any Subsidiary in an aggregate amount exceeding $10,000,000 (or the equivalent amount in any foreign currency); or then (a) if such event is an Event of Default specified in clause (i) or (ii) of this paragraph 7A, the holder of any Note (other than the Company or any of its Subsidiaries or Affiliates) may at its option, by notice in writing to the Company, declare such Note to be, and such Note shall thereupon be and become, immediately due and payable at par together with accrued interest thereon, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, (b) if such event is an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable at par together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (c) if such event is not an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the Company, the Required Holder(s) may at its or their option, by notice in writing to the Company, declare all of the Notes to be, and all of the Notes shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company. 7B. Rescission of Acceleration. At any time after any or all of the Notes shall have been declared immediately due and payable pursuant to paragraph 7A, the Required Holder(s) may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company shall have paid all overdue interest on the Notes, the principal of and Yield-Maintenance Amount, if any, payable with respect to any Notes which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and Yield-Maintenance Amount at the rate specified in the Notes, (ii) the 10 Company shall not have paid any amounts which have become due solely by reason of such declaration, (iii) all Events of Default and Defaults, other than non-payment of amounts which have become due solely by reason of such declaration, shall have been cured or waived pursuant to paragraph 11C, and (iv) no judgment or decree shall have been entered for the payment of any amounts due pursuant to the Notes or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Event of Default or Default or impair any right arising therefrom. 7C. Notice of Acceleration or Rescission. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A or any such declaration shall be rescinded and annulled pursuant to paragraph 7B, the Company shall forthwith give written notice thereof to the holder of each Note at the time outstanding. 7D. Other Remedies. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise. 8. Representations, Covenants and Warranties. The Company represents, covenants and warrants as follows: 8A. Organization. The Company is a corporation duly organized and existing in good standing under the laws of the State of Delaware and each Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated. 8B. Financial Statements. The Company has furnished you with the following financial statements, identified by a principal financial officer of the Company: (i) a consolidated balance sheet of the Company and its Subsidiaries as at December 31 in each of the years 1999 to 2001 inclusive, and consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for each such year, all reported on by Ernst & Young; and (ii) a consolidated balance sheet of the Company and its Subsidiaries as at September 30 in each of the years 2001 and 2002 and consolidated statements of income, stockholders' equity and cash flows for the nine-month period ended on each such date, prepared by the Company. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its Subsidiaries as at the dates thereof, and the statements of income, stockholders' equity and cash flows fairly present the results of the operations of the Company and its Subsidiaries and their cash flows for the periods indicated. There has been no material adverse change in the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole since December 31, 2001. 8C. Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any properties or rights of the Company or any of its Subsidiaries, by or before any court, arbitrator or administrative or governmental body which is reasonably likely to result in any material adverse change in the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. 8D. Outstanding Debt. Neither the Company nor any of its Subsidiaries has outstanding any Debt except as permitted by paragraphs 6B, 6C, 6D and 6F. There exists no default (nor any temporary waiver of any default) under the provisions of any instrument evidencing such Debt or of any agreement relating thereto. 11 8E. Title to Properties. The Company has and each of its Subsidiaries has good and indefeasible title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the balance sheet as at September 30, 2002 referred to in paragraph 8B (other than properties and assets disposed of in the ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph 6A. All leases of the Company and its Subsidiaries are valid and subsisting and are in full force and effect except where the failure of such lease would not have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. 8F. Taxes. The Company has and each of its Subsidiaries has filed all federal, state and other income tax returns which, to the knowledge of the officers of the Company, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles. 8G. Conflicting Agreements and Other Matters. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects the business, property or assets, or financial condition of the Company and its Subsidiaries taken as a whole. Neither the execution nor delivery of this Agreement or the Notes, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in Schedule 8G attached hereto. 8H. Offering of Notes. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes or any similar security of the Company for sale to, or solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than you and not more than 5 other institutional investors, and neither the Company nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of the Notes to the provisions of section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 8I. Use of Proceeds. Neither the Company nor any Subsidiary owns or has any present intention of acquiring any "margin stock" as defined in Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve System (herein called "margin stock") other than purchases of the Company's outstanding common stock (and rights to acquire such stock). The proceeds of sale of the Notes will be used for general corporate purposes. Except as referenced in the first sentence of this paragraph, none of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any Indebtedness which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation U. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation U, Regulation T, Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. 12 8J. ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan). No liability to the Pension Benefit Guaranty Corporation has been or is expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which is or would be materially adverse to the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. The execution and delivery of this Agreement and the issuance and sale of the Notes will be exempt from, or will not involve any transaction which is subject to, the prohibitions of section 406 of ERISA and will not involve any transaction in connection with which a penalty could be imposed under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of your representation in paragraph 9B. 8K. Governmental Consent. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the date of closing with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes. 8L. Environmental Compliance. The Company and its Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all federal, state, local and regional statutes, laws, ordinances and judicial or administrative orders, judgments, rulings and regulations relating to protection of the environment except, in any such case, where failure to comply would not result in a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. 8M. Disclosure. Neither this Agreement nor any other document, certificate or statement furnished to you by or on behalf of the Company in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of its Subsidiaries which materially adversely affects or in the future is reasonably likely to (so far as the Company can now foresee) materially adversely affect the business, property or assets, or financial condition of the Company and its Subsidiaries taken as a whole and which has not been set forth in this Agreement or in the other documents, certificates and statements furnished to you by or on behalf of the Company prior to the date hereof in connection with the transactions contemplated hereby. 8N. Power; Authorization; Enforceability. This Agreement and the Notes have been duly authorized by all requisite corporate action and duly executed and delivered by authorized officers of the Company, and are valid obligations of the Company, legally binding upon and enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8O. Investment Company Act. None of the Company or any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 13 9. Representations of the Purchaser. You represent as follows: 9A. Nature of Purchase. You are not acquiring the Notes to be purchased by you hereunder with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition of your property shall at all times be and remain within your control. 9B. Source of Funds. No part of the funds being used by you to pay the purchase price of the Notes being purchased by you hereunder constitutes assets allocated to any separate account maintained by you in which any employee benefit plan, other than employee benefit plans identified on a list which has been furnished by you to the Company, participates to the extent of 10% or more. For the purpose of this paragraph 9B, the terms "separate account" and "employee benefit plan" shall have the respective meanings specified in section 3 of ERISA. 10. Definitions. For the purpose of this Agreement, the terms defined in the introductory sentence and in paragraphs 1 and 2 shall have the respective meanings specified therein, and the following terms shall have the meanings specified with respect thereto below: 10A. Yield-Maintenance Terms. "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed. "Called Principal" shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4B or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "Discounted Value" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (as converted to reflect the periodic basis on which interest on the Notes is payable, in the event payable other than on a semi-annual basis) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" shall mean, with respect to the Called Principal of any Note, 0.5% plus the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City local time) on the Business Day next preceding the Settlement Date with respect to such Called Principal for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date on the Treasury Yield Monitor page of Standard & Poor's MMS -- Treasury Market Insight (or, if Standard & Poor's shall cease to report such yields in MMS -- Treasury Market Insight or shall cease to be Prudential Capital Group's customary source of information for calculating yield-maintenance amounts on privately placed notes, then such source as is then Prudential Capital Group's customary source of such information), or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15(519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between yields reported for various maturities. The Reinvestment Yield will be rounded to that number of decimal places as appears in the Notes. "Remaining Average Life" shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one- 14 twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date. "Settlement Date" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4B or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "Yield-Maintenance Amount" shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal plus (ii) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero. 10B. Other Terms. "1997 Notes" shall mean, the Company's $75,000,000 principal amount, 6.94% Senior Notes Due December 23, 2005 issued pursuant to the 1997 Note Agreement. "1997 Note Agreement" shall mean, the Company's Note Agreement with Prudential, dated as of December 23, 1997 (as amended, supplemented and in effect from time to time), relating to the issue and sale of the Company's 1997 Notes. "2001 Credit Agreement" shall mean, the Company's $110,000,000 Credit Agreement, dated as of December 21, 2001, with JPMorgan Chase Bank, as administrative agent, and the other parties signatory thereto (as amended, modified, supplemented and in effect from time to time). "2001 Non-Cash Charges" shall have the meaning ascribed thereto in paragraph 6B. "Affiliate" shall mean any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company, except a Subsidiary. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall mean this Note Agreement, as amended, supplemented and in effect from time to time. "Bankruptcy Law" shall have the meaning specified in clause (viii) of paragraph 7A. "Capital Stock" shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Capitalized Lease Obligation" shall mean any rental obligation which, under generally accepted accounting principles, would be required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles. "Cash Equivalents" shall mean, at any date of determination, "cash" and "cash equivalents" as determined in accordance with generally accepted accounting principles. "closing" and "date of closing" shall have the respective meanings specified in paragraph 2. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Competitor" shall mean any Person who is engaged or who is an Affiliate of another Person who is engaged to any significant extent in the advertising, public relations, direct marketing or marketing 15 research business; provided, however, that in no event shall any insurance company, bank, bank holding company, savings institution or trust company or fraternal benefit society be deemed to be a Competitor for purposes of this Agreement. "Consolidated Cash Flow" for any period shall mean the sum of Consolidated Net Income, depreciation expenses, amortization costs (including amortization of restricted stock and employee stock options granted as compensation to employees), deferred compensation expenses (net of deferred compensation due and payable within one year), intangibles-related asset impairment charges for such period attributable to the purchase price of acquisitions, minority interests and changes in deferred taxes, less any equity in the earnings of unconsolidated affiliated entities (net of dividends received), all as computed and consolidated for the Company and its Subsidiaries for such period in accordance with generally accepted accounting principles. "Consolidated Current Debt" as of any date shall mean the aggregate amount of Current Debt of the Company and its Subsidiaries as would be shown on a consolidated balance sheet of the Company and its Subsidiaries prepared as of such date in accordance with generally accepted accounting principles. "Consolidated Funded Debt" as of any date shall mean the aggregate amount of Funded Debt of the Company and its Subsidiaries as would be shown on a consolidated balance sheet of the Company and its Subsidiaries prepared as of such date in accordance with generally accepted accounting principles. "Consolidated Net Income" for any period shall mean the consolidated net income (loss) of the Company and its Subsidiaries for such period, all determined in accordance with generally accepted accounting principles consistently applied. "Consolidated Net Worth" shall mean, at any date, the excess, if any, of the total assets of the Company and its Subsidiaries over the total liabilities of the Company and its Subsidiaries, all as would be shown on a consolidated balance sheet of the Company and its Subsidiaries prepared as of such date in accordance with generally accepted accounting principles (but Preferred Stock of the Company shall not in any event be treated as a liability). "Current Debt" shall mean, with respect to any Person, all Indebtedness of such Person for borrowed money which by its terms or by the terms of any instrument or agreement relating thereto matures on demand or within one year from the date of the creation thereof and is not directly or indirectly renewable or extendible at the option of the debtor to a date more than one year from the date of the creation thereof, provided that Indebtedness for borrowed money outstanding under a revolving credit or similar agreement which obligates the lender or lenders to extend credit over a period of more than one year shall constitute Funded Debt and not Current Debt, even though such Indebtedness by its terms matures on demand or within one year from the date of the creation thereof. "Debt" shall mean Current Debt and Funded Debt. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "ERISA Affiliate" shall mean any corporation which is a member of the same controlled group of corporations as the Company within the meaning of section 414(b) of the Code, or any trade or business which is under common control with the Company within the meaning of section 414(c) of the Code. "Event of Default" shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and "Default" shall mean any of such events, whether or not any such requirement has been satisfied. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fixed Charges" means, with respect to any period, the sum of (a) Interest Charges for such period, and (b) Lease Rentals for such period. 16 "Fixed Charges Coverage Ratio" means, at any time, the ratio of (a) the sum of (i) Consolidated Cash Flow and (ii) Fixed Charges for such period that were actually paid during such period to (b) Fixed Charges for such period. "Funded Debt" shall mean, with respect to any Person, all Indebtedness of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures more than one year from, or is directly or indirectly renewable or extendible at the option of the debtor to a date more than one year (including an option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year) from, the date of the creation thereof. "Governmental Authority" shall mean, any nation or government, any state or political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising legislative, executive, judicial, taxing, regulatory or administrative authority or functions of or pertaining to government, any securities exchange and any self regulatory organization (including the National Association of Insurance Commissioners). "Guarantee" shall mean, with respect to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any indebtedness, lease, dividend or other obligation or asset of another, including, without limitation, any such obligation or asset directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, any such obligation or asset in effect guaranteed by such Person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or asset or any security therefor, or to provide funds for the payment or discharge of such obligation or maintain the value of such asset (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation or services regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged or the value of any asset maintained, or that any agreements relating thereto will be complied with, or that the holders of such obligation or asset will be protected against loss in respect thereof. The amount of any Guarantee shall be equal to the outstanding principal amount of the obligation guaranteed or the minimum value of the asset to be maintained or such lesser amount to which the maximum exposure of the guarantor shall have been specifically limited. "Indebtedness" shall mean, with respect to any Person, without duplication, (i) all items (excluding items of contingency reserves or of reserves for deferred income taxes) which in accordance with generally accepted accounting principles would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as of the date on which Indebtedness is to be determined, (ii) all indebtedness secured by any Lien on any property or asset owned or held by such Person subject thereto, whether or not the indebtedness secured thereby shall have been assumed (limited to the value of such asset where the indebtedness has not been assumed), and (iii) all indebtedness of others with respect to which such Person has become liable by way of a Guarantee (limited to the amount of such indebtedness which is Guaranteed), it being understood that any Guarantee of obligations that are otherwise permitted hereunder but would not otherwise constitute Indebtedness under clauses (i) or (iii) above shall not constitute Indebtedness hereunder. "Insolvency" shall mean, with respect to any Multiemployer Plan, the condition that such plan is insolvent within the meaning of Section 4245 of ERISA. "Interest Charges" means, with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with generally accepted accounting principles): (a) all interest in respect of Debt of the Company and its Subsidiaries (including imputed interest on Capitalized Lease Obligations) deducted in determining Consolidated Net Income for such 17 period, together with all interest capitalized or deferred during such period and not deducted in determining Consolidated Net Income for such period, and (b) all debt discount and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period. "Lease Rentals" means, with respect to any period, the sum of the rental and other obligations required to be paid during such period by the Company or any Subsidiary as lessee under all leases of real or personal property (other than those in respect of Capitalized Lease Obligations), excluding any amount required to be paid by the lessee (whether or not therein designated as rental or additional rental) on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges; provided that, if at the date of determination, any such rental or other obligations (or portion thereof) are contingent or not otherwise definitely determinable by the terms of the related lease, the amount of such obligations (or such portion thereof) (i) shall be assumed to be equal to the amount of such obligations for the period of 12 consecutive calendar months immediately preceding the date of determination or (ii) if the related lease was not in effect during such preceding 12-month period, shall be the amount estimated (on a reasonable basis and in good faith) and set forth in an Officer's Certificate to be delivered to the holder(s) of the Notes. "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction) or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation. "Multiemployer Plan" shall mean any Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "Non-Qualifying Subsidiary Group" as of any date shall mean a Subsidiary or any group of Subsidiaries which carries on its business in a single country other than the United States of America or Canada and, on an aggregate basis, had gross income of less than $14,000,000 (or the equivalent amount in any foreign currency) for the most recently ended fiscal year of the Company. "Officer's Certificate" shall mean a certificate signed in the name of the Company by its President, one of its Vice Presidents or its Treasurer. "Person" shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company or similar entity, a trust, an unincorporated organization and a government or any department or agency thereof. "Plan" shall mean any "employee pension benefit plan" (as such term is defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any ERISA Affiliate. "Preferred Stock" shall mean any class of capital stock of the Company or any of its Subsidiaries which is redeemable or which has a preference upon liquidation or in the payment of dividends over the respective common stock of the Company or any of its Subsidiaries. "Priority Debt" shall mean, without duplication, (x) all Funded Debt of Subsidiaries other than (a) Funded Debt of any Subsidiary owing to the Company or to another Subsidiary and (b) Funded Debt of a Non-Qualifying Subsidiary Group, and (y) all Debt of the Company or any of its Subsidiaries secured by a Lien other than a Lien permitted by clauses (i) through (x) of paragraph 6A, and (z) all Preferred Stock of Subsidiaries not owned by the Company directly or indirectly through a wholly-owned Subsidiary, to the extent the total aggregate amount of the foregoing items (x), (y) and (z) is in excess of $10,000,000. "Reorganization" shall mean, with respect to any Multiemployer Plan , the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. 18 "Reportable Event" shall mean any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the 30 day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of Pension Benefit Guaranty Corporation Reg. Section 4043. "Required Holder(s)" shall mean the holder or holders of at least 66 2/3% of the aggregate principal amount of the Notes from time to time outstanding. "Responsible Officer" shall mean the chief executive officer, chief operating officer, chief financial officer or chief accounting officer of the Company or any other officer of the Company involved principally in its financial administration or its controllership function. "Securities Act" shall mean the Securities Act of 1933, as amended. "Significant Holder" shall mean (i) you, so long as you shall hold (or be committed under this Agreement to purchase) any Note, or (ii) any other holder of at least 10% of the aggregate principal amount of the Notes from time to time outstanding. "Subsidiary" shall mean any corporation at least a majority of the total combined voting power of all classes of Voting Stock of which shall, at the time as of which any determination is being made, be owned by the Company either directly or through Subsidiaries. "Subsidiary Group" shall mean any Subsidiary which is, or a group of Subsidiaries all of which are, at any time of determination, subject to one or more of the proceedings or conditions described in paragraph 7A (vii), (viii), (ix) or (x) and, on an aggregate basis, either (i) such Subsidiary or group had gross revenues which represented more than 5% of consolidated gross revenues of the Company and its Subsidiaries for the most recently ended fiscal year of the Company (or on a pro forma basis in the case of a newly acquired or created Subsidiary would have accounted for 5% or more of such consolidated gross revenues) or (ii) has total assets which represent 5% or more of the consolidated total assets of the Company and its Subsidiaries as of the end of the most recently ended fiscal year of the Company (adjusted on a pro forma basis to give effect to acquisitions or dispositions of assets since the end of such fiscal year). "Total Borrowed Funds" shall mean, at any date, the sum of (x) Consolidated Funded Debt as of such date plus (y) the excess, if any, of Consolidated Current Debt as of such date over the aggregate of Cash Equivalents of the Company and its Subsidiaries on hand as of such date (valued at the amount as would be shown for such items on a consolidated balance sheet of the Company and its Subsidiaries prepared as of such date in accordance with generally accepted accounting principles) and not subject to any Lien (other than a Lien in favor of any such Consolidated Current Debt). "Transferee" shall mean any direct or indirect transferee of all or any part of any Note purchased by you under this Agreement. "Voting Stock" shall mean, with respect to any corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). 10C. Accounting Principles, Terms and Determinations. All references in this Agreement to "generally accepted accounting principles" shall be deemed to refer to generally accepted accounting principles in effect in the United States at the time of application thereof. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all unaudited financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with generally accepted accounting principles, applied on a basis consistent with the most recent audited consolidated financial statements of the Company and its Subsidiaries delivered pursuant to clause (ii) of paragraph 5A or, if no such statements have been so delivered, the most recent audited financial statements referred to in clause (i) of paragraph 8B. 19 11. Miscellaneous. 11A. Note Payments. The Company agrees that, so long as you shall hold any Note, it will make payments of principal of, interest on and any Yield-Maintenance Amount payable with respect to such Note, which comply with the terms of this Agreement, by wire transfer of immediately available funds for credit (not later than 12:00 noon, New York City time, on the date due) to your account or accounts as specified in the Purchaser Schedule attached hereto, or such other account or accounts in the United States as you may designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. You agree that, before disposing of any Note, you will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 11A to any Transferee which shall have made the same agreement as you have made in this paragraph 11A. 11B. Expenses. The Company agrees, whether or not the transactions contemplated hereby shall be consummated, to pay, and save you and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including (i) all document production and duplication charges and the fees and expenses of any special counsel engaged by you or such Transferee in connection with this Agreement, the transactions contemplated hereby (but not the fees and expenses of any Transferee or its counsel in connection with the acquisition of any Note) and any subsequent proposed modification of, or proposed consent under, this Agreement, whether or not such proposed modification shall be effected or proposed consent granted, and (ii) the costs and expenses, including attorneys' fees, incurred by you or such Transferee in enforcing (or determining whether or how to enforce) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the transactions contemplated hereby or by reason of your or such Transferee's having acquired any Note, including without limitation costs and expenses incurred in any bankruptcy case. The obligations of the Company under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by you or any Transferee and the payment of any Note. 11C. Consent to Amendments. This Agreement may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) except that, without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to this Agreement shall change the maturity of any Note, or change the principal of, or the rate or time of payment of interest on or any Yield-Maintenance Amount payable with respect to any Note, or affect the time, amount or allocation of any prepayments, or change the proportion of the principal amount of the Notes required with respect to any consent, amendment, waiver or declaration. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein and in the Notes, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. The Notes are issuable as registered notes without coupons in denominations of at least $1,000,000 and larger integral multiples of $100,000, except as may be necessary to reflect any principal amount not evenly divisible by $100,000. The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be 20 accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holder's attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holder's unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note. 11E. Persons Deemed Owners; Participations. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of, interest on and any Yield-Maintenance Amount payable with respect to such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion. 11F. Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of you or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 11G. Successors and Assigns. All covenants and other agreements in this Agreement contained by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not. 11H. Disclosure to Other Persons. The Company acknowledges that the holder of any Note may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other information disclosed to such holder, by or on behalf of the Company or any Subsidiary in connection with or pursuant to this Agreement to (i) such holder's directors, officers, employees, agents and professional consultants, (ii) any other holder of any Note, (iii) any Person (other than a Competitor) to which such holder offers to sell such Note or any part thereof and which agrees to be bound by the provisions of this paragraph 11H, (iv) any Person (other than a Competitor) to which such holder sells or offers to sell a participation in all or any part of such Note and which agrees to be bound by the provisions of this paragraph 11H, (v) any Person from which such holder offers to purchase any security of the Company and which agrees to be bound by the provisions of this paragraph 11H, (vi) any federal or state regulatory authority having jurisdiction over such holder, (vii) the National Association of Insurance Commissioners or any similar organization or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable to such holder, (b) in response to any subpoena or other legal process or informal investigative demand or (c) in connection with any litigation to which such holder is a party. You agree to use your best efforts (and any Transferee which avails itself of the benefits of paragraph 5A(iv) or (v) or paragraph 5C shall be deemed to have agreed to use its best efforts -- you and any such Transferee each herein called a "Holder") to hold in confidence and not disclose any information (other than information (a) which was publicly known or otherwise known to such Holder at the time of disclosure (except pursuant to disclosure in connection with this Agreement), (b) which subsequently becomes publicly known through no act or omission by such Holder, or (c) which otherwise becomes known to such Holder, other than through disclosure by the Company or any of its Subsidiaries) delivered or made available by or on behalf of the Company or any of its Subsidiaries to such Holder (including without limitation any non-public information obtained pursuant to paragraph 5A or 5C) in connection with or pursuant to this Agreement which is clearly marked or labeled as being confidential 21 information, provided that nothing herein shall prevent the holder of any Note from disclosing such information as provided in the preceding sentence. 11I. Notices. All written communications provided for hereunder shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to you, addressed to you at the address specified for such communications in the Purchaser Schedule attached hereto, or at such other address as you shall have specified to the Company in writing, (ii) if to any other holder of any Note, addressed to such other holder at such address as such other holder shall have specified to the Company in writing or, if any such other holder shall not have so specified an address to the Company, then addressed to such other holder in care of the last holder of such Note which shall have so specified an address to the Company, and (iii) if to the Company, addressed to it at 777 Third Avenue, New York, NY 10017, Attention: Chief Financial Officer, or at such other address as the Company shall have specified to the holder of each Note in writing; provided, however, that any such communication to the Company may also, at the option of the holder of any Note, be delivered by any other means either to the Company at its address specified above or to any officer of the Company. 11J. Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall not be included in the computation of the interest payable on such Business Day. 11K. Satisfaction Requirement. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to you or to the Required Holder(s), the determination of such satisfaction shall be made by you or the Required Holder(s), as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination. 11L. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York. 11M. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 11N. Descriptive Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11O. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. [SIGNATURE BLOCKS FOLLOW] 22 If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between the Company and you. Very truly yours, GREY GLOBAL GROUP INC. By /s/ STEVEN G. FELSHER ------------------------------------ Title: Vice Chairman By /s/ LESTER M. FEINTUCK ------------------------------------ Title: Senior Vice President The foregoing Agreement is hereby accepted as of the date first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By /s/ CHRISTOPHER H. CAREY -------------------------------------------------------- Vice President 23 PURCHASER SCHEDULE
AGGREGATE PRINCIPAL AMOUNT OF NOTES TO BE NOTE PURCHASED DENOMINATION(S) ----------- --------------- THE PRUDENTIAL INSURANCE COMPANY OF AMERICA.............. $75,000,000 $60,000,000 $15,000,000
(1) All payments on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: Account No. 890-0304-391 (in the case of payments on account of the Note originally issued in the principal amount of $60,000,000 (the "FIRST NOTE")) and Account No. 890-0304-944 (in the case of payments on account of the Note originally issued in the principal amount of $15,000,000 (the "SECOND NOTE")) The Bank of New York New York, New York (ABA No.: 021-000-018) Each such wire transfer shall set forth the name of the Company, a reference to (a)" 7.41% Senior Notes due March 2009, Security No. !INV !, PPN " for the First Note and (b) "7.41% Senior Notes due March 2009, Security No. !INV !, PPN " for the Second Note, and the due date and application (as among principal, interest and Yield-Maintenance Amount) of the payment being made. (2) Address for all notices relating to payments or prepayments: The Prudential Insurance Company of America Two Gateway Center, 10th Floor 100 Mulberry Street Newark, New Jersey 07102 Attention: Manager, Billings and Collections Fax: (973) 802-8764 (3) Address for all communications and notices (including copies of those relating to payments or prepayments): The Prudential Insurance Company of America c/o Prudential Capital Group 1114 Avenue of the Americas 30th Floor New York, NY 10036 Attention: Managing Director Telephone: (212) 626-2070 Fax: (212) 626-2077 (4) Recipient of telephonic prepayment notices: Manager, Trade Management Telephone: (973) 802-8107 Fax: (973) 802-9425 (5) Tax Identification No.: 22-1211670 SCHEDULE 6A INTERNATIONAL SCHEDULE OF LIENS [COMPANY TO PROVIDE] SCHEDULE 8G LIST OF AGREEMENTS RESTRICTING DEBT 1. Note Agreement, dated as of November 13, 2000, between Grey Global Group Inc. and The Prudential Insurance Company of America (as amended). 2. $110,000,000 Credit Agreement, dated as of December 21, 2001, among Grey Global Group Inc., JPMorgan Chase Bank, as administrative agent, and the other parties signatories thereto (as amended). EXHIBIT A [FORM OF NOTE] GREY GLOBAL GROUP INC. 7.41% SENIOR NOTE DUE MARCH [ ], 2009 NO. [DATE] $ FOR VALUE RECEIVED, the undersigned, GREY GLOBAL GROUP INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of , hereby promises to pay to , or registered assigns, the principal sum of DOLLARS on [ ], with interest (computed on the basis of a 360-day year -- 30-day month) (a) on the unpaid balance thereof at the rate of 7.41% per annum from the date hereof, payable semiannually on the day of March and September in each year, commencing with the September next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Yield-Maintenance Amount (as defined in the Note Agreement referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 9.41% or (ii) 2.0% over the rate of interest publicly announced by Bank of New York from time to time in New York City as its Prime or Base Rate. Payments of principal of, interest on and any Yield-Maintenance Amount payable with respect to this Note are to be made at the main office of Bank of New York in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to a Note Agreement, dated as of March [ ], 2003 (herein called the "Agreement"), between the Company and The Prudential Insurance Company of America and is entitled to the benefits thereof. This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary. The Company agrees to make required prepayments of principal on the dates and in the amounts specified in the Agreement. This Note is also subject to optional prepayment, in whole or from time to time in part, on the terms specified in the Agreement. In case an Event of Default, as defined in the Agreement, shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement. This Note is intended to be performed in the State of New York and shall be construed and enforced in accordance with the law of such State. GREY GLOBAL GROUP INC. By ------------------------------------ [Vice] President By ------------------------------------ Treasurer 2 EXHIBIT B [FORM OF OPINION OF COMPANY'S COUNSEL] [LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM] [Date of Closing] The Prudential Insurance Company of America c/o Prudential Capital Group 1114 Avenue of the Americas 30th Floor New York, NY 10036 Ladies and Gentlemen: We have acted as counsel for Grey Global Group Inc. (the "Company") in connection with the Note Agreement, dated as of March [ ], 2003, between the Company and you (the "Note Agreement"), pursuant to which the Company has issued to you today 7.41% Senior Notes due March [ ], 2009 of the Company in the aggregate principal amount of $75,000,000. All terms used herein that are defined in the Note Agreement have the respective meanings specified in the Note Agreement. This letter is being delivered to you in satisfaction of the condition set forth in paragraph 3A of the Note Agreement and with the understanding that you are purchasing the Notes in reliance on the opinions expressed herein. In this connection, we have examined such certificates of public officials, certificates of officers of the Company and copies certified to our satisfaction of corporate documents and records of the Company and of other papers, and have made such other investigations, as we have deemed relevant and necessary as a basis for our opinion hereinafter set forth. We have relied upon such certificates of public officials and of officers of the Company with respect to the accuracy of material factual matters contained therein which were not independently established. With respect to the opinion expressed in paragraph 3 below, we have also relied upon the representation made by you in paragraph 9A of the Note Agreement. Based on the foregoing, it is our opinion that: 1. The Company is a corporation duly organized and validly existing in good standing under the laws of the State of . 2. The Note Agreement and the Notes have been duly authorized by all requisite corporate action and duly executed and delivered by authorized officers of the Company, and are valid obligations of the Company, legally binding upon and enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3. It is not necessary in connection with the offering, issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Agreement to register the Notes under the Securities Act or to qualify an indenture in respect of the Notes under the Trust Indenture Act of 1939, as amended. 4. The extension, arranging and obtaining of the credit represented by the Notes do not result in any violation of Regulation T, U or X of the Board of Governors of the Federal Reserve System. 5. The execution and delivery of the Note Agreement and the Notes, the offering, issuance and sale of the Notes and fulfillment of and compliance with the respective provisions of the Note Agreement and the Notes do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, or require any authorization, consent, approval, exemption or other action by or notice to or filing with any court, administrative or governmental body or other Person (other than routine filings after the date hereof with the Securities and Exchange Commission and/or state Blue Sky authorities) pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any applicable law (including any securities or Blue Sky law), statute, rule or regulation or (insofar as is known to us after having made due inquiry with respect thereto) any agreement (including, without limitation, any agreement listed in Schedule 8G to the Note Agreement), instrument, order, judgment or decree to which the Company or any of its Subsidiaries is a party or otherwise subject. Very truly yours, 2 EX-10.21 6 y84535exv10w21.txt EXTENSION AGREEMENT EXHIBIT 10.21 EXTENSION AGREEMENT, dated as of December 20, 2002 (this "Agreement"), among GREY GLOBAL GROUP INC., a Delaware corporation (the "Company"), the Foreign Subsidiary Borrowers from time to time parties to the Credit Agreement (as defined below), the several banks and other financial institutions or entities which execute this Agreement (the "Extending Lenders"), HSBC BANK USA, as documentation agent (in such capacity, the "Documentation Agent"), FLEET NATIONAL BANK, as syndication agent (in such capacity, the "Syndication Agent"), and JPMORGAN CHASE BANK, as administrative agent (in such capacity, the "Administration Agent"). W I T N E S S E T H: WHEREAS, the Company, the Extending Lenders, the Documentation Agent, the Syndication Agent and the Administrative Agent are parties to the Credit Agreement dated as of December 21, 2001 (as amended, the "Credit Agreement"); and WHEREAS, the Company has requested that the Termination Date be extended for a period of 364 days as set forth herein; NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto hereby agree as follows: SECTION 1. Defined Terms. Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. SECTION 2. Extension of Termination Date. Pursuant to Section 2.15 of the Credit Agreement, the Company hereby requests that the Lenders extend the Termination Date by a period of 364 days. Each Lender which executes this Agreement hereby agrees to such extension in accordance with Section 2.15 of the Credit Agreement. SECTION 3. Conditions to Effectiveness of this Agreement. This Agreement shall become effective as of December 20, 2002 if, prior to such date, the following conditions precedent have been satisfied: (a) the Administrative Agent shall have received counterparts of this Agreement duly executed and delivered by each of the Company, the Administrative Agent and the Required Lenders; and (b) no Default or Event of Default shall have occurred and be continuing. SECTION 4. Payment of Expenses. The Company agrees to pay or reimburse the Administrative Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with this Agreement, any other documents prepared in connection herewith, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent. SECTION 5. Miscellaneous. (a) Loan Documents. This Agreement and each Increase Agreement executed in connection with the Credit Agreement shall be considered Loan Documents for purposes of the Credit Agreement. (b) Effect. Except as expressly amended hereby, all of the representations, warranties, terms, covenants and conditions of the Loan Documents shall remain unamended and not waived and shall continue to be in full force in effect. (c) Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. (d) Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (e) Integration. This Agreement and the other Loan Documents represent the agreement of the Loan Parties and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Lenders relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. (F) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. GREY GLOBAL GROUP INC. By: /s/ STEVEN G. FELSHER ------------------------------------ Name: Steven G. Felsher Title: Vice Chairman, Chief Financial Officer -- Worldwide, Secretary and Treasurer By: /s/ LESTER M. FEINTUCK ------------------------------------ Name: Lester M. Feintuck Title: Vice President and Chief Financial Officer -- US Controller JPMORGAN CHASE BANK, as Administrative Agent and as a Lender By: /s/ REBECCA VOGEL ------------------------------------ Name: Rebecca Vogel Title: Vice President 2 FLEET NATIONAL BANK, as Syndication Agent and as a Lender By: /s/ THOMAS J. LEVY ------------------------------------ Name: Thomas J. Levy Title: Senior Vice President HSBC BANK USA, as Documentation Agent and as a Lender By: /s/ JOHAN SORENSSON ------------------------------------ Name: Johan Sorensson Title: First Vice President NORTH FORK BANK, as a Lender By: /s/ THOMAS MCGANN ------------------------------------ Name: Thomas McGann Title: Senior Vice President THE BANK OF NEW YORK, as a Lender By: /s/ BRIAN A. STERN ------------------------------------ Name: Brian A. Stern Title: Vice President 3 EX-21.01 7 y84535exv21w01.txt SUBSIDIARIES OF GREY EXHIBIT 21.01 GREY GLOBAL GROUP INC. AND CONSOLIDATED SUBSIDIARY COMPANIES SUBSIDIARIES OF GREY (AS OF MARCH 1, 2003)
NAME JURISDICTION OF ORGANIZATION - ---- ---------------------------- APCO Worldwide Inc. ........................................ Delaware AS Grey Oy.................................................. Finland Beyond Interactive Inc. .................................... Delaware Compas Inc. ................................................ New Jersey Creative Collaboration Grey S.A. ........................... Switzerland Crescendo Productions Inc. ................................. New York CSS & Grey.................................................. Cyprus Dorland & Grey S.A. ........................................ Belgium Dorland & Grey S.A.......................................... France Fischer-Grey, C.A. ......................................... Venezuela FOVA Inc. .................................................. Delaware G2 Worldwide Inc. .......................................... Delaware GCG Norge A/S............................................... Norway GCG Peru S.A. .............................................. Peru GCG Scandinavia A/S......................................... Denmark GCI Group Inc. ............................................. New York Great Productions Inc. ..................................... Delaware Great Spot Films Ltd. ...................................... Delaware Grey Advertising (Hong Kong) Ltd. .......................... Hong Kong Grey Advertising (Maryland) Inc. ........................... Maryland Grey Advertising (New Zealand) Ltd. ........................ New Zealand Grey Advertising (NSW) Pty. Ltd. ........................... Australia Grey Advertising Ltd. ...................................... Canada Grey Argentina S.A. ........................................ Argentina Grey Arts West Inc. ........................................ California Grey Athens Advertising S.A. ............................... Greece Grey Austria GmbH........................................... Austria Grey Brasil Ltda. .......................................... Brazil Grey Chile S.A. ............................................ Chile Grey Communications Group B.V. ............................. Netherlands Grey Communications Group Ltd. ............................. United Kingdom Grey Denmark A/S............................................ Denmark Grey Diciembre S.A. ........................................ Uruguay Grey Direct Inc. ........................................... Delaware Grey Global Group Inc. ..................................... Delaware Grey Global Group Middle Europe GmbH & Co. ................. Germany Grey GmbH................................................... Germany Grey Holding Central Europe GmbH............................ Germany
NAME JURISDICTION OF ORGANIZATION - ---- ---------------------------- Grey Holdings A.B. ......................................... Sweden Grey Holdings Pty. Ltd. .................................... South Africa Grey Iberia S.A. ........................................... Spain Grey IFC Inc. .............................................. Delaware Grey International S.A.R.L. ................................ France Grey Media Connections Inc. ................................ New York Grey Mexico, S.A. de C.V. .................................. Mexico Grey Strategic Marketing Inc. .............................. Delaware Grey Thailand Co. Ltd. ..................................... Thailand Grey Ventures Inc. ......................................... Delaware Grey Worldwide (Malaysia) Sdn. Bhd.......................... Malaysia Grey Worldwide Inc. ........................................ Japan Grey Worldwide Istanbul A.S. ............................... Turkey Grey Worldwide Korea........................................ Korea Grey Worldwide Middle East Ltd. ............................ Cyprus Grey Worldwide Pvt. Ltd. ................................... India Grey Worldwide Sea Sdn. Bhd................................. Singapore Grey Healthcare Group Inc. ................................. Delaware Group GCI Mexico S.A. de C.V. .............................. Mexico GWhiz Entertainment Inc. ................................... New York Hwa Wei & Grey Advertising Co. Ltd. ........................ Taiwan Local Marketing Corp. ...................................... Ohio Market Data Solutions Inc. ................................. Delaware Media Group................................................. Canada MediaCom Holding AB......................................... Sweden Milano & Grey S.p.A. ....................................... Italy Phase Five Communications Inc. ............................. Delaware Preferred Professionals Inc. ............................... New York Principal Communications Inc. .............................. Delaware Rama & Grey................................................. Indonesia REP Publicidad, Ltda. ...................................... Colombia Rigel Ltd. ................................................. Cayman Islands SEK & Grey Ltd. ............................................ Finland The Tape Center Inc. ....................................... Delaware Walther, Gesess, Grey AG.................................... Switzerland West Indies & Grey Advertising Inc. ........................ Puerto Rico Zebra Studios............................................... New York
2 EX-23.01 8 y84535exv23w01.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.01 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-36599, 33-61233, 33-61231, 33-21352, 2-98101 and 333-102132) pertaining to the stock and other incentive plans of Grey Global Group Inc. of our report dated February 26, 2003 on the consolidated financial statements of Grey Global Group Inc. and consolidated subsidiary companies included in the Annual Report (Form 10-K) for the year ended December 31, 2002. ERNST & YOUNG LLP New York, New York March 27, 2003 EX-99.01 9 y84535exv99w01.txt CERTIFICATION OF CEO AND CFO EXHIBIT 99.01 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Grey Global Group Inc. (the "Company") for the fiscal year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Edward H. Meyer, as Chief Executive Officer of the Company, and Steven G. Felsher, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ EDWARD H. MEYER ------------------------------------ Name: Edward H. Meyer Title: Chief Executive Officer Date: March 26, 2003 By: /s/ STEVEN G. FELSHER ------------------------------------ Name: Steven G. Felsher Title: Chief Financial Officer Date: March 26, 2003 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----