-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, bEyCrBTOqXWdXNiWXwDeYBJaMJlKonzikbtyIYP4/BMb9SSoiLglzfYxm3aCErET nD8YSZTQ8HMEPyUrsl6jGw== 0000950123-94-000646.txt : 19940331 0000950123-94-000646.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950123-94-000646 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREY ADVERTISING INC /DE/ CENTRAL INDEX KEY: 0000043952 STANDARD INDUSTRIAL CLASSIFICATION: 7311 IRS NUMBER: 130802840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-07898 FILM NUMBER: 94519033 BUSINESS ADDRESS: STREET 1: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125462000 10-K 1 FORM 10-K, GREY ADVERTISING INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K / X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1993 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-7898 GREY ADVERTISING INC. -------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-0802840 - --------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 777 Third Avenue, New York, New York 10017 - ------------------------------------ ------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, 212-546-2000 including area code ------------------ Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registered - ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $1 per share ------------------------------------ (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for the past 90 days. Yes X No --------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No --------- --------- 1 2 The aggregate market value of the voting stock held by non-affiliates of registrant was $136,030,470 as at March 1, 1994. The registrant had 901,983 shares of its Common Stock, par value $1 per share, and 338,844 shares of its Limited Duration Class B Common Stock, par value $1 per share, outstanding as at March 1, 1994. DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual proxy statement to be furnished in connection with the registrant's 1994 annual meeting of stockholders are incorporated by reference into Part III. 2 3 PART I. ITEM 1. Business. Registrant ("Grey") and its subsidiaries (collectively with Grey, the "Company") have been engaged in the planning, creation, supervision and placing of advertising since the Company's formation in 1917. Grey was incorporated in New York in 1925 and changed its state of incorporation to Delaware in 1974. The Company's principal business activity consists of providing a full range of advertising services to its clients. Typically, this involves developing an advertising and/or marketing plan after study of a client's business, the distribution or utilization of the client's products or services and the use of various media (e.g., television, radio, newspapers, magazines, direct mail, outdoor billboards) by which desired market performance can best be achieved. The Company then creates advertising, prepares media recommendations and places advertising in the media. The Company's business also involves it in allied areas such as marketing consultation, audio-visual production, cooperative advertising programs, direct marketing, research, product publicity, public relations and sales promotion. 3 4 The Company is not engaged in more than one industry segment, and no separate class of similar services contributed 10% or more of the Company's gross income or net income during 1993, 1992 or 1991. The Company serves a diversified client roster in the apparel, automobile, beverage, chemical, community service, computer, corporate, electrical appliance, entertainment, food product, home furnishing, houseware, office product, packaged goods, publishing, restaurant, retailing, toy and travel sectors. Advertising is a highly competitive business in which agencies of all sizes strive to attract new clients or additional assignments from existing clients. Competition for new business, however, is restricted from time to time because large agencies (such as the Company) often are precluded from providing advertising services for products or services that may be viewed as being competitive with those of an existing client. Generally, since advertising agencies charge clients substantially equivalent rates for their services, competitive efforts principally focus on the skills of the competing agencies. Published reports indicate that there are over 500 advertising agencies of all sizes in the United States. In 1993, the Company was the 6th largest United States advertising agency in terms of domestic gross income according to statistics published in Adweek, a trade publication. 4 5 Approximately 54% of the Grey's present domestic advertising clients, representing a significant majority of the Company's 1993 domestic gross income, have been with the Company since 1989. The agreements between the Company and most of its clients are generally terminable by either the Company or the client on 90 days' notice as is the custom in the industry. During 1993, one client (The Procter & Gamble Company) represented more than 10% of the Company's consolidated income from commissions and fees. No other client represented more than 5% of the Company's total consolidated commissions and fees. The loss of such client or other large clients of the Company may be expected to have an adverse effect on net income. Losses of important clients in past years, however, have not had a long-term effect upon the Company's financial condition or its competitive position. On December 31, 1993, Grey and its consolidated subsidiaries employed approximately 5,038 persons, of whom nine were executive officers of Grey. 5 6 As is generally the case in the advertising industry, the Company's business traditionally has been seasonal, with greater revenues generated in the second and fourth quarters of each year. This reflects, in large degree, the media placement patterns of the Company's clients. Advertising programs created by the Company are placed principally in media distributed within the United States and overseas through offices in the United States and a number of foreign countries. While the Company operates on a worldwide basis, for the purposes of presenting certain financial information in accordance with Securities and Exchange Commission rules, its operations are deemed to be conducted in three geographic areas. Commissions and fees, and operating profit by each such geographic area for the years ended December 31, 1993, 1992 and 1991, and related identifiable assets at December 31 of each of the years, are summarized in Note N of the Notes to Consolidated Financial Statements, which is hereby incorporated herein by reference. While the Company has no reason to believe that its foreign operations as a whole are presently jeopardized in any material respect, there are certain risks of operating which do not affect domestic operations but which may affect the Company's foreign operations from time to time. Such risks include the possibility of limitations on repatriation of capital or dividends, political instability, currency devaluation and restrictions on the percentage of permitted foreign ownership. 6 7 Executive Officers of the Registrant as of March 1, 1994
Year first became Execu- Executive Officers (a) Position Age tive Officer - ---------------------- -------- --- ------------ Robert L. Berenson President - Grey, N.Y. 54 1978 Barbara S. Feigin Exec. Vice President 56 1983 Steven G. Felsher Exec. Vice President Finance - Worldwide, Secretary & Treasurer 44 1989 William P. Garvey Exec. Vice President, Chief Financial Officer - United States 56 1970 John A. Gerster Exec. Vice President 46 1983 Edward H. Meyer Chairman of the Board, President & Chief Executive Officer 67 1959 Stephen A. Novick Exec. Vice President 53 1984 O. John C. Shannon President - Grey Int'l. 57 1993 Miles J. Turpin Exec. Vice President 63 1987
(a) All executive officers are elected annually by the Board of Directors of Grey. Each executive officer has been with Grey for a period more than five years. There exists no family relationship between any of Grey's directors or executive officers and any other director or executive officer or person nominated or chosen to become a director or executive officer. 7 8 ITEM 2. Properties. Substantially all offices of the Company are located in leased premises. The Company's principal office is at 777 Third Avenue, New York, New York, where it now occupies total floor space of approximately 357,000 square feet. The main lease covering the bulk of this space expires in 1999. The Company also has significant leases covering other offices in New York, Los Angeles, San Francisco, Amsterdam, Brussels, Copenhagen, Dusseldorf, Hong Kong, London, Madrid, Milan, Paris, Stockholm, Sydney and Toronto. The Company considers all space leased by it to be adequate for the operation of its business and does not foresee any significant difficulty in meeting its space requirements. ITEM 3. Legal Proceedings. The Company is not involved in any material pending legal proceedings, not covered by insurance or by adequate indemnification, or which, if decided adversely, would have a material effect on the operations, liquidity or financial position of the Company. ITEM 4. Submission of Matters to a Vote of Security Holders. Inapplicable. 8 9 ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The Common Stock of Grey is traded on The Nasdaq Stock Market under the symbol GREY and quoted on the National Market System of NASDAQ. As of March 1, 1994, there were 544 holders of record of the Common Stock and 322 holders of record of the Limited Duration Class B Common Stock. The following table sets forth certain information about dividends paid, and the bid and asked prices in the over-the-counter market during the periods indicated (as published in the Wall Street Journal), with respect to the Common Stock:
Bid Prices* Asked Prices* ----------- ------------- High Low High Low Dividends ---- --- ---- --- --------- 1992 First Quarter 128 110 135 118 .75 Second Quarter 138 125 145 130 .75 Third Quarter 137 126 137 131 .75 Fourth Quarter 140 129 140 135 .775 1993 First Quarter 157 132 158 136 .775 Second Quarter 165 143 169 150 .775 Third Quarter 189 166 191 170 .775 Fourth Quarter 187 174 188 181 .8125
* Such over-the-counter market quotations reflect interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. 9 10 PART II ITEM 6. Selected Financial Data.
1989 1990 1991(c) 1992(c) 1993 Commissions and fees... $411,083,000 $481,282,000 $528,299,000 $564,468,000 $567,243,000 Expenses...... 383,659,000 449,719,000 490,570,000 522,510,000 526,455,000 Restructuring charges (a) 23,850,000 Income before taxes on income of consolidated companies 32,614,000 33,575,000 13,277,000 42,588,000 42,705,000 Taxes on income.... 16,808,000 17,417,000 5,057,000 19,975,000 22,487,000 Net income..... 13,920,000 14,558,000 3,807,000 15,904,000 17,681,000 Net income per common share (b) Primary... 10.44 10.97 3.09 12.68 13.46 Fully Diluted...... 10.05 10.64 3.08 12.25 13.00 Weighted average number of common shares out- standing...... Primary..... 1,250,546 1,208,093 1,196,908 1,205,241 1,263,900 Fully Diluted...... 1,314,504 1,259,599 1,248,815 1,258,799 1,319,349 Working capital...... 4,855,000 5,918,000 8,364,000 12,588,000 25,001,000 Total assets...... 527,413,000 626,522,000 735,831,000 752,364,000 820,633,000 Long-term debt.... 3,025,000 3,025,000 3,025,000 3,025,000 33,025,000 Redeemable Preferred Stock at Redemption Value...... 5,036,000 6,145,000 6,053,000 6,468,000 6,590,000 Common Stockholders' equity..... 89,523,000 104,000,000 105,153,000 118,741,000 129,077,000 Cash dividend per share of Common Stock and Limited Duration Class B Common Stock 2.60 2.83 2.93 3.025 3.1375
(a) During 1991, the Company recognized one-time restructuring charges primarily related to the absorption of the Company's subsidiary, Levine Huntley Vick & Beaver, Inc. (b) After giving effect to amounts attributable to redeemable preferred stock, the assumed exercise of dilutive stock options and, for fully diluted net income per common share, the assumed conversion of 8-1/2% Convertible Subordinated Debentures issued December 1983. (c) After restatement for adoption of FAS 109, Accounting for Income Taxes. 10 11 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS Income from commissions and fees ("gross income") increased 0.5% in 1993 and 6.8% in 1992 when compared to the respective prior years. Absent exchange rate fluctuations, gross income increased 5.9% in 1993 and 5.8% in 1992 as compared to the respective prior years. The increase in revenue in both years, primarily resulted from expanded activities from existing clients, and the continued growth of the Company's general agency and specialized operations. Salaries and employee related expenses increased less than 1% in 1993 and 9.3% in 1992 when compared to the respective prior years. Office and general expenses have increased 1.4% in 1993 and 1.5% in 1992 versus prior years. These increases are generally in line with the increase in gross income shown for such years. Inflation did not have a material effect on either revenue or expenses during 1991, 1992 or 1993. 11 12 During the fourth quarter of 1991, the Company absorbed the operations of its Levine Huntley Vick & Beaver, Inc. ("LHV&B") subsidiary. In connection therewith, the Company recognized pre-tax charges of approximately $23,850,000 ($11,000,000 after tax) related predominately to the disposal of LHV&B's real estate obligations and leasehold assets, the write off of certain fixed assets and goodwill, and other costs, primarily severance, in connection with the restructuring. The Company also reflected modest similar charges with respect to a small number of related operations. A substantial portion of the lease obligation settlement payments and severance were paid in the fourth quarter of 1991, and the fixed asset and goodwill write offs were charged against the restructuring reserve in 1991. These charges represented a majority of the costs incurred with respect to the restructuring. During 1992 and 1993, most of the remaining costs included in the restructuring charge were settled, and at December 31, 1993 less than 10% of the original restructuring reserve remains on the Company's balance sheet to cover any unsettled obligations. The effective tax rate is 52.7% in 1993, and was 46.9% in 1992, as restated (see next page) and 38.1% in 1991. The increase in the effective tax rate in each year is primarily related to increases in the state and local tax provisions reflecting utilization of the tax benefit associated with the restructuring charge and due to an increased proportion of the income before taxes being derived from higher tax jurisdictions. In addition, the 1993 effective tax rate increased because the U.S. income tax statutory rate rose to 35% from 34%. 12 13 Minority interest decreased $3,104,000 in 1993 and increased $3,064,000 in 1992 as compared to the respective prior years. The decrease in 1993 and increase in 1992 were primarily due to changes in the level of profits of majority-owned companies. Equity in earnings of nonconsolidated companies increased $1,068,000 in 1993 and $268,000 in 1992 as compared to the respective prior years. These increases are due primarily to an increase in equity holdings and an increase in the profit attributable to levels of the nonconsolidated companies. Net income for 1993 increased 11.2% when compared to net income in 1992; net income for 1992, as restated (see below), increased 7.4% over net income in 1991 excluding restructuring costs. After giving effect to the restructuring charges, net income, as restated (see below), for 1992 increased 317.8% when compared to 1991. Primary net income per share increased 6.2% in 1993 and, excluding the restructuring charge, 8.1% in 1992 as compared to the respective prior periods. In the first quarter of 1993, the Company adopted FAS 109, Accounting for Income Taxes, as of January 1, 1993 and, as permitted, elected to restate prior years financial statements. The effect of the restatement was to increase the tax provision in 1992 by $600,000, reduce 1992 net income by the same amount and reduce 1991 net income by $500,000 by recognizing a cumulative effect of the accounting change adjustment. 13 14 For purposes of computing primary net income per common share, the Company's net income was (i) reduced by dividends paid on the Company's Preferred Stock and (ii) reduced or increased by the increase or decrease, respectively, in redemption value of the Preferred Stock. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents on December 31, 1993 was $181,267,000 up from $92,755,000 at the end of the prior year; the Company's working capital at year-end increased during 1993 by $12,413,000 to $25,001,000. These increases are largely attributable to enhanced collection and disbursement management, and the effect of the long-term borrowing described below. In addition, the Company invested in long-term, marketable, highly liquid securities during the second half of 1993. At December 31, 1993, the Company's investment in such marketable securities, principally United States Treasury obligations with maturities between two and seven years, was valued at $22,425,000. Domestically, the Company maintains committed bank lines of credit totalling $40,000,000. These lines of credit were partially utilized during both 1993 and 1992 to secure obligations of selected foreign subsidiaries in the respective year-end amounts of $11,100,000 and $13,331,000. 14 15 The Company also maintains domestic uncommitted lines of credit. These facilities, which are available at the discretion of the offering banks, were not utilized during the period. There were no amounts outstanding under these arrangements at December 31, 1993 or 1992. Other lines of credit are available to the Company in foreign countries in connection with short-term borrowings and bank overdrafts used in the normal course of business. There were $34,751,000 and $27,464,000 outstanding under such facilities at December 31, 1993 and 1992, respectively. Historically, funds from operations and short-term bank borrowings have been sufficient to meet the Company's dividend, capital expenditure and working capital needs. While the Company has not had to utilize long-term borrowing to fund its operating needs, in January 1993, taking advantage of favorable terms offered, it borrowed $30,000,000, at a fixed interest rate of 7.68%, repayable in equal installments in January 1998, 1999 and 2000. The Company does not anticipate any material increased requirement for capital or other expenditures which will adversely affect its liquidity. The Company's business generally has been seasonal with greater commissions and fees earned in the second and fourth quarters, particularly the fourth quarter. As a result, cash, accounts receivable, accounts payable and accrued expenses are typically higher on the Company's year-end balance sheet than at the end of any of the preceding three quarters. 15 16 ITEM 8. Financial Statements and Supplementary Data. -------------------------------------------- The information required by this Item is presented elsewhere in this report. 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. --------------------------------------------------- This information is to be included in the Company's Proxy Statement to be sent to its stockholders in connection with its 1994 annual meeting under the caption "Election of Directors", and is hereby incorporated herein by reference. ITEM 11. Executive Compensation. ----------------------- This information is to be included in the Company's Proxy Statement to be sent to its stockholders in connection with its 1994 annual meeting under the caption "Management Remuneration and Other Transactions", and is hereby incorporated herein by reference. 16 17 ITEM 12. Security Ownership of Certain Beneficial Owners and --------------------------------------------------- Management. ----------- This information is to be included in the Company's Proxy Statement to be sent to its stockholders in connection with its 1994 annual meeting under the captions "Voting Securities" and "Election of Directors", and is hereby incorporated herein by reference. ITEM 13. Certain Relationships and Related Transactions. ----------------------------------------------- This information is to be included in the Company's Proxy Statement to be sent to its stockholders in connection with its 1994 annual meeting under the captions "Election of Directors" and "Voting Securities", and is hereby incorporated herein by reference. PART IV. ITEM 14. Exhibits, Financial Statement Schedules, and Reports on ------------------------------------------------------- Form 8-K. --------- (a) (1) (2)The information required by this subsection of this Item is presented elsewhere in this report. (b) Reports on Form 8-K: Registrant ------------------- filed no reports on Form 8-K during the last quarter of 1993. (c) Exhibits: Reference is made to -------- the Index of Exhibits annexed hereto and made part hereof. (d) Schedules: The information --------- required by this subsection of this Item is presented elsewhere in this report. 17 18 The undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Registration Statements on Form S-8, filed with the SEC pursuant to Section 6(a) of the '33 Act: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 18 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GREY ADVERTISING INC. By:/s/ Edward H. Meyer ------------------------ Edward H. Meyer, Chairman, Chief Executive Officer & President Dated: March 30, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Mark N. Kaplan Dated: March 30, 1994 - --------------------------------------- Mark N. Kaplan, Director /s/ Edward H. Meyer Dated: March 30, 1994 - -------------------------------------- Edward H. Meyer, Director; Principal Executive Officer /s/ O. John C. Shannon Dated: March 30, 1994 - -------------------------------------- O. John C. Shannon, Director; President - Grey International /s/ Richard R. Shinn Dated: March 30, 1994 - ------------------------------------ Richard R. Shinn, Director /s/ Steven G. Felsher Dated: March 30, 1994 - ---------------------------------------- Steven G. Felsher, Principal Financial Officer /s/ William P. Garvey Dated: March 30, 1994 - --------------------------------------- William P. Garvey, Principal Accounting Officer - 19 - 20 Annual Report on Form 10-K Item 8, Item 14(a)(1) and (2) and Item 14(d) Financial Statements and Supplementary Data List of Financial Statements and Financial Statement Schedules Year ended December 31, 1993 Grey Advertising Inc. New York, New York 21 Form 10-K-Item 8, Item 14(a)(1) and (2) Grey Advertising Inc. and Consolidated Subsidiary Companies Index to Financial Statements and Financial Statement Schedules The following consolidated financial statements of Grey Advertising Inc. and consolidated subsidiary companies are included in Item 8: Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Consolidated Balance Sheets--December 31, 1993 and 1992 . . . . . . . . . . . . . . . . F-2 Consolidated Statements of Income--Years Ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Common Stockholders' Equity-- Years Ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Cash Flows-- Years Ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . F-7 Notes to Consolidated Financial Statements-- December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
The following consolidated financial statement schedules of Grey Advertising Inc. and consolidated subsidiary companies are included in Item 14(d): Schedule I--Marketable Securities Other Investments . . . . . . . . . . . . . . . . . . F-24 Schedule II--Amounts Receivable From Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25 Schedule IX--Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
All other 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. 22 Report of Independent Auditors Board of Directors Grey Advertising Inc. We have audited the accompanying consolidated balance sheets of Grey Advertising Inc. and consolidated subsidiary companies as of December 31, 1993 and 1992, and the related consolidated statements of income, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Grey Advertising Inc. and consolidated subsidiary companies at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note A to the financial statements, in 1993 the Company changed its method of accounting for income taxes. ERNST & YOUNG February 11, 1994 F-1 23 Grey Advertising Inc. and Consolidated Subsidiary Companies Consolidated Balance Sheets
DECEMBER 31 1993 1992 ---------------------------------- ASSETS Current assets: Cash and cash equivalents $181,267,000 $ 92,755,000 Accounts receivable 363,105,000 370,223,000 Expenditures billable to clients 22,581,000 26,205,000 Other current assets 69,116,000 92,125,000 ------------ ------------ Total current assets 636,069,000 581,308,000 Investments in and advances to nonconsolidated affiliated companies (Notes B and C) 16,104,000 11,160,000 Fixed assets--net (Note D) 57,724,000 62,974,000 Marketable securities (Notes A and E) 22,425,000 Intangibles and other assets-including loans to officers of $4,947,000 in 1993 and $5,194,000 in 1992 (Notes A, F, G, I and L(1)) 88,311,000 96,922,000 ------------ ------------ TOTAL ASSETS $820,633,000 $752,364,000 ============ ============
See notes to consolidated financial statements. F-2 24 Grey Advertising Inc. and Consolidated Subsidiary Companies Consolidated Balance Sheets (continued)
DECEMBER 31 1993 1992 ---------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $469,227,000 $429,071,000 Notes payable to banks (Note F) 45,851,000 40,795,000 Accrued expenses and other 88,099,000 92,455,000 Income taxes payable 7,891,000 6,399,000 ------------ ------------ Total current liabilities 611,068,000 568,720,000 Other liabilities, including deferred compensation of $15,342,000 and $15,891,000 (Note L(1)) 31,820,000 45,180,000 Long-term debt (Note F) 33,025,000 3,025,000 Minority interest 9,053,000 10,230,000 Redeemable preferred stock-at redemption value; par value $1 per share; authorized 500,000 shares; issued and outstanding 32,000 shares in 1993 and 34,000 shares in 1992(Note G) 6,590,000 6,468,000 Common stockholders' equity: Common Stock-par value $1 per share; authorized 10,000,000 shares; issued 1,062,046 in 1993 and 1,030,892 in 1992 1,062,000 1,031,000 Limited Duration Class B Common Stock-par value $1 per share; authorized 2,000,000 shares; issued 369,738 shares in 1993 and 400,892 shares in 1992 370,000 401,000 Paid-in additional capital 27,329,000 23,635,000 Retained earnings 131,835,000 118,737,000 Cumulative translation adjustment (3,573,000) 2,779,000 Unrealized loss on marketable securities (Notes A and E) (147,000) Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock (Note I) (4,726,000) (4,726,000) ------------ ------------ 152,150,000 141,857,000 Less-cost of 164,372 and 163,830 shares of Common Stock and 26,851 and 30,551 shares of Limited Duration Class B Common Stock held in treasury at December 31, 1993 and 1992, respectively 23,073,000 23,116,000 ------------ ------------ Total common stockholders' equity 129,077,000 118,741,000 Retirement plans, leases and contingencies (Note L) ------------ ------------ Total liabilities and stockholders' equity $820,633,000 $752,364,000 ============ ============
See notes to consolidated financial statements. F-3 25 Grey Advertising Inc. and Consolidated Subsidiary Companies Consolidated Statements of Income
YEAR ENDED DECEMBER 31 1993 1992 1991 -------------------------------------------------------- Commissions and fees $567,243,000 $564,468,000 $528,299,000 Expenses: Salaries and employee related expenses (Note L(1)) 348,462,000 346,933,000 317,531,000 Office and general expenses (Note L(2)) 177,993,000 175,577,000 173,039,000 Restructuring costs (Note M) 23,850,000 ------------ ------------ ------------ 526,455,000 522,510,000 514,420,000 ------------ ------------ ------------ 40,788,000 41,958,000 13,879,000 Other income (expense)-net (Note C) 1,917,000 630,000 (602,000) ------------ ------------ ------------ Income before taxes on income of consolidated companies 42,705,000 42,588,000 13,277,000 Provision for taxes on income (Note K) 22,487,000 19,975,000 5,057,000 ------------ ------------ ------------ Net income of consolidated companies before cumulative effect of accounting change 20,218,000 22,613,000 8,220,000 Minority interest applicable to consolidated companies (4,508,000) (7,612,000) (4,548,000) Equity in nonconsolidated affiliated companies 1,971,000 903,000 635,000 ------------ ------------ ------------ Net income before cumulative effect of accounting change 17,681,000 15,904,000 4,307,000 Cumulative effect of accounting change (500,000) ------------ ------------ ------------ Net income $17,681,000 $15,904,000 $3,807,000 ============ ============ ============ Earnings per Common Share (Note J): Primary Before cumulative effect of accounting change $13.46 $12.68 $3.51 Cumulative effect of accounting change .42 ----------- ----------- ----------- Net income $13.46 $12.68 $3.09 =========== =========== =========== Fully diluted Before cumulative effect of accounting change $13.00 $12.25 $3.48 Cumulative effect of accounting change .40 ----------- ----------- ----------- Net income $13.00 $12.25 $3.08 =========== =========== ===========
See notes to consolidated financial statements. F-4 26 Grey Advertising Inc. and Consolidated Subsidiary Companies Consolidated Statements of Common Stockholders' Equity Years ended December 31, 1993, 1992 and 1991
PAID-IN COMMON ADDITIONAL RETAINED STOCK CAPITAL EARNINGS ----------------------------------------------- Balance at December 31, 1990 $1,432,000 $18,092,000 $106,608,000 Net income 3,807,000 Cash dividends-Common Shares-$2.93 per share (3,335,000) Cash dividends-Redeemable Preferred Stock-$5.85 per share (199,000) Common Shares acquired-at cost Decrease in redemption value of Redeemable Preferred Stock (Note G) 92,000 Restricted Stock Plan activity (Note H) 433,000 Tax benefit from restricted stock (Note H) 937,000 Common Shares issued upon exercise of stock options 568,000 Translation adjustment ---------- ----------- ------------ Balance at December 31, 1991 1,432,000 20,030,000 106,973,000 Net income 15,904,000 Cash dividends-Common Shares-$3.025 (3,519,000) Cash dividends-Redeemable Preferred Stock-$6.05 (206,000) Common Shares acquired-at cost Increase in redemption value of Redeemable Preferred Stock (Note G) (415,000) Restricted Stock Plan activity (Note H) 252,000 Tax benefit from restricted stock (Note H) 119,000 Common Shares issued upon exercise of stock options 498,000 Tax benefit from exercise of stock options 1,556,000 Deferred compensation used to purchase Common Shares 20,000 Senior Management Incentive Plan activity (Note L) 1,160,000 Notes receivable from senior executive related to exercise of stock options (Note I) Translation adjustment ---------- ----------- ------------ Balance at December 31, 1992 1,432,000 23,635,000 118,737,000
COMMON STOCK HELD IN TREASURY OTHER -------------------------- EQUITY SHARES AMOUNT ACCOUNTS TOTAL ---------------------------------------------------------- Balance at December 31, 1990 301,390 $(28,156,000) $6,024,000 $104,000,000 Net income 3,807,000 Cash dividends-Common Shares-$2.93 per share (3,335,000) Cash dividends-Redeemable Preferred Stock-$5.85 per share (199,000) Common Shares acquired-at cost 3,211 (361,000) (361,000) Decrease in redemption value of Redeemable Preferred Stock (Note G) 92,000 Restricted Stock Plan activity (Note H) (5,000) 288,000 721,000 Tax benefit from restricted stock (Note H) 937,000 Common Shares issued upon exercise of stock options (23,786) 759,000 1,327,000 Translation adjustment (1,836,000) (1,836,000) ------- ------------ ---------- ------------ Balance at December 31, 1991 275,815 (27,470,000) 4,188,000 105,153,000 Net income 15,904,000 Cash dividends-Common Shares-$3.025 (3,519,000) Cash dividends-Redeemable Preferred Stock-$6.05 (206,000) Common Shares acquired-at cost 7,375 (891,000) (891,000) Increase in redemption value of Redeemable Preferred Stock (Note G) (415,000) Restricted Stock Plan activity (Note H) 252,000 Tax benefit from restricted stock (Note H) 119,000 Common Shares issued upon exercise of stock options (70,999) 4,112,000 4,610,000 Tax benefit from exercise of stock options 1,556,000 Deferred compensation used to purchase Common Shares (17,810) 1,133,000 1,153,000 Senior Management Incentive Plan activity (Note L) 1,160,000 Notes receivable from senior executive related to exercise of stock options (Note I) (4,726,000) (4,726,000) Translation adjustment (1,409,000) (1,409,000) ------- ------------ ---------- ------------ Balance at December 31, 1992 194,381 (23,116,000) (1,947,000) 118,741,000
F-5 27 Grey Advertising Inc. and Consolidated Subsidiary Companies Consolidated Statements of Common Stockholders' Equity (continued) Years ended December 31, 1993, 1992 and 1991
PAID-IN COMMON ADDITIONAL RETAINED STOCK CAPITAL EARNINGS ----------------------------------------------- Net income $17,681,000 Cash dividends-Common Shares-$3.1375 per share (3,911,000) Cash dividends-Redeemable Preferred Stock-$6.275 per share (204,000) Common Shares acquired-at cost Increase in redemption value of Redeemable Preferred Stock (Note G) (468,000) Restricted Stock Plan activity (Note H) $256,000 Tax benefit from restricted stock (Note H) 66,000 Common Shares issued upon exercise of stock options (44,000) Tax benefit from exercise of stock options 46,000 Senior Management Incentive Plan activity (Note L) 3,370,000 Translation adjustment Unrealized loss on marketable securities (Notes A and E) ---------- ----------- ------------ Balance at December 31, 1993 $1,432,000 $27,329,000 $131,835,000 ========== =========== ============
COMMON STOCK HELD IN TREASURY OTHER -------------------------- EQUITY SHARES AMOUNT ACCOUNTS TOTAL ------------------------------------------------------------ Net income $ 17,681,000 Cash dividends-Common Shares-$3.1375 per share (3,911,000) Cash dividends-Redeemable Preferred Stock-$6.275 per share (204,000) Common Shares acquired-at cost 5,426 $ (787,000) (787,000) Increase in redemption value of Redeemable Preferred Stock (Note G) (468,000) Restricted Stock Plan activity (Note H) 256,000 Tax benefit from restricted stock (Note H) 66,000 Common Shares issued upon exercise of stock options (8,584) 830,000 786,000 Tax benefit from exercise of stock options 46,000 Senior Management Incentive Plan activity (Note L) 3,370,000 Translation adjustment $(6,352,000) (6,352,000) Unrealized loss on marketable securities (Notes A and E) (147,000) (147,000) ------- ------------ ----------- ------------ Balance at December 31, 1993 191,223 $(23,073,000) $(8,446,000) $129,077,000 ======= ============ =========== ============
See notes to consolidated financial statements. F-6 28 Grey Advertising Inc. and Consolidated Subsidiary Companies Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1993 1992 1991 ------------------------------------------------- OPERATING ACTIVITIES Net income $17,681,000 $15,904,000 $ 3,807,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed assets 13,591,000 13,171,000 13,612,000 Amortization of intangibles 5,486,000 7,682,000 5,104,000 Deferred compensation 6,379,000 8,572,000 9,718,000 Equity in earnings of nonconsolidated affiliated companies, net of dividends received of $1,336,000, $595,000 and $440,000 (635,000) (308,000) (195,000) Minority interest applicable to consolidated companies 4,508,000 7,612,000 4,548,000 Writedown of investments in affiliates 1,344,000 Amortization of restricted stock expense 256,000 280,000 527,000 Cumulative effect of accounting change 500,000 Deferred income taxes (3,271,000) 5,351,000 (10,981,000) Asset writeoffs related to restructuring (Note M) 6,997,000 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (29,082,000) 27,633,000 (49,044,000) Decrease (increase) in expenditures billable to clients 555,000 (4,014,000) (3,056,000) Decrease (increase) in other current assets 28,454,000 (11,434,000) (25,660,000) (Increase) decrease in other assets (2,202,000) (4,592,000) 5,714,000 Increase in accounts payable 76,731,000 769,000 97,569,000 (Decrease) increase in accrued expenses and other (5,580,000) 8,976,000 12,594,000 Increase (decrease) in income taxes payable 2,385,000 478,000 (2,822,000) (Decrease) in other liabilities (7,298,000) (26,160,000) (4,502,000) ----------- ----------- ----------- Net cash provided by operating activities 107,958,000 49,920,000 65,774,000 INVESTING ACTIVITIES Purchases of fixed assets (13,421,000) (11,904,000) (14,664,000) Increase in investments in and advances to nonconsolidated affiliated companies (4,849,000) (1,731,000) (402,000) Purchases of marketable securities (22,572,000) Increase in intangibles, primarily goodwill (6,770,000) (1,780,000) (18,212,000) ----------- ----------- ----------- Net cash used in investing activities (47,612,000) (15,415,000) (33,278,000)
F-7 29 Grey Advertising Inc. and Consolidated Subsidiary Companies Consolidated Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31 1993 1992 1991 -------------------------------------------------- FINANCING ACTIVITIES Common Shares issued under Restricted Stock Plan $ 240,000 Net proceeds from (repayments of) short-term borrowings $ 9,762,000 $(11,331,000) 12,307,000 Common Shares acquired for treasury (787,000) (492,000) (361,000) Cash dividends paid on Common Shares (3,884,000) (3,519,000) (3,335,000) Cash dividends paid on Redeemable Preferred Stock (204,000) (206,000) (199,000) Proceeds from exercise of stock options 786,000 1,041,000 1,327,000 Proceeds from the redemption of Redeemable Preferred Stock (300,000) Proceeds from long-term debt 30,000,000 ------------ ------------ ----------- Net cash provided by (used in) financing activities 35,373,000 (14,507,000) 9,979,000 Effect of exchange rate changes on cash (7,207,000) 1,231,000 (2,112,000) ------------ ------------ ----------- Increase in cash and cash equivalents 88,512,000 21,229,000 40,363,000 Cash and cash equivalents at beginning of year 92,755,000 71,526,000 31,163,000 ------------ ------------ ----------- Cash and cash equivalents at end of year $181,267,000 $ 92,755,000 $71,526,000 ============ ============ ===========
SUPPLEMENTAL INFORMATION REGARDING NON-CASH FINANCING ACTIVITIES. In 1992, the Company granted a loan of $3,170,000 in partial payment for the purchase of common stock (see Note I). See notes to consolidated financial statements. F-8 30 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements December 31, 1993 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. Material intercompany balances and transactions have been eliminated in consolidation. Certain amounts for years prior to 1993 have been reclassified to conform with the current year classification. COMMISSIONS AND FEES Income derived from advertising placed with media is generally recognized based upon the publication or broadcast dates. Income resulting from expenditures billable to clients is generally recognized when billed. Payroll costs are expensed as incurred. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased 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 carries its investments in nonconsolidated affiliated companies on the equity method. The Company is amortizing the excess ($6,995,000 in 1993 and $3,669,000 in 1992) of the cost of its investments in certain of these companies over the related net equity at the date of acquisition over periods of up to 20 years. Certain investments which are not material in the aggregate are carried on the cost method. FIXED ASSETS Depreciation of furniture, fixtures and equipment is provided for over their estimated useful lives ranging from three to ten years and has been computed principally by the straight-line method. Amortization of leaseholds and leasehold improvements is provided for principally over the terms of the related leases, which are not in excess of the lives of the assets. F-9 31 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FOREIGN CURRENCY TRANSLATION Primarily all balance sheet accounts of the Company's foreign operations are translated at the exchange rate in effect at each year end and income statement accounts are translated at the average exchange rates prevailing during the year. Resulting translation adjustments are made directly to a separate component of stockholders' equity. Foreign currency transaction gains and losses are reported in income. During 1993, 1992 and 1991, foreign currency transaction gains and losses were not material. INTANGIBLES The excess ($63,965,000 in 1993 and $63,895,000 in 1992) of purchase price over underlying net equity of certain consolidated subsidiaries at the date of acquisition is being amortized by the straight-line method over periods of up to 20 years. INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FAS 109, Accounting for Income Taxes. As permitted under the new rules, the Company has restated its 1992 and 1991 financial statements (see Note K). The Company provides appropriate foreign withholding taxes on unremitted earnings of consolidated and nonconsolidated foreign companies. MARKETABLE SECURITIES Effective December 31, 1993, the Company has adopted FAS 115, Accounting for Certain Investments in Debt and Equity Securities. The Company has classified its investments in marketable securities as available-for-sale at the time of purchase and re-evaluates such designation as of each balance sheet date. Available-for-sale securities are carried at fair value, based on publicly quoted market prices, with unrealized gains and losses reported as a separate component of stockholders' equity. POSTRETIREMENT BENEFITS During 1992, the Company adopted FAS 106, Accounting for Postretirement Benefits Other Than Pensions. The costs incurred resulting from the adoption of this pronouncement were not material. F-10 32 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) B. FOREIGN OPERATIONS The following financial data is applicable to consolidated foreign subsidiaries:
1993 1992 1991 ---------------------------------------------- Current assets $357,391,000 $369,342,000 $369,022,000 Current liabilities 363,948,000 372,391,000 363,792,000 Other assets--net of other liabilities 45,889,000 61,205,000 56,842,000 Net income 2,584,000 4,473,000 6,827,000
Consolidated retained earnings at December 31, 1993 includes equity in unremitted earnings of nonconsolidated foreign companies of approximately $2,937,000. C. OTHER INCOME (EXPENSE)-NET
1993 1992 1991 -------------------------------------------- Interest income $7,307,000 $6,565,000 $5,964,000 Interest expense (7,558,000) (7,170,000) (6,125,000) Dividends from affiliates 674,000 198,000 351,000 Writedown of investments (1,344,000) Other--net 1,494,000 1,037,000 552,000 ---------- ---------- ---------- $1,917,000 $ 630,000 $(602,000) ========== ========== ==========
D. FIXED ASSETS Components of fixed assets-at cost are:
1993 1992 -------------------------------- Furniture, fixtures and equipment $90,304,000 $91,950,000 Leaseholds and leasehold improvements 42,091,000 41,711,000 ----------- ----------- 132,395,000 133,661,000 Less accumulated depreciation and amortization 74,671,000 70,687,000 ----------- ----------- $57,724,000 $62,974,000 ----------- -----------
F-11 33 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) E. MARKETABLE SECURITIES At December 31, 1993, the Company's investments in marketable securities consist of U.S. Treasury obligations with maturities of 2 to 7 years and a market value of $22,425,000. At December 31, 1993, the Company has recorded unrealized losses of $147,000 related to these investments. F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT The Company maintains committed lines of credit of $40,000,000 with various banks and may draw against the lines on unsecured demand notes at rates below the applicable bank's prime interest rate. These lines of credit were partially utilized during both 1993 and 1992 to secure obligations of selected foreign subsidiaries in the respective year-end amounts of $11,100,000 and $13,331,000. The Company had $34,751,000 and $27,464,000 outstanding under other uncommitted lines of credit at December 31, 1993 and 1992, respectively. The carrying amount of the debt outstanding under both the committed and uncommitted lines of credit approximates fair value because of the short maturities of the underlying notes. In January 1993, the Company borrowed $30,000,000 from the Prudential Insurance Company at a fixed interest rate of 7.68% repayable in equal installments of $10,000,000 in January 1998, 1999 and 2000. The terms of the loan agreement require, inter alia, that the Company maintain specified levels of net worth, meet certain cash flow requirements and limit its incurrence of additional indebtedness to certain specified amounts. At December 31, 1993, the Company was in compliance with all of these covenants. The fair value of the Prudential debt is estimated to be $31,400,000 at December 31, 1993. This estimate was determined using a discounted cash flow analysis using current interest rates for debt having the similar terms and remaining maturities. The remaining balance of long-term debt consists of 8-1/2% Convertible Subordinated Debentures due December 10, 1996 which are currently convertible into 8.43 shares of Common Stock and an equal amount of Limited Duration Class B Common Stock, subject to certain adjustments, for each $1,000 principal amount of such Debentures. The debt was issued in exchange for cash and a $3,000,000, 9% promissory note, payable December 10, 1997, from an officer of the Company and is included in other assets at F-12 34 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) F. CREDIT ARRANGEMENTS AND LONG-TERM DEBT (CONTINUED) December 31, 1993 and 1992. During 1991, the Company extended the maturity dates of the debt and related promissory note to the dates indicated above. During each of the years 1993, 1992 and 1991, the Company paid to the officer interest of $257,000 pursuant to the terms of the 8 1/2% Convertible Subordinated Debenture. During each of the years 1993, 1992 and 1991, the officer paid to the Company interest of $270,000 pursuant to the terms of the 9% promissory note. For the years 1993, 1992 and 1991, the Company made interest payments of $6,529,000, $7,242,000 and $6,118,000, respectively. G. REDEEMABLE PREFERRED STOCK The Company has outstanding at December 31, 1993 and 1992, 22,000 and 24,000 shares, respectively, of its Series 1 Preferred Stock and 5,000 shares each of its Series 2 and Series 3 Preferred Stock, which are held by current and former senior employees of the Company including one executive officer. The shares were issued at a price equal to the book value of the Common Stock at the time of issuance less a fixed amount. One dollar per share was paid in cash and the balance was represented by full recourse promissory notes, payable in May 1996, bearing interest at 9% per annum. In April 1993, the Company, at the option of one holder, after attainment of age 65, redeemed 2,000 shares of Series 1 Preferred Stock at a price of $347,000. The Company discharged its obligation by payment of cash of $300,000 and forgiveness of the holder's promissory note of $47,000. The amount of the full recourse promissory notes included in other assets at December 31, 1993 and 1992 was $763,000 and $810,000, respectively. The interest paid to the senior employees in 1993, 1992 and 1991, pursuant to the terms of these notes was $70,000, $77,000, and $77,000, respectively. The redemption price per share for the Preferred Stock is the combined book value per share of the Common Stock and Limited Duration Class B Common Stock as adjusted in accordance with the terms of the respective Certificates of Designation and Terms of each series of Preferred Stock upon redemption less a fixed discount. Holders of the Preferred Stock may have their shares redeemed upon termination of employment prior to age 65. The Company is obligated to redeem such shares following the holder's retirement after age 65. F-13 35 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) G. REDEEMABLE PREFERRED STOCK (CONTINUED) Following the distribution of the new class of Common Stock designated Limited Duration Class B Common Stock, the holders of the Preferred Stock became entitled to eleven votes per share on all matters submitted to the vote of stockholders. The holders of the Series 1 Preferred Stock are 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. The holders of the Preferred Stock are entitled to receive cumulative preferential dividends at the annual rate of $.25 per share, and to participate in dividends on the Common Stock and Limited Duration Class B Common Stock to the extent such dividends, on a per share basis, exceed the preferential dividends. In the event of the liquidation of the Company, holders of Preferred Stock are entitled to a preferential liquidation distribution of $1.00 per share in addition to all accrued and unpaid preferential dividends. The total carrying value of the Series 1, 2 and 3 Preferred Stock (applicable to those shares outstanding at each respective year end) increased by $468,000 and $415,000 in 1993 and 1992, respectively, and decreased by $92,000 in 1991, which represents the change in redemption value during those periods. This change is referred to as "Additional Capital Applicable to Redeemable Preferred Stock" in the Certificates of Designation and Terms of the Series 1, 2 and 3 Preferred Stock. H. COMMON STOCK The Company has authorized and outstanding two classes of common stock, Common Stock and Limited Duration Class B Common Stock (Class B Common Stock), both $1 par value per share. The Class B Common Stock has the same dividend and liquidation rights as the Common Stock and a holder of each share of Class B Common Stock is entitled to ten votes on all matters submitted to stockholders. The shares of Class B Common Stock are restricted as to transferability and upon transfer, except to specified limited classes of transferees, will convert into shares of Common Stock which have one vote per share. The Class B Common Stock will automatically convert to Common Stock on April 30, 1996. F-14 36 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) H. COMMON STOCK (CONTINUED) Shares which have been issued and are now outstanding under the provisions of the Company's Restricted Stock Plan are subject to restrictions as to transferability expiring generally five or six years from the date of issue. In 1990, an additional 100,000 shares of Common Stock were authorized under this Plan. During 1993, the restriction lapsed on 1,400 shares of Common Stock and no shares of Class B Common Stock. At December 31, 1993 and 1992, there were 125,000 and 124,800 shares of Common Stock and 49,900 and 49,900 shares of Class B Common Stock, respectively, reserved by the Company and available for issuance under this Plan. Compensation to employees under the Plan of $214,000 representing the unamortized excess of the market value of restricted stock over any cash consideration received, is carried as a reduction of Paid-In Additional Capital and is charged to income ($256,000 in 1993, $252,000 in 1992 and $481,000 in 1991) over the related required period of service of the respective employees. The tax benefit, resulting from the difference between compensation expense deducted for tax purposes and compensation expense charged to income, is recorded as an increase to Paid-In Additional Capital. I. STOCK OPTION PLANS EXECUTIVE GROWTH PLAN Under the terms of the Company's qualified stock option plan (Executive Growth Plan), options may be granted to officers and key employees at prices not less than 100% of the fair market value of the shares on the date of grant. At December 31, 1993 and 1992, there were no options outstanding and no options exercisable and at December 31, 1991 and 1990, there were 25,000 options of Class B Common Stock and 25,000 options of Common Stock outstanding and exercisable under this plan. During 1992, these options were exercised at a total option price of $3,237,000, and were paid for with cash of $67,000 and a note from an officer of the Company in the amount of $3,170,000 due and payable in December 2001 at a fixed interest rate of 6.06%. At December 31, 1993, 142,847 shares of Common Stock and 142,847 shares of Class B Common Stock were reserved by the Company for issuance with respect to the Plan. In addition, the holder of the options was entitled to receive an additional amount representing the dividends which would have been paid if the options had been exercised on the date of grant. The holder used this additional amount ($1,153,000) to purchase an additional 8,905 shares of both Common Stock and Class B Common Stock. The additional amount was reflected as compensation expense in 1992 and in years prior to the exercise. F-15 37 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) I. STOCK OPTION PLANS (CONTINUED) In addition, and in accordance with the terms of the option agreement, the holder of the options issued to the Company a promissory note in the principal amount of $2,340,000 bearing interest at the rate of 6.06%, payable in December 2001, to settle his obligation to provide the Company with funds necessary to pay the required withholding taxes due upon the exercise of the options. The Company received a tax benefit of $1,556,000 upon the exercise of the options. A portion of this note equal to the tax benefit and the full amount of the note for $3,170,000 are reflected in a separate component of stockholders' equity at December 31, 1993 and 1992. The interest paid to the Company by the holder pursuant to the terms of the two notes issued in connection with the option exercise was $334,000 in 1993. No interest payments were made in 1992. INCENTIVE STOCK OPTION PLAN In 1982, the Company adopted an Incentive Stock Option Plan. Under this plan in which options were available to be granted through May 1992, options were granted to key employees, including officers, at a price not less than 100% of the fair market value of the shares on the date of grant. A Committee of the Board of Directors determined the terms and conditions under which options may be granted or exercised. However, options (i) may not be exercised within twelve months from the date of grant, (ii) may not be granted to Committee members, (iii) expire within ten years from the date of grant and (iv) must be exercised in the order of grant. Transactions involving outstanding stock options under this Plan were:
NUMBER OF SHARES ---------------------------- CLASS B COMMON COMMON TOTAL STOCK STOCK OPTION PRICE ------------------------------------------- Outstanding, December 31, 1990 26,992 31,992 $3,995,000 Cancelled (266) (266) (35,000) Exercised (11,893) (11,893) (1,325,000) ------- ------- ---------- Outstanding, December 31, 1991 14,833 19,833 2,635,000 Cancelled (500) (500) (65,000) Exercised (10,233) (10,233) (1,323,000) ------- ------- ---------- Outstanding, December 31, 1992 4,100 9,100 1,247,000 Cancelled (300) (300) (58,000) Exercised (3,700) (3,700) (676,000) ------- ------- ---------- Outstanding, December 31, 1993 100 5,100 $513,000 ======= ======= ==========
F-16 38 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) I. STOCK OPTION PLANS (CONTINUED) As of December 31, 1993, options to acquire 2,242 shares of Common Stock and 100 shares of Class B Common Stock were exercisable. The Company has reserved 29,684 shares of Common Stock and 29,684 shares of Class B Common Stock for issuance with respect to this plan. NONQUALIFIED STOCK OPTION PLAN On December 2, 1987, the Company adopted a Nonqualified Stock Option Plan, whereby 100,000 shares of Common Stock were reserved for issuance. In 1990, the number of shares of Common Stock authorized for issuance under this Plan was increased to 200,000. At the discretion of a Committee of the Board of Directors, nonqualified stock options are granted to employees eligible to receive options at prices not less than 100% of the fair market value of the shares on the date of grant, and options must be exercised within 10 years of grant and for only specified limited periods beyond termination of employment. Transactions involving outstanding stock options under this Plan were:
NUMBER TOTAL OF SHARES OPTION PRICE -------------------------------- Outstanding, December 31, 1990 35,750 $3,558,000 Cancelled (1,100) (120,000) Issued 6,200 869,000 --------- ---------- Outstanding, December 31, 1991 40,850 4,307,000 Cancelled (2,200) (257,000) Issued 1,000 131,000 Exercised (533) (50,000) --------- ---------- Outstanding, December 31, 1992 39,117 4,131,000 Cancelled (567) (58,000) Exercised (1,184) (110,000) --------- ---------- Outstanding, December 31, 1993 37,366 $3,963,000 ========= ========== Available for future grants 160,917 =========
As of December 31, 1993 and 1992, 19,668 and 8,051 of the outstanding options, respectively, were exercisable. F-17 39 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) J. COMPUTATION OF NET INCOME PER COMMON SHARE The computation of net income per common share is based on the weighted average number of common shares outstanding, including adjustments for the effect of the assumed exercise of dilutive stock options and shares issuable pursuant to the Company's Senior Management Incentive Plan (see Note L(1)) (1,263,900 in 1993, 1,205,241 in 1992 and 1,196,908 in 1991) and, for fully diluted net income per common share, the assumed conversion of the 8-1/2% Convertible Subordinated Debentures issued in December 1983. Also, for the purpose of computing net income per common share, the Company's net income is reduced by dividends on the Preferred Stock and is reduced or increased to the extent of an increase or decrease, respectively, in redemption value of the Preferred Stock. Primary net income per common share is computed as if stock options were exercised at the beginning of the period and the funds obtained thereby used to purchase common shares at the average market price during the period. In computing fully diluted net income per common share, the market price at the close of the period or the average market price, whichever is higher, is used to determine the number of shares which are assumed to be repurchased. The effects of the Preferred Stock dividend requirements and the change in redemption values amounted to $.53, $.52 and $.09 per share in 1993, 1992 and 1991, respectively. K. INCOME TAXES Effective January 1, 1993, the Company adopted FAS 109 (see Note A). As permitted under the new rules, the Company restated its 1992 and 1991 financial statements. The effect of adoption of FAS 109 was to reduce net income in 1992 by $600,000 or $0.50 per share, through an increase to the deferred provision for income taxes. The cumulative effect of adoption as of January 1, 1991 was to reduce net income by $500,000. 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, 1993, and at December 31, 1992 and 1991, as restated, the Company had deferred tax assets of $16,282,000, $15,334,000 and $21,928,000 and deferred tax liabilities of $12,194,000, $14,517,000 and $15,760,000, respectively, detailed as follows: F-18 40 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) K. INCOME TAXES (CONTINUED)
DEFERRED TAX ASSETS (LIABILITIES) 1993 1992 1991 ------------------------------------------- Restructuring costs and related future tax benefits $3,531,000 $5,767,000 $7,411,000 Deferred compensation 5,730,000 4,220,000 8,792,000 Accrued expenses 7,021,000 5,347,000 5,725,000 Safe harbor lease and depreciation (9,228,000) (10,772,000) (12,267,000) Tax on unremitted foreign earnings and other (2,966,000) (3,745,000) (3,493,000) ---------- ----------- ----------- 4,088,000 817,000 6,168,000 Valuation allowance for deferred tax assets ---------- ----------- ----------- Net deferred tax assets $4,088,000 $817,000 $6,168,000 ========== =========== ===========
The components of income before taxes on income are as follows:
1993 1992 1991 ---------------------------------------- Domestic $28,646,000 $20,440,000 $(6,648,000) Foreign 14,059,000 22,148,000 19,925,000 ------------- ----------- ----------- $42,705,000 $42,588,000 $13,277,000 ============= =========== ===========
Provisions (benefits) for Federal, foreign, state and local income taxes consisted of the following:
1993 1992 1991 ------------------------ ------------------------- ------------------------- CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED ------------------------------------------------------------------------------ Federal $12,106,000 $(2,448,000) $1,649,000 $3,752,000 $2,867,000 $(3,981,000) Foreign 8,580,000 (1,578,000) 11,727,000 8,447,000 State and local 5,072,000 755,000 1,248,000 1,599,000 4,724,000 (7,000,000) ----------- ----------- ----------- ---------- ----------- ------------ $25,758,000 $(3,271,000) $14,624,000 $5,351,000 $16,038,000 $(10,981,000) =========== =========== =========== ========== =========== ============
The effective tax rate varied from the statutory Federal income tax rate as follows:
1993 1992 1991 --------------------------------------- Statutory Federal tax rate 35.0% 34.0% 34.0% State and local income taxes (benefits), net of Federal income tax 8.9 4.4 (11.3) Difference in foreign tax rates 8.4 11.2 14.7 Withholding tax on unremitted foreign earnings 1.2 1.0 3.2 Adjustment of prior years' provisions (2.2) (4.9) Other--net 1.4 1.2 (2.5) ------- ------- ------ 52.7% 46.9% 38.1% ======= ======= ======
During the years 1993, 1992 and 1991, the Company made income tax payments of $18,748,000, $14,435,000 and $13,905,000, respectively. F-19 41 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES 1. The Company's Profit Sharing Plan is available to all employees of the Company and qualifying subsidiaries meeting certain eligibility requirements. The Plan provides for contributions by the Company at the discretion of the Board of Directors, subject to maximum limitations. The Company also operates a noncontributory Employee Stock Ownership Plan covering eligible employees of the Company and qualifying subsidiaries, under which the Company may make contributions (in stock or cash) to an Employee Stock Ownership Trust ("ESOT") in amounts each year as determined at the discretion of the Board of Directors. The Company made no stock contributions to the Plan in 1993, 1992 and 1991. The Company and the ESOT have certain rights to purchase shares from participants whose employment has terminated. In addition to the two plans noted above, various subsidiaries maintain separate profit sharing and retirement arrangements. Furthermore, the Company also provides additional retirement and deferred compensation benefits to certain officers and employees. The Company maintains a Senior Management Incentive Plan ("SMIP") in which deferred compensation is granted to senior executive or management employees deemed essential to the continued success of the Company. The amount recorded as an expense related to this Plan amounted to $4,581,000, $4,340,000 and $4,529,000 in 1993, 1992 and 1991, respectively. Approximately $3,343,000 and $1,160,000 of Plan expense incurred in 1993 and 1992, respectively, will be payable in Company stock in accordance with the terms of the Plan. These awards convert into 18,461 and 8,624 equivalent shares of Common Stock in 1993 and 1992, respectively. The future obligation related to the stock award has been reflected as an increase to Paid-In Additional Capital. Expenses related to the foregoing plans and benefits aggregated $21,057,000 in 1993, $25,002,000 in 1992, and $20,300,000 in 1991. In December 1990, the Company amended its employment agreement with its Chairman and Chief Executive Officer, which extended the term of that agreement through December 31, 1997. Concurrently, the Company also discharged this individual's pension obligation which had been established pursuant to the terms of his long-standing employment agreement. This obligation was partially satisfied with a distribution of approximately $19.8 million from a trust fund previously established by the Company for this purpose. The remainder of the amount necessary to discharge this obligation (approximately $9.5 million) was distributed from general F-20 42 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) L. RETIREMENT PLANS, DEFERRED COMPENSATION, LEASES AND CONTINGENCIES (CONTINUED) corporate funds. Included in other assets at December 31, 1993 and 1992 is approximately $9.5 and $11.9 million, respectively, related to this arrangement which is being amortized to expense over the remaining term of the related employment agreement. Pursuant to an employment agreement, dated December 21, 1990, an executive officer of the Company borrowed $1,000,000 from the Company repayable at December 31, 1995, except that one-fifth of the principal of the loan is forgiven by the Company each December 31, beginning with December 31, 1991, provided that the officer continues to be employed by the Company on those dates. In 1993, 1992 and 1991, the Company has included in each year $200,000 of compensation expense, representing the amount of loan forgiven each year. As of December 31, 1993 and 1992, the remaining loan balance was $400,000 and $600,000, respectively (the long term portion of the loan, $200,000 in 1993 and $400,000 in 1992, is included in other assets). 2. Rental expense amounted to approximately $32,725,000 in 1993, $33,741,000 in 1992 and $29,106,000 in 1991 which is net of sub-lease rental income of $2,016,000 in 1993, $3,343,000 in 1992, and $3,483,000 in 1991. Approximate minimum rental commitments, excluding escalations, under noncancellable operating leases are as follows:
SUB-LEASE OFFICE SPACE COMMITMENTS TOTAL ------------------------------------------------------------- 1994 $27,007,000 $(807,000) $26,200,000 1995 24,467,000 (392,000) 24,075,000 1996 24,085,000 (373,000) 23,712,000 1997 21,256,000 (341,000) 20,915,000 1998 19,626,000 (324,000) 19,302,000 Beyond 1998 43,925,000 (335,000) 43,590,000 ------------- ------------ ------------- $160,366,000 $(2,572,000) $157,794,000 ============= ============ =============
3. The Company is not involved in any pending legal proceedings not covered by insurance or by adequate indemnification or which, if decided adversely, would have a material effect on either the results of operations, liquidity or financial position of the Company. F-21 43 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) M. RESTRUCTURING COSTS In November 1991, the Company recorded a charge for restructuring costs of $23,850,000 primarily in connection with the absorption of a former subsidiary. These charges related predominantly to the disposal of the subsidiary's real estate obligations and leasehold assets, the write-off of certain of its fixed assets, goodwill and other costs, primarily severance, in connection with the integration. The restructuring costs also included similar modest charges with respect to a small number of related operations. The components of the restructuring charge as recorded in the fourth quarter of 1991 were as follows: Lease termination-payments and other lease related costs $12,200,000 Write-off of fixed assets and leasehold improvements 4,400,000 Write-off of goodwill of former subsidiaries 2,500,000 Severance payments 2,300,000 Other costs 2,450,000 ------------ $23,850,000 ============
The amount provided in 1991 was for liabilities which existed as of the fourth quarter of 1991 and was not for any events anticipated to happen after December 31, 1991. Most personnel reduction related to the absorption of the former subsidiaries occurred during the fourth quarter of 1991 and the severance accrual was adequate to cover those liabilities. Of the deferred tax benefits totaling $7,411,000, related to the restructuring charge that was recorded in 1991, $1,644,000 was realized in 1992 and $2,236,000 realized in 1993 (see Note K). The remaining deferred tax balance is expected to be realized over the next couple of years. F-22 44 Grey Advertising Inc. and Consolidated Subsidiary Companies Notes to Consolidated Financial Statements (continued) N. INDUSTRY SEGMENT AND RELATED INFORMATION Commissions and fees and operating profit by geographic area for the years ended December 31, 1993, 1992 and 1991, and related identifiable assets at December 31, 1993, 1992 and 1991 are summarized below (000s omitted):
UNITED STATES WESTERN EUROPE -------------------------------- --------------------------------- 1993 1992 1991 1993 1992 1991 ------------------------------------------------------------------- COMMISSIONS AND FEES $ 267,964 $ 241,279 $ 248,322 $ 260,005 $ 281,632 $ 242,644 ------------------------------------------------------------------- OPERATING PROFIT (LOSS) $ 28,809 $ 20,023 $ (8,239) $ 11,415 $ 16,594 $ 17,866 ------------------------------------------------------------------- OTHER INCOME ( EXPENSE)--NET INCOME BEFORE TAXES ON INCOME OF CONSOLIDATED COMPANIES IDENTIFIABLE ASSETS $ 353,532 $ 260,849 $ 246,990 $ 389,723 $ 427,728 $ 421,656 ------------------------------------------------------------------- INVESTMENTS IN AND ADVANCES TO NONCONSOLIDATED AFFILIATED COMPANIES TOTAL ASSETS
OTHER CONSOLIDATED --------------------------------- ----------------------------------- 1993 1992 1991 1993 1992 1991 ---------------------------------------------------------------------- COMMISSIONS AND FEES $ 39,274 $ 41,557 $ 37,333 $ 567,243 $ 564,468 $ 528,299 ---------------------------------------------------------------------- OPERATING PROFIT (LOSS) 564 $ 5,341 $ 4,252 $ 40,788 $ 41,958 $ 13,879 --------------------------------- OTHER INCOME (EXPENSE)--NET 1,917 630 (602) ----------------------------------- INCOME BEFORE TAXES ON INCOME OF CONSOLIDATED COMPANIES $ 42,705 $ 42,588 $ 13,277 =================================== IDENTIFIABLE ASSETS $ 61,274 $ 52,627 $ 56,714 $ 804,529 $ 741,204 $ 725,360 --------------------------------- INVESTMENTS IN AND ADVANCES TO NONCONSOLIDATED AFFILIATED COMPANIES 16,104 11,160 10,471 ----------------------------------- TOTAL ASSETS $ 820,633 $ 752,364 $ 735,831 ===================================
COMMISSIONS AND FEES FROM ONE CLIENT AMOUNTED TO 13.0%, 13.4% AND 10.6% OF THE CONSOLIDATED TOTAL IN 1993, 1992 AND 1991, RESPECTIVELY. F-23 45 SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES YEAR ENDED DECEMBER 31, 1993
- --------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C - --------------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES OR UNITS -- PRINCIPAL NAME OF ISSUER AND AMOUNTS OF BONDS COST OF TITLE OF EACH SHARE AND NOTES EACH ISSUE - --------------------------------------------------------------------------------------------------------------------- SECURITIES AVAILABLE-FOR-SALE (1) U. S. GOVERNMENT OBLIGATIONS $22,050,000 $22,572,000
- --------------------------------------------------------------------------------------------------------------------------- COL. A COL. D COL. E - --------------------------------------------------------------------------------------------------------------------------- AMOUNT AT WHICH EACH PORTFOLIO OF EQUITY SECURITY ISSUES AND MARKET VALUE OF EACH OTHER SECURITY ISSUE NAME OF ISSUER AND EACH ISSUE AT CARRIED IN THE BALANCE TITLE OF EACH SHARE BALANCE SHEET DATE SHEET - --------------------------------------------------------------------------------------------------------------------------- SECURITIES AVAILABLE-FOR-SALE (1) U. S. GOVERNMENT OBLIGATIONS $22,425,000 $22,425,000
(1) SECURITIES AVAILABLE-FOR-SALE ARE CARRIED AT FAIR VALUE WITH UNREALIZED GAINS AND LOSSES INCLUDED AS A SEPARATE COMPONENT OF STOCKHOLDERS' EQUITY. F-24 46 Schedule II-Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
- --------------------------------------------------------------------------------------------------------------- Col. A Col. B Col. C - --------------------------------------------------------------------------------------------------------------- Balance at Name of Debtor Beginning of Period Additions - --------------------------------------------------------------------------------------------------------------- Year ended December 31, 1993: E. Meyer, 6.06% interest bearing note receivable, due December 2001 $3,170,000 E. Meyer, 6.06% interest bearing note receivable, due December 2001 2,340,000 E. Meyer, 9% interest bearing note receivable, due December 1997 3,000,000 E. Meyer, 9% interest bearing note receivable, due May 1996 763,000 S. Novick, 7.5% interest bearing loan receivable, due December 1995 (1) 600,000 Vasoft Pty. Ltd., noninterest bearing loan receivable, due September 30, 1996 (2) 130,000 $7,000 Promaton Pty. Ltd., noninterest bearing loan receivable, due September 30, 1995 (3) 130,000 7,000 I. Herdman, noninterest bearing loan receivable, due February 1993 137,000 Khun Han Pty. Ltd., 9.25% interest bearing loan receivable, due September 30, 1994 (4) 360,000 C. Preisler, noninterest bearing note receivable, due January 1993 190,000 Thomas Gad, noninterest bearing notes receivable, due between 1994 and 1997 382,000 238,000 ----------------------------------- $11,202,000 $252,000 ===================================
- ------------------------------------------------------------------------------------------------------------------------------------ Col. A Col. D Col. E ------------------------------------------------------------------------- Deductions Balance at End of Period - ------------------------------------------------------------------------------------------------------------------------------------ (1) (2) (1) (2) Name of Debtor Amounts Collected Amounts Written Off Current Not Current - ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, 1993: E. Meyer, 6.06% interest bearing note receivable, due December 2001 $3,170,000 E. Meyer, 6.06% interest bearing note receivable, due December 2001 2,340,000 E. Meyer, 9% interest bearing note receivable, due December 1997 3,000,000 E. Meyer, 9% interest bearing note receivable, due May 1996 763,000 S. Novick, 7.5% interest bearing loan receivable, due December 1995 (1) $200,000 $200,000 200,000 Vasoft Pty. Ltd., noninterest bearing loan receivable, due September 30, 1996 (2) 137,000 Promaton Pty. Ltd., noninterest bearing loan receivable, due September 30, 1995 (3) 137,000 I. Herdman, noninterest bearing loan receivable, due February 1993 137,000 Khun Han Pty. Ltd., 9.25% interest bearing loan receivable, due September 30, 1994 (4) 263,000 97,000 C. Preisler, noninterest bearing note receivable, due January 1993 190,000 Thomas Gad, noninterest bearing notes receivable, due between 1994 and 1997 403,000 135,000 82,000 --------------------------------------------------------------------- $1,193,000 $432,000 $9,829,000 =====================================================================
(1)--The amount reflected in Column D (1) represents the amount of the loan forgiven in 1993. (2)--Vasoft Pty. Ltd. is a company controlled by James Allan, a director of Grey Advertising (NSW) Pty. Limited. (3)--Promaton Pty. Ltd. is a company controlled by Garry Murphie, a director of Grey Advertising (NSW) Pty. Limited. (4)--Khun Han Pty. Ltd. is a company controlled by Greg Harper, a director of Grey Advertising (Victoria) Pty. Ltd. F-25 47 Schedule II--Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
Col. A Col. B Col. C - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Name of Debtor Balance at Beginning of Period Additions - -------------------------------------------------------------------------------------------------- Year ended December 31, 1992: E. Meyer, 6.06% interest bearing note receivable, due December 2001 $3,170,000 E. Meyer, 6.06% interest bearing note receivable, due December 2001 2,340,000 E. Meyer, 9% interest bearing note receivable, due December 1997 $3,000,000 E. Meyer, 9% interest bearing note receivable, due May 1996 763,000 S. Novick, 7.5% interest bearing loan receivable, due December 1995 (1) 800,000 Vasoft Pty. Ltd., noninterest bearing loan receivable, 130,000 due September 30, 1996 (2) Promaton Pty. Ltd., noninterest bearing loan receivable, 130,000 due September 30, 1995 (3) I. Herdman, noninterest bearing loan receivable, due February 1993 137,000 Khun Han Pty. Ltd., 9.25% interest bearing loan receivable, due September 30, 1994 (4) 509,000 C. Preisler, noninterest bearing note receivable, due January 1993 190,000 Thomas Gad, noninterest bearing notes receivable, due between 1994 and 1997 460,000 -------------------------------- $4,563,000 $7,066,000 ================================
Col. A Col. D Col. E - ------------------------------------------------------------------------------------------------------------------------------------ Deductions Balance at End of Period - ------------------------------------------------------------------------------------------------------------------------------------ Name of Debtor (1) (2) (1) (2) Amounts Collected Amounts Written Off Current Not Current - ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, 1992: E. Meyer, 6.06% interest bearing note receivable, due December 2001 $3,170,000 E. Meyer, 6.06% interest bearing note receivable, due December 2001 2,340,000 E. Meyer, 9% interest bearing note receivable, due December 1997 3,000,000 E. Meyer, 9% interest bearing note receivable, due May 1996 763,000 S. Novick, 7.5% interest bearing loan receivable, due December 1995 (1) $200,000 $200,000 400,000 Vasoft Pty. Ltd., noninterest bearing loan receivable, 130,000 due September 30, 1996 (2) Promaton Pty. Ltd., noninterest bearing loan receivable, 130,000 due September 30, 1995 (3) I. Herdman, noninterest bearing loan receivable, due February 1993 137,000 Khun Han Pty. Ltd., 9.25% interest bearing loan receivable, due September 30, 1994 (4) 149,000 217,000 143,000 C. Preisler, noninterest bearing note receivable, due January 1993 190,000 Thomas Gad, noninterest bearing notes receivable, due between 1994 and 1997 78,000 382,000 -------------------------------------------------------------------- $427,000 $744,000 $10,458,000 ====================================================================
(1)--The amount reflected in Column (D)(1) represents the amount of loan forgiven in 1992. (2)--Vasoft Pty. Ltd. is a company controlled by James Allan, a director of Grey Advertising (NSW) Pty. Limited. (3)--Promaton Pty. Ltd. is a company controlled by Garry Murphie, a director of Grey Advertising (NSW) Pty. Limited. (4)--Khun Han Pty. Ltd. is a company controlled by Greg Harper, a director of Grey Advertising (Victoria) Pty. Ltd. F-26 48 Schedule II--Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties (continued) GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
- -------------------------------------------------------------------------------------------------- Col. A Col. B Col. C - -------------------------------------------------------------------------------------------------- Name of Debtor Balance at Beginning of Period Additions - -------------------------------------------------------------------------------------------------- Year ended December 31, 1991: E. Meyer, 9% interest bearing note receivable, due December 1997 $3,000,000 E. Meyer, 9% interest bearing note receivable, due May 1996 763,000 S. Novick, 7.5% interest bearing loan receivable, due December 1995 (1) $1,000,000 ----------------------------------- $3,763,000 $1,000,000 ===================================
- ------------------------------------------------------------------------------------------------------------------------------------ Col. A Col. D Col. E Deductions Balance at End of Period - ------------------------------------------------------------------------------------------------------------------------------------ Name of Debtor (1) (2) (1) (2) Amounts Collected Amounts Written Off Current Not Current - ------------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, 1991: E. Meyer, 9% interest bearing note receivable, due December 1997 $3,000,000 E. Meyer, 9% interest bearing note receivable, due May 1996 763,000 S. Novick, 7.5% interest bearing loan receivable, due December 1995 (1) $200,000 $200,000 600,000 -------------------------------------------------------------------- $200,000 $200,000 $4,363,000 ====================================================================
(1) The amount reflected in Column (D) (1) represents the amount of loan forgiven in 1991. F-27 49 SCHEDULE IX--SHORT-TERM BORROWINGS GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES
- ----------------------------------------------------------------------------------------------------------------------------- Col. A Col. B Col. C Col. D - ----------------------------------------------------------------------------------------------------------------------------- Maximum Weighted Amount Balance Average Outstanding Category of Aggregate at End of Interest During the Short-Term Borrowings Period Rate Period - ----------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1993: Notes payable to banks (a) $11,100,000 7.7% $13,759,000 Notes payable to banks (b) 34,751,000 10.9% 39,638,000 Year ended December 31, 1992: Notes payable to banks (a) $13,331,000 10.5% $14,257,000 Notes payable to banks (b) 27,464,000 11.9% 45,852,000 Year ended December 31, 1991: Notes payable to banks (b) $50,470,000 11.6% $53,115,000
- ----------------------------------------------------------------------------------- Col. A Col. E Col. F - ----------------------------------------------------------------------------------- Average Weighted Amount Average Outstanding Interest Rate Category of Aggregate During the During the Short-Term Borrowings Period Period - ----------------------------------------------------------------------------------- Year ended December 31, 1993: Notes payable to banks (a) $12,400,000 (c) 7.7% (d) Notes payable to banks (b) 31,427,000 11.1% (d) Year ended December 31, 1992: Notes payable to banks (a) $13,522,000 (c) 10.2% (d) Notes payable to banks (b) 35,922,000 12.0% (d) Year ended December 31, 1991: Notes payable to banks (b) $38,092,000 (c) 11.8% (d)
(a)--Notes payable to banks represent borrowings under lines of credit arrangements which are subject to termination at a specified date. (b)--Notes payable to banks represent promissory notes under credit arrangements. (c)--The average amount outstanding during the period is the weighted monthly outstanding balance. (d)--The weighted average interest rate during the period was computed by dividing the actual interest expense by the weighted average outstanding amount. F-28 50 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 Advertising Inc. ("Grey"). (Incorporated herein by reference to Exhibit 4.01 to Grey's Registration Statement on Form S-8, dated January 9, 1987, filed with the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C., 20549 ("SEC"), pursuant to Section 6(a) of the Securities Act of 1933 (" '33 Act"), under Commission File No. 33-11253.) 3.02 By-Laws of Grey as amended. (Incorporated herein by reference to Exhibit 3.02 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 3.03 Designation and Terms of Series 1 Preferred Stock of Grey. (Incorporated herein by reference to Article Fourth, Section A(III) of Exhibit 4.01 to Grey's Registration Statement on Form S-8 filed with the SEC pursuant to Section 6(a) of the '33 Act.) 3.04 Designation and Terms of Series 2 Preferred Stock of Grey. (Incorporated herein by reference to Article Fourth, Section A(IV) of Exhibit 4.01 to Grey's Registration Statement on Form S-8 filed with the SEC pursuant to Section 6(a) of the '33 Act.) 3.05 Designation and Terms of Series 3 Preferred Stock of Grey. (Incorporated herein by reference to Article Fourth, Section A(V) of Exhibit 4.01 to Grey's Registration Statement on Form S-8 filed with the SEC pursuant to Section 6(a) of the '33 Act.)
51 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ --------------------------- 3.06 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.) 3.07 Extension Agreements, 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.) 3.08 Form of Convertible Debenture. (Incorporated herein by reference to Exhibit 3.09 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1983.) 9.01 Form of Voting Trust Agreement, dated as of February 24, 1986, among certain Beneficiaries, Grey, Edward H. Meyer and Ronald A. Nicholson. (Incorporated herein by reference to Exhibit 9.02 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.) 9.02 Form of Amended and Restated Voting Trust Agreement, dated as of August 31, 1987, among certain Beneficiaries, Grey and Edward H. Meyer. (Incorporated herein by reference to Exhibit 10.01 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1987.)
52 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ----------------------- 9.03 Form of Voting Trust Agreement, dated as of December 1, 1989, among certain Beneficiaries, Grey and Edward H. Meyer. (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.) 9.04 Form of Amended and Restated Voting Trust Agreement, dated as of March 21, 1994, among certain Beneficiaries, Grey and Edward H. Meyer. 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 Seven to Meyer Employment Agreement. (Incorporated herein by reference to Exhibit 10.02 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Exhibit 10.03 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, Exhibit 1 to Grey's Current Report on Form 8-K, dated May 9, 1988, filed with the SEC pursuant to Section 13 of the 1934 Act, Exhibit 2 to Grey's current Report on Form 8-K, dated May 9, 1988, filed with the SEC pursuant to Section 13 of the 1934 Act. Exhibit I to Grey's Current Report on Form 8-K, dated June 9, 1989, filed with the SEC pursuant to Section 13 of the 1934 Act and Exhibit 10.07 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 respectively.)
53 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ------------------------ 10.03 Pension Agreement, dated as of May 9, 1988, between Grey and Meyer. (Incorporated herein by reference to Exhibit 3 to Grey's Current Report on Form 8-K, dated May 9, 1988 filed with the SEC pursuant to Section 13 of the 1934 Act.) 10.04 Employment Agreement, dated as of December 21, 1990, by and between Grey and Stephen A. Novick. (Incorporated herein by reference to Exhibit 10.11 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.) 10.05 Employment Agreement, dated as of December 1, 1992, by and between Grey and Robert L. Berenson. (Incor- porated herein by reference to Exhibit 10.05 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.06 Employment Agreement, dated as of January 1, 1993 by and between Grey and Barbara S. Feigin. 10.07 Grey Advertising Inc. Book Value Pre- ferred Stock Plan, as amended. (In- corporated 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.) 10.08 Grey Advertising Inc. Amended and Re- stated Senior Executive Officer Pension Plan. (Incorporated herein by reference to Exhibit 10.08 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.)
54 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ----------------------- 10.9 Grey Advertising Inc. Amended and Re- stated 1988 Senior Management Incentive Plan. (Incorporated herein by reference to Exhibit 10.17 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 10.10 Grey Advertising Inc. Restricted Stock Plan, as amended and restated as of April 3, 1986. (Incorporated herein by reference to Exhibit 4.03 to Grey's Registration Statement on Form S-8, filed with the SEC pursuant to Section 6(a) of the '33 Act.) 10.11 Form of Restricted Stock Purchase Agree- ment under Grey Advertising Inc. Re- stricted Stock Plan. (Incorporated herein by reference to Exhibit 4.04 to Grey's Registration Statement on Form S-8, filed with the SEC pursuant to Section 6(a) of the '33 Act.) 10.12 Grey Advertising Inc. Executive Growth Plan, as amended and restated. (Incorporated herein by reference to Exhibit 10.14 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.) 10.13 Stock Option Agreement, dated as of October 13, 1984, by and between Grey and Edward H. Meyer ("Meyer 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.)
55 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ----------------------- 10.14 Extension Agreement, dated as of March 27, 1992, by and between Grey and Edward H. Meyer, relating to the Meyer Option Agreement. (Incorporated herein by reference to Exhibit 10.13 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.15 Amendment One to Meyer Option Agreement, dated as of December 29, 1992. (Incor- porated herein by reference to Exhibit 10.14 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.16 Notice of Exercise, dated December 29, 1992, from Edward H. Meyer to Grey pursuant to the Meyer Option Agreement. (Incorporated herein by reference to Exhibit 10.15 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.17 Promissory Notes I and II, dated as of December 29, 1992, from Edward H. Meyer to Grey, delivered pursuant to the Meyer Option Agreement. (Incorporated herein by reference to Exhibit 10.16 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.18 Grey Advertising Inc. Incentive Stock Option Plan, as amended and restated as of April 3, 1986. (Incorporated herein by reference to Exhibit 4.04 to Grey's Registration Statement on Form S-8 filed with the SEC pursuant to Section 6(a) of the '33 Act.)
56 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ----------------------- 10.19 Form of Incentive Stock Option Agree- ment under Grey Advertising Inc. Incentive Stock Option Plan. (In- corporated herein by reference to Exhibit 4.05 to Grey's Registration Statement on Form S-8, filed with the SEC pursuant to Section 6(a) of the '33 Act.) 10.20 Grey Advertising Inc. 1987 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.24 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 10.21 Form of Stock Option Agreement under Grey Advertising Inc. Stock Option Plan. (Incorporated herein by reference to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.) 10.22 Note Agreement, dated as of January 19, 1993, by and between Grey and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.21 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) 10.23 Bonuses - Grey has paid bonuses to certain of its executive officers (including those who are directors) and employees in prior years includ- ing 1993, and may do so in future years. Bonuses have been and may be in the form of cash, shares of stock or both although Grey pre- sently does not have any plans to pay stock bonuses. Bonuses are not granted pursuant to any formal plan.
57 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ----------------------- 10.24 Directors' Fees - It is the policy of Grey to pay each of its non-employee directors a fee of $4,500 per fiscal quarter and a fee of $3,000 for each meeting of the Board of Directors attended. This policy is not embodied in any written document. 10.25 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.) 10.26 On March 23, 1978, Grey's Board of Directors, at a meeting thereof held on such date, approved an arrangement whereby Grey is required to accrue for Edward H. Meyer, the difference between the amount contributed by Grey on behalf of Mr. Meyer under the Profit Sharing Plan and Grey's Employee Stock Owner- ship Plan, and the amount which would have been contributed to such plans on his behalf had such plans not contained maximum annual limitations on contributions and credits, as required by the Employee Retire- ment Income Security Act of 1974. Such accrual is to be paid to Mr. Meyer as if it had been contributed to his account under the Profit Sharing Plan. Such arrangement is not embodied in any written document.
58 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ----------------------- 10.27 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.) 10.28 First Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.22 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.29 Second Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.23 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.30 Third Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.24 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.31 Fourth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.25 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.)
59 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ----------------------- 10.32 Fifth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.26 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.33 Sixth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.27 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.34 Seventh Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.28 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.35 Eighth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.29 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1982.) 10.36 Ninth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.30 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1983.) 10.37 Tenth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.33 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.)
60 INDEX TO EXHIBITS
Number Assigned to Exhibit (i.e. 601 of Regulation S-K) Description of Exhibits ------------------ ----------------------- 10.38 Eleventh Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.34 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1984.) 10.39 Twelfth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.35 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.) 10.40 Thirteenth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.36 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1985.) 10.41 Fourteenth Amendment to Main Lease. (Incorporated herein by reference to Exhibit 10.36 to Grey's Annual Report on Form 10-K for the fiscal year ended December 31, 1986.) 11.01 Statement re: Computation of Net Income Per Share. 21.01 Subsidiaries of Grey. 23.01 Consent of Auditors
10K-Exhibits EX-9.04 2 FORM OF AMENDED AND RESTATED VOTING TRUST AGREEMNT 1 EXHIBIT 9.04 1994 AMENDED AND RESTATED VOTING TRUST AGREEMENT This 1994 Amended and Restated Voting Trust Agreement, dated as of March 21, 1994 (this "1994 Restated VTA"), among the several persons who, from time to time, execute this 1994 Restated VTA as beneficiaries (the "Beneficiaries"); Grey Advertising Inc. ("Grey"); and Edward H. Meyer ("Meyer") as Trustee under this 1994 Restated VTA. WHEREAS, a voting trust (the "Trust") was created by the execution of a certain Voting Trust Agreement, dated as of February 24, 1986 (the "Original VTA"), among certain Beneficiaries therein described; Grey; and Meyer and Ronald A. Nicholson ("Nicholson") as Trustees; WHEREAS, the Original VTA was amended and restated by the execution of an amended and restated voting trust agreement, dated as of August 31, 1987 (the "1987 Restated VTA"), among the Beneficiaries executing the 1987 Restated VTA, Grey and Meyer, as Trustee (Nicholson theretofore having resigned as a Trustee); WHEREAS, a voting trust (the "Second Trust") was created by the execution of a certain Voting Trust Agreement, dated as of December 1, 1989 (the "1989 VTA"), 2 among the beneficiaries executing the 1989 VTA, Grey and Meyer, as trustee; WHEREAS, those Beneficiaries executing this 1994 Restated VTA, Grey and Meyer have determined to amend and restate the 1987 Restated VTA by this 1994 Restated VTA; and WHEREAS, the Trust has been created pursuant to Section 218 of the General Corporation Law of the State of Delaware to ensure the continuity and stability of the management, policies and client relationships of Grey which are essential to the business and prospects of Grey; NOW THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, the parties agree as follows: ARTICLE I APPOINTMENT OF TRUSTEE; ACCEPTANCE AND DECLARATION OF TRUST SECTION 1.1. Appointment. The Beneficiaries hereby appoint Meyer to act as Trustee of the Trust and to hold the Trust Shares for the benefit of the Beneficiaries, subject to the rights and duties of the Trustee hereunder. For the purposes of this 1994 Restated VTA, (a) the term "Trust Shares" has the meaning ascribed to 2 3 it in the Original VTA, the 1987 Restated VTA and the 1989 VTA, and includes as well shares of capital stock deposited in trust pursuant to this 1994 Restated VTA and (b) the term "Beneficiaries" includes all persons who hereafter execute this 1994 Restated VTA as Beneficiaries. SECTION 1.2. Acceptance and Declaration of Trust. Meyer accepts the appointment made in Section 1.1 and declares that he will hold the Trust Shares in trust, for the benefit of the Beneficiaries, subject to the rights and duties of the Trustees hereunder. ARTICLE II DELIVERY OF COMMON STOCK OF GREY; ISSUANCE OF VOTING TRUST CERTIFICATES; DELIVERY OF ADDITIONAL SHARES OF CAPITAL STOCK SECTION 2.1. Delivery of Common Stock of Grey. Each Beneficiary severally has transferred or will transfer to the Trustee upon, or promptly following, his respective execution of the Original VTA, the 1987 Restated VTA, the 1989 VTA or this 1994 Restated VTA, certificates representing all shares of Grey's Common Stock, par value $1 per share (the "Common Stock") and all shares of Grey's Limited Duration Class B Common Stock, par value $1 per share ("Class B Common Stock"), 3 4 which he owns on the date of such execution, duly endorsed in blank or in the name of the Trustee, or accompanied by stock powers duly executed in blank or in the name of the Trustee. By execution of this 1994 Restated VTA, each Beneficiary and Meyer as Trustee irrevocably (i) consents to an amendment to the 1989 VTA to provide that the first sentence of Section 5.02(a) thereof shall be amended in entirety to read as follows: "VTC holders may dispose of Trust Shares in which they hold a beneficial interest only (I) by a transfer involving a sale in accordance with Sections 5.02(b) or (c) or (II) pursuant to the transfer of the Trust Shares to the Old Trust in accordance with Section 2.1 of the Amended and Restated Voting Trust Agreement, dated March 21, 1994, among the Beneficiaries executing such agreements, Grey and Meyer."; and (ii) upon the effectiveness of the amendment to the 1989 VTA referred to in clause (i) authorizes the Trustee to effect the transfer of his Trust Shares from the Second Trust to the Trust without further action or authorization, except as the Trustee may solely determine. Such shares of Common Stock and Class B Common Stock, and any shares which shall thereafter be added to the Trust Shares pursuant to Section 2.4, shall be held 4 5 and disposed of in accordance with the terms of this 1994 Restated VTA. SECTION 2.2. Registration in Trustee's Names. The Trustee shall cause (i) all certificates for the Trust Shares transferred to him pursuant to this 1994 Restated VTA to be surrendered to the issuer of such certificates for cancellation, (ii) all Trust Shares represented by such cancelled certificates to be transferred to the name of the Trustee upon the stock ledger of such issuer, and (iii) a new certificate or certificates for such Trust Shares to be issued by such issuer, registered in the name of the Trustee, "as voting trustee", pursuant to this 1994 Restated VTA. The newly-issued certificates registered as aforesaid shall bear the following legend: "This certificate is issued pursuant to the terms and conditions of a 1994 Amended and Restated Voting Trust Agreement, dated as of March 21, 1994, among the Beneficiaries referred to therein, Grey Advertising Inc., and the Trustee(s) referred to therein, to the terms of which Agreement the holder hereof assents." Such legend may be amended to reflect that the Original VTA has been amended, restated by the 1987 Restated VTA and the 1994 Restated VTA and to reflect that the 1989 VTA has been superseded by this 1994 Restated VTA with 5 6 respect to Beneficiaries executing this 1994 Restated VTA. Such newly-issued certificates registered as aforesaid shall be registered only in the name of the Trustee and shall not be required to be transferred or altered solely because there occurs a change in the number or identity of the Trustee or Trustees. When registered in the name of the Trustee, as aforesaid, such newly-issued certificates shall be held by the Trustee under the Trust. The Trustee shall request that such issuer note on its stock ledger that any certificates registered in the names of the Trustee are subject to this 1994 Restated VTA. SECTION 2.3. Issuance of Voting Trust Certificates. Upon his receipt of certificates representing the Trust Shares, the Trustee shall cause to be issued to or upon the order of each respective Beneficiary a voting trust certificate (the "VTC") evidencing the Trust Shares so deposited by such Beneficiary. The VTC shall be substantially in the form of Exhibit I hereto but may reflect the execution of this 1994 Restated VTA or amendments hereto. 2.4. Transfer of Additional Shares to Trustee. (a) The Beneficiaries severally agree that any shares of Common Stock or other shares of capital stock 6 7 of Grey carrying the right to vote on corporate actions of Grey which they shall hereafter acquire (by any means including, without limitation, purchase, gift, devise, inheritance, distribution from any employee benefit plan or otherwise) shall promptly be transferred to the Trustee and held subject to the Trust, as aforesaid. (b) The Beneficiaries severally agree that if the Trustee shall receive securities of any corporation (including Grey) carrying any right to vote on corporate actions of such corporation as a dividend on, or as a distribution (by way of stock split, reclassification, or otherwise) in respect of, Trust Shares, such dividend or distribution of securities shall be, and the Trustee shall retain and hold the securities representing such dividend or distribution as Trust Shares, subject to the Trust and the terms of this 1994 Restated VTA. (c) The Trustee (i) shall take, subject to Section 2.4(d), the steps set forth in Section 2.2 to cause the Trust Shares transferred to it or retained by it pursuant to this Section to be registered in the Trustee's name, as aforesaid, and (ii) shall issue VTCs as provided in Section 2.3 to the Beneficiaries representing their respective beneficial interests in the Trust Shares transferred to, or retained by, the Trustee 7 8 pursuant to this Section. For the purposes of this 1994 Restated VTA, VTCs issued to Beneficiaries pursuant to the Original VTA, the 1987 Restated VTA or the 1989 VTA shall be deemed to be VTCs issued pursuant to this 1994 Restated VTA representing beneficial interests in Trust Shares deposited in Trust pursuant to this 1994 Restated VTA. (d) To expedite the registration of Trust Shares in the name of the Trustee, each Beneficiary authorizes any transfer agent of the Trust Shares to register, upon the Trustee's request, such capital stock directly in the name of the Trustee as provided in clause (iii) of the first sentence of Section 2.2 and to deliver to the order of the Trustee certificates representing such Trust Shares. ARTICLE III VOTING OF TRUST SHARES SECTION 3.1. Voting of Trust Shares. The Trustee shall have legal title to the Trust Shares and shall be entitled to exercise all rights or every kind and nature (other than the right to sell, transfer, encumber, pledge or otherwise dispose of the Trust Shares) incident to such title, including the right to 8 9 vote in person or by proxy, with respect to all the Trust Shares, regarding any corporate action at any time submitted to holders of Trust Shares or upon which such holders' action is or may be required or deemed advisable. In determining how to cast votes with respect to the Trust Shares the Trustee shall in the exercise of his discretion, in all cases (including any case in which there shall appear to be a conflict between the long- or short-term value of Grey's stock and the interest of Grey in maintaining the continuity and stability of the management, policies and client relationships of Grey) give principal consideration to maintaining the continuity and stability of the management, policies and client relationships of Grey. ARTICLE IV DISTRIBUTION OF DIVIDENDS; LIQUIDATION SECTION 4.1. Distribution of Dividends. Any dividends or distributions payable in cash or securities not carrying the right to vote on corporate actions which may be declared on, or with respect to, the Trust Shares and received by the Trustee, shall be promptly paid by the Trustee or his agent to the Beneficiaries in proportion to their respective beneficial interests in the 9 10 Trust Shares on, or with respect to, which such dividends or distributions have been received by the Trustee. The Trustee may in his absolute discretion from time to time, instead of receiving and distributing dividends pursuant to this Section, authorize the payor to pay such dividends declared on the Trust Shares directly to the Beneficiaries, and if the payor of such dividends so agrees, they shall be paid directly to the Beneficiaries in accordance with such authorization. Any dividends or distributions payable in securities carrying the right to vote on corporate actions which may be declared on, or with respect to, the Trust Shares and received by the Trustee shall continue to be held as Trust Shares by the Trustee subject to the terms of this Trust, as set forth in Section 2.4(b). 4.2. Liquidation. If, upon any partial or total liquidation or dissolution of Grey, whether voluntary or involuntary, the Trustees shall receive any assets to which the Beneficiaries are entitled, they or their agent shall distribute such assets (except such securities retained and held pursuant to Section 2.4(b)) to such Beneficiaries in proportion to their respective beneficial interests in the Trust Shares. 10 11 ARTICLE V DISPOSITION OF VTCs AND TRUST SHARES SECTION 5.1. Transfer and Pledge of VTCs. Beneficiaries may at any time sell, pledge or otherwise dispose of VTCs. VTCs shall be transferable on the books of the Trustee by the holder of record thereof, in person or by an attorney duly authorized, upon surrender of such VTC properly endorsed for transfer, at the office of the Trustee set forth in Section 8.2. Until so transferred, the Trustee may treat the VTC holder or record, or, in the case of VTCs presented duly endorsed in blank, the bearers thereof, as the owners of such VTCs for all purposes. The holders of VTCs shall be entitled at any time to surrender VTCs for exchange for new VTCs representing an equivalent interest in the Trust Shares, in such denominations as they all request. Each holder in whose name a VTC is issued, and every transferee of a VTC shall, by acceptance of such VTC, become a party hereto with like effect as if a Beneficiary, and shall be included in the meaning of the term "holder of VTCs" and "VTC holder" whenever used herein. SECTION 5.2. Disposition of Trust Shares. (a) VTC holders may dispose of Trust Shares in which they hold a beneficial interest only as provided in 11 12 Sections 5.2(b), (c) and (d). Any other disposition of their respective beneficial interest in Trust Shares may be effected only by transferring the VTCs representing such beneficial interest, as provided in Section 5.1. (b) Subject to the provisions of Section 5.2(c), each VTC holder may, from time to time, dispose of all or any portion of the Trust Shares in which he holds a beneficial interest by giving the Trustee written notice of his intent to dispose such Trust Shares and surrendering to the Trustee for cancellation VTCs representing the Trust Shares proposed to be disposed. Upon receipt of such notice and such VTCs for cancellation, the Trustee shall take all necessary action to have the Trust Shares that are to be disposed from the Trust and (i) delivered to the VTC holder at the closing schedule to consummate such disposition, or (ii), if requested by the selling VTC holder, sold by the Trustee in ordinary brokerage transactions. The Trustee or his agent shall promptly deliver to the selling VTC holder any net proceeds of the disposition described in clause (ii) of the previous sentence and a VTC for any unsold Trust Shares represented by the previously surrendered VTC. (c) Except for sales, transfers and dispositions pursuant to Plans (as defined in Section 8.9 hereof) 12 13 and notwithstanding any other provision of this 1994 Restated VTA, unless otherwise approved by the Board, no VTC holder may (i) until April 3, 1996, sell, transfer or dispose all or any portion of the Class B Common Stock which forms part of the Trust Shares in which he holds a beneficial interest, no such person may convert any such shares of Class B Common Stock into Common Stock and no such person may withdraw any such shares of Class B Common Stock from the Trust, and (ii) following April 3, 1996 through the term of the Trust as set forth in Section 6.1 of this 1994 Restated VTA, or as such may subsequently be extended, sell, transfer or dispose all or any portion of the Trust Shares in which he holds a beneficial interest, and no such person may withdraw any Trust Shares from the Trust, during any of the following periods: (A) From the announcement by any person other than Grey of a tender or exchange offer for shares of capital stock of Grey until 30 days following the termination of such offer; (B) From the time when it shall have been publicly disclosed, or Grey shall have learned, that any person or "group" (as 13 14 defined in Section 13(d)(3) of the Securities and Exchange Act of 1934, as such may subsequently be amended or replaced) shall have acquired, or proposed to acquire (whether or not any such proposed acquisition is conditioned on any future event), more than 20% of any class of Grey's outstanding capital stock until 30 days following the announcement that such person or "group" no longer owns, or has abandoned its intention to acquire more than such percentage of such stock; (C) From the time that any new group shall be formed which beneficially owns or proposes to acquire (whether or not any such proposed acquisition is conditioned on any future event) more than 20% of the beneficial ownership of any class of Grey's capital stock until 30 days following the announcement that such group has been abandoned or no longer owns such percentage of such stock; (D) From 14 15 (X) the commencement of (I) any contest for the election or removal, or increase or decrease in the number, of directors of Grey or (II) any contest concerning the proposed approval by Grey's stockholders of any proposal for the merger, consolidation, other business combination or liquidation of Grey or (III) any contest concerning the approval by Grey's stockholders of any other matter deemed by the Trustee to be material to the continuity and stability of the management, policies and client relationships of Grey (regardless of whether such contest involves an annual or special meeting of stockholders of Grey or the solicitation of consents of such stockholders for use other than at such a meeting) until (Y) 30 days following the earlier of (I) the Grey stockholder vote with respect thereto and (II) any other termination or abandonment of the contest; provided, however, that the provisions of sub-section 5.2(c)(B) and sub-section 5.2(c)(C) hereof shall not apply if the "person" or "group" referred to in either of said sub-sections shall be an individual or trust who or which, as of the date of this Agreement (the "March Date"), held of record or beneficially 20% or more of the shares of any class of Grey's outstanding capital stock; and provided, further, that the provisions of sub-section 5.2(c)(B) and 15 16 sub-section 5.2(c)(C) shall not apply if the "person" or "group" referred to in either of said sub-sections shall not have acquired any additional shares or have been formed following the March Date; and provided further, that Grey's Common Stock and Class B Common Stock shall be considered different classes of capital stock for the purposes of this Section 5.2(c). (d) Notwithstanding any other provision of this 1994 Restated VTA, each VTC holder shall not be restricted, at any time, from accepting an offer from Grey to sell or transfer to Grey all or any portion of the Trust Shares in which he holds a beneficial interest. SECTION 5.3. Compliance with Securities Laws. Each VTC holder agrees that no VTC held by such person, and no Trust Shares represented by such VTC, shall be sold, transferred, assigned, pledged or otherwise transferred or offered for sale unless such VTC and such Trust Shares are registered pursuant to the Securities Act of 1933, or unless an exemption from such registration is then available, and that each VTC may contain an appropriate restrictive legend to such effect. The Trustees may require that the transfer of any VTC on the books of the Trustee be conditioned on an opinion of counsel (or other evidence) reasonably satisfactory to the Trustee, 16 17 as to the availability of an exemption from the registration provisions of the Act and applicable State Blue Sky laws. ARTICLE VI TERM AND TERMINATION SECTION 6.1. Term. This 1994 Restated VTA shall become effective as of the date on which the Beneficiaries, the Trustee and Grey have executed a copy or copies of this 1994 Restated VTA. Thereafter, this 1994 Restated VTA shall in all respects supersede the Original VTA and the 1987 Restated VTA and the Trust (with respect to the Trust Shares of each respective Beneficiary) shall be governed in all respects by the terms of this 1994 Restated VTA. This 1994 Restated VTA and the Trust shall continue in force until ten years from the date of this 1994 Restated VTA or such shorter period as may be required under applicable law, unless further extended as allowed by law. By execution of this 1994 Restated VTA, the Trustee and the Beneficiaries hereby consent to the extension of this Restated VTA and the Trust for the term set forth in the immediately preceding sentence and acknowledge that the foregoing extension is being made in accordance with Section 218(b) of the Delaware General 17 18 Corporation Law ("Section 218(b)") within two years prior to the time the 1987 Restated VTA and the Trust are scheduled to terminate. Unless and until executed by the Beneficiaries and Meyer as Trustee, this 1994 Restated VTA shall not affect the deposit of the Trust Shares pursuant to the Original VTA, the 1987 Restated VTA or the 1989 VTA or the rights and responsibilities of the parties pursuant thereto. SECTION 6.2. Termination. Promptly upon termination of the Trust, the Trustee shall deliver to each Beneficiary, certificates for the Trust Shares representing each such Beneficiary's beneficial interest and any other property in the possession of the Trustee to which each such Beneficiary may be entitled. ARTICLE VII THE TRUSTEE SECTION 7.1. (a) Meyer shall (subject to his right to resign as Trustee) remain in office as Trustee until the earliest of (i) his death, (ii) his permanent mental disability, (iii) the effectiveness of his appointment of a successor trustee and (iv) the expiration of (x) two years following the termination of his employment as chief executive officer of Grey for Cause (as 18 19 such term is defined in Meyer's Employment Agreement, as amended from time to time, with Grey) or (y) six years following the termination of his employment as chief executive officer of Grey for any other reason (the "Two/Six Year Date"). Meyer may, in his sole discretion, at any time before or after the Two/Six Year Date, designate a person or persons to serve as an additional Trustee or Trustees or to serve as successor Trustee or Trustees upon one or more conditions established by Meyer. Immediately following the Two/Six Year Date the Chief Executive Officer of Grey shall automatically, ex officio, become a Trustee if not already so serving, and he shall remain as a Trustee (subject to his right to resign as a Trustee) so long as he shall continue in office as Grey's Chief Executive Officer. (b) At any time, a majority of the Trustees (or the sole Trustee if there is only one) in office may appoint one or more additional or successor Trustees. In the event of a deadlock, the decision of the Trustee longest in office shall govern. (c) At such time as Meyer shall cease for any reason to be Trustee in accordance with Section 7.1(a)(i) or (ii), if he shall not have appointed a successor Trustee, Mark N. Kaplan, provided he is then an officer 19 20 or director of Grey, shall succeed Meyer as Trustee. At such time as Mark N. Kaplan shall cease for any reason to be a Trustee or if Mark N. Kaplan for any reason shall not succeed Meyer as Trustee, the Chief Executive Officer of Grey shall succeed Meyer as Trustee, if Meyer shall not have appointed a successor Trustee. (d) Any Trustee may at any time resign by delivering to Grey and any other Trustee then in office his resignation in writing, and such resignation shall take effect immediately upon delivery. (e) If at any time there shall be (i) no Trustee in office and (ii) no other means of designating a successor Trustee herein, then a single successor Trustee shall be chosen by Beneficiaries holding a majority of beneficial interest in the Trust Shares. SECTION 7.2. Trustees as Beneficiaries. Any Trustee may be a party to this Agreement as a Beneficiary and shall be entitled in all respects to the same rights and be subject to the same duties as other Beneficiaries. SECTION 7.3. Indemnification of Trustees. In voting on all matters which may come before any meeting of stockholders of Grey, the Trustee shall exercise his best judgment; however, no Trustee shall incur any responsibility or liability by reason of any error of law 20 21 or by any matter or thing done or omitted under the Original VTA, the 1987 Restated VTA, the 1989 VTA or this 1994 Restated VTA except for his own willful misconduct for his personal gain. Grey, Meyer as Trustee, and each Beneficiary hereby each severally acknowledge that the Trust is being established for purposes which on the date hereof are regarded by Grey and the Beneficiaries as beneficial to each of them. Grey and each Beneficiary each further acknowledges that the interest of each of them may differ over time and that each Trustee is hereby instructed to carry out the purposes for which the Trust is being established on the date hereof. Grey and each Beneficiary also acknowledge that a Trustee may be an officer and director of, or otherwise be involved with, Grey and that no such relationship with Grey shall disqualify any Trustee from acting as such. Grey shall indemnify and hold harmless each Trustee from and against any all liabilities, costs, claims, suits and proceedings (including attorneys' fees and any other damages, penalties and settlement amounts, whether current or threatened, arising in connection with or otherwise relating to, the performance of his duties under the Original VTA, the 1987 Restated VTA, the 1989 VTA or this 1994 Restated VTA (except for those liabilities, costs, claims, suits 21 22 or proceedings arising primarily as a result of his willful misconduct for his personal gain); provided, however, that Grey shall be obligated to provide indemnification pursuant to this Section to (i) a Trustee (other than Meyer or any successor Trustee appointed by Meyer), only if the actions taken by the Trustee occurred when the Trustee was an officer or director of Grey and (ii) to Meyer or any successor Trustee appointed by Meyer only if the actions taken by Meyer or such successor Trustee occurred either when Meyer or the successor Trustee was an officer or director of Grey or when Meyer and/or his immediate family and/or his estate owned in the aggregate more than 5% of the capital stock of Grey. SECTION 7.4. No Compensation; Expenses. No Trustee shall be entitled to any compensation for his services as Trustee. Grey shall pay all costs and expenses reasonably incurred by each Trustee in connection with administering the Trust and shall reimburse each Trustee for any out-of-pocket expenses reasonably incurred by him in connection with administering the Trust. SECTION 7.5. Trustee's Agents. The Trustee shall be authorized to engage agents to perform administrative tasks (including, without limitation, effecting payment of dividends on Trust Shares and maintaining a 22 23 registry of the VTCs) incident to the operation of the Trust. The costs of engaging such agents shall be borne by Grey pursuant to Section 7.4. SECTION 7.6. Decisions Final. The decisions of the Trustee shall be final and binding upon the Trust and the Benefi- ciaries and not subject to reversal or amendment by any Beneficiary or group of Beneficiaries in the absence of willful misconduct by the Trustee. ARTICLE VIII MISCELLANEOUS SECTION 8.1. Inspection of the Agreement. Promptly after its execution, but no later than the date on which it shall become effective, the Trustee shall cause copies of this 1994 Restated VTA to be filed at Grey's registered office in the State of Delaware and at Grey's principal office in the State of New York and, such copies, and the copy retained by the Trustee at his address set forth in Section 8.2, shall be open for inspection during business hours by any stockholder of record and any Beneficiary. SECTION 8.2. Notices. Any notice or other communication herein required or permitted to be given shall be in writing and shall be deemed to have been 23 24 properly given when personally delivered and acknowledged, or, if sent by registered, certified or courier mail, when received, as follows: (a) if to Grey, addressed as follows: Grey Advertising Inc. 777 third Avenue New York, New York 10017 Attention: Corporate Secretary (b) if to the Trustees, addressed as follows: Mr. Edward H. Meyer (or any successor Trustee) as Trustee under the Voting Trust Agreement c/o Grey Advertising Inc. 777 Third Avenue New York, New York 10017 (c) if to any Beneficiary, to the address of such Beneficiary set forth in the registry of VTC holders maintained by the Trustee, or to such other address as Grey, the Trustee or any Beneficiary shall have given notice pursuant hereto. SECTION 8.3. Binding Effect. This 1994 Restated VTA shall inure to the benefit of, and be binding upon, the respective heirs and successors of the parties hereto. No assignment of any right or delegation of any obligation hereunder may be made by any party without the express written consent of the Trustee. Nothing in this Section shall be interpreted to prevent any Trustee from resigning as provided in Section 7.1 and 24 25 thereby discharging himself from further obligation hereunder. SECTION 8.4. Amendment. This 1994 Restated VTA may be amended only by the written consent of Beneficiaries holding a majority of beneficial interest in the Trust Shares. In addition, to facilitate the deposit of additional Trust Shares or the admission of new Beneficiaries, the form of this 1994 Restated VTA may be modified in a manner agreeable to the Trustee, Grey and the depositor of such Trust Shares or such additional Beneficiary, as the case may be, but no such amendment shall adversely affect the rights of any other Beneficiary. SECTION 8.5. Entire Agreement. The 1994 Restated VTA contains the entire agreement and understanding of the parties hereto with respect to the subject hereof, and no prior or contemporaneous representations, warranties, covenants, conditions, understandings, or agreements (including the Original VTA, the 1987 Restated VTA and the 1989 VTA) other than those expressly set forth herein shall be of any force or effect. SECTION 8.6. Governing Law. This New VTA shall be governed by, and construed in accordance with, the internal laws of the State of Delaware without reference to its rules regarding conflicts-of-laws. 25 26 SECTION 8.7. Counterparts. This 1994 Restated VTA may be executed in counterparts, each of which shall be deemed an original. This 1994 Restated VTA shall become effective, severally as to each Beneficiary, upon the respective execution and delivery of a counterpart by the Trustee, Grey and each such Beneficiary. SECTION 8.8. Headings. Section and Article headings herein are for convenience only and shall not affect the meaning or interpretation hereof. SECTION 8.9. Right of Repurchase. Notwithstanding the application of the provisions of Section 5.2(c), the parties hereto recognize that certain Trust Shares may be subject to the rights of Grey and other persons, pursuant to Grey's Employee Stock Ownership Plan and Restricted Stock Plan (collectively, with any agreements thereunder, the "Plans"), to purchase such Shares upon certain events set forth in the Plans. The parties agree that (a) the transfer of Trust Shares to the Trust has not constituted and will not constitute a transfer of the securities giving Grey the right to purchase the Trust Shares under the Plans; (b) upon an event under the Plans which would give Grey the right to purchase the Trust Shares from a Beneficiary, Grey's right to purchase such Shares shall not be limited or affected by the 26 27 deposit of the Trust Shares in trust hereunder or the holding and retention thereof by the Trustee hereunder; and (c) the Trustee shall legend the appropriate VTC reflecting the rights of Grey and other persons to purchase the Trust Shares underlying such VTC in accordance with the Plans. SECTION 8.10. Employment with Grey. Each Beneficiary acknowledges and understands that (a) he shall continue to be bound by this 1994 Restated VTA and (b) the shares of capital stock deposited by him in trust hereunder shall continue to be subject to the Trust as provided by this 1994 Restated VTA after he ceases to be an employee of Grey or any of it affiliates. Neither the deposit of Trust Shares nor the execution of this 1994 Restated VTA shall in any way be deemed an agreement by Grey to retain any person as an employee for any specific or non-specific period of time. SECTION 8.11. Lost Certificates. Upon notice to the Trustee by the holder of record of any VTC of any loss, theft or destruction thereof, the Trustee may in his discretion cause a new VTC or VTCs to be issued to such holder representing the same number of Trust Shares represented by the lost, stolen or destroyed VTC, upon satisfactory proof of loss, theft or destruction, and, in 27 28 the Trustee's absolute discretion, upon deposit of a bond or such other security as the Trustee may require. 28 29 IN WITNESS WHEREOF, the several parties hereto have hereunder set their respective hands as of the date first above written. VOTING TRUSTEE BENEFICIARY ______________________________ _____________________________________ Name: Edward H. Meyer Name: GREY ADVERTISING INC. By:__________________________________ Name: Steven G. Felsher Title: Executive Vice President, Secretary and Treasurer 29 EX-10.06 3 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.06 EMPLOYMENT AGREEMENT AGREEMENT, made as of January 1, 1993, by and between GREY ADVERTISING INC. ("Company"), a Delaware corporation having its principal office at 777 Third Avenue, New York, New York 10017, and BARBARA S. FEIGIN ("Executive"), an individual residing at 535 East 86th Street, New York, New York 10028. WHEREAS, Executive is presently employed as Executive Vice President of the Company; and WHEREAS, Executive has agreed to continue employment with the Company on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing and of the respective agreements contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Term. The term of this Agreement shall commence on the date hereof and shall end on December 31, 1995 (the "Term"), unless extended or sooner terminated as hereinafter provided. The Term shall be extended automatically on January 1, 1994 and on January 1, 1995 for an additional period of each year in the event that the Company does not give Executive notice of non-extension on or prior to November 30, 1993 or November 30, 1994, respectively, as the case may be. 2. Employment. During the Term, the Company shall employ Executive, and Executive shall serve the Company, as an Executive Vice President of the Company or in such 2 other position (but not less senior) of the Company to which Executive shall be appointed from time to time by the Board of Directors of the Company (the "Board"). 3. Duties. Executive shall perform such services and duties in the New York City metropolitan area (including reasonable travel consistent with a person of her position) as shall be reasonably assigned or delegated to her by the Board and/or the chief executive officer of the Company (the "Chief Executive Officer"), which shall, in any event, be consistent with her responsibilities as a senior executive officer of the Company. During her employment hereunder, Executive shall devote her full time to the performance of her duties hereunder. 4. Compensation and Employee Benefits. (a) Salary. During the Term, the Company shall pay to Executive a salary at an annual rate of $331,000 per year, or such greater sum as may from time to time be fixed by the Chief Executive Officer. Executive shall be entitled to a compensation review no less frequently than someone of her salary level and seniority in accordance with the policies of the Company in place at such time. Payments of salary shall be subject to such payroll deductions as are required by law or otherwise agreed to by Executive and the Company and shall be payable in such installments as are customary from time to time for executive officers of the Company. (b) Bonus Compensation. The Chief Executive Officer may, in his sole discretion, award Executive bonus compensation from time to time during the Term. -2- 3 (c) Employee Benefits. During the Term, Executive shall continue to participate in all of the Company's compensation and benefit plans and programs, in each instance to the extent such plans and programs are available generally by their terms to employees of her seniority, office, nature of responsibilities and length of service. In addition, during the first twelve years pursuant to which benefits are payable to Executive in accordance with the terms of the Company's Senior Executive Officer Pension Plan, Executive shall be entitled to receive $50,000 per year in addition to the amounts otherwise payable to Executive pursuant to the terms of such Plan provided Executive is then entitled to receive a pension thereunder. (d) Expense Reimbursement. The Company shall reimburse Executive for ordinary and reasonable business expenses incurred by Executive on behalf of the Company in accordance with customary Company policies. (e) Vacation. Executive shall be entitled to the vacation time afforded to executive officers of her position and tenure, in accordance with the Company's general vacation policy. (f) Health Insurance Benefits. During the Term, and during any period subsequent thereto while Executive is either an employee of the Company or a consultant to the Company in accordance with Sections 1 and 6 hereof, but in no event beyond the later of (i) the date upon which Executive shall attain 65 years of age and (ii) the date upon which Executive shall cease to be an employee of or a consultant to the Company pursuant to Section 6 here- -3- 4 of, the Company shall continue to provide Executive and her eligible dependents with full health insurance benefits under the Company's group plans on the same basis as are then available generally to senior executive officers of the Company. (g) Special Insurances. During the Term, the Company shall maintain in force at its cost (i) a policy of long-term disability income insurance on Executive's behalf as described on Schedule A to this Agreement (the "Disability Insurance Policy") and (ii) policies of life insurance on Executive's behalf as described on Schedule B to this Agreement (the "Life Insurance Policy"). The Disability Insurance Policy and the Life Insurance Policy to be obtained hereunder shall be in addition to any other insurance which may be maintained by the Company from time to time under Company-sponsored insurance benefit programs. The Company shall, in good faith, review the possibility of extending the Disability Insurance Policy or implementing a replacement policy upon its expiration. The review will take into account the cost of such a replacement policy at the time and other factors then deemed relevant by the Company or you. (h) ERISA Make-up. Commencing with respect to calendar year 1993 and for each completed calendar within the Term, the Company will accrue for Executive in an unfunded deferred compensation account, an amount equal to such amount as would have been allocated for each such year to Executive's account under the Company's Profit Sharing and Employee Stock Ownership Plans but for the limitation on contributions to qualified plans currently mandated under the Employee Retirement Income Security Act -4- 5 of 1976, as amended (as such current limitation amount may be adjusted in the future by reason of increasing the amount of compensatio in respect of which contributions may be made to qualified plans), less any amount so allocated to such plans. Allocations under thi paragraph shall thereafter be credited with a return equal to the return the contributions for each such year would have earned in the Fixed Income Fund of the Company's Profit Sharing Plan. Funds so allocated, credited and deferred shall be paid to you at such time as the funds in your account under the Company's Profit Sharing Plan are paid to you 5. Termination. Executive's employment under this Agreement may be terminated upon the occurrence of any one of the circumstances described in subsections (a), (b), (c) or (d) of this Section 5: (a) Death. This Agreement shall be terminated upon Executive's death. Upon such termination, the Company shall pay to the estate of Executive in a lump sum all amounts due to Executive which were earned pursuant to Section 4 hereof prior to Executive's death, such amount, to be paid within 30 days of such termination. (b) Disability. The Company may terminate Executive's employment hereunder at any time because of Disability and Executive shall be entitled to benefits under the terms of the Disability Insurance Policy and the Company's long term disability policy (if any) in effect from time to time. Upon such termination, the Company shall also pay to Executive in a lump sum all amounts due to Executive which were earned pursuant to Section 4 -5- 6 hereof prior to the termination of Executive's employment hereunder because of Executive's Disability, such amount to be paid within 30 days of such termination. As used in this Agreement, "Disability" shall mean Executive's physical or mental incapacity which, in the reasonable, good faith determination of the Board, renders her incapable of carrying out her duties under this Agreement for a period of 120 calendar days in any six month period. (c) Cause. The Company may terminate Executive's employment hereunder for "Cause" in accordance with the procedure set forth in Subsection (e) of this Section 5. For purposes of this Agreement, "Cause" shall be defined as follows: (i) the repeated and willful failure by Executive, after warning, substantially to perform her duties hereunder (other than any such failure resulting from Disability), (ii) the willful engaging by Executive in any other conduct designed to be injurious, in any material way, to the reputation, business or business relationships of the Company, (iii) the conviction of Executive for any crime involving moral turpitude, fraud or misrepresentation, (iv) after notice, (a) drunkenness which affects Executive's ability to perform her obligations hereunder, or (b) the illegal use of drugs interfering with performance of Executive's obligations under this Agreement or (v) the knowing and willful violation, in any material way, by Executive of the provisions of Sections 7 or 8 hereof. If Executive's employment should be terminated by the Company for Cause, the Company shall have no further obligations to Executive hereunder following the date of termination; provided, however, that the Company shall pay or provide all vested or earned rights, payments, benefits and entitlements then -6- 7 due and payable to Executive including, without limitation, all amounts which were earned pursuant to Section 4 hereof prior to the date of Executive's termination of employment. (d) Change in Control. Following the occurrence of a "change in control of the Company" (as defined herein), if during the remaining portion of the Term (i) the Company terminates the employment of Executive other than for death, Disability or Cause or (ii) Executive terminates her employment within 90 days following a breach by the Company of any provision of Sections 2, 3 or 4 hereof, (x) all the unvested portions of any rights or benefits of Executive under any stock option or restricted stock plan of the Company or the Company's Senior Management Incentive Plan which Executive has as of the date of this Agreement (but not any option or restricted stock of the Company or any awards under the Company's Senior Management Incentive Plan, in either instance granted or made available after the date of this Agreement) shall vest; and (y) the Company shall pay Executive a lump sum an amount equal to three times the sum of (A) her annual salary in effect immediately prior to such change in control of the Company and (B) the most recent bonus paid to Executive prior to such change in control of the Company; provided, however, that if any portion of the payment under this Subsection (d) would not be deductible by the Company by reason of sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor provisions thereto, such payment shall be reduced to the extent necessary so that the entire payment shall be deductible under said Code sections. Such payment, as shall be reduced or reserved -7- 8 against to ensure its deductibility as contemplated above, shall be made within 30 days of an occurrence set forth in either sub-clause (i) or sub-clause (ii) in the previous sentence. For purposes of this Subsection (d), a "change in control of the Company" shall be deemed to have occurred if, and only if, Edward H. Meyer ("Meyer"), or the legal representative of Meyer's estate, if Meyer should not then be living, should sell all or substantially all of his shares of common stock of the Company to a person other than Executive (and/or related parties) or to the Company. (e) Notice of Termination. Any termination by the Company pursuant to this Section 5 shall be communicated to Executive by a written notice of termina- tion and, if curable, the action to be taken by Executive to cure the event or events giving rise to such termination by the Company and the Executive shall have a reasonable period of time to cure such event or events, which, except in unusual circumstances, shall be not more than 10 days. Such notice of termination shall be effective on the date on which such notice shall be deemed given in accordance with Section 10 hereof. 6. Consulting Period. Upon Executive's termination of employment with the Company, other than as a result of death, Disability or Cause, if Executive (i) shall then have attained 60 years of age or older and (ii) shall not then have accepted employment with another employer, then Executive shall immediately commence service as a consultant to the Company and shall thereafter continue as such a consultant until the earliest to occur of (A) the date upon which she shall have attained 65 years of age, -8- 9 or (B) the date upon which Executive becomes employed by another employer or (C) at Executive's election, such date as she determines to terminate her consulting arrangement with the Company (the "Consulting Period"). If at the time of Executive's termination of employment Executive has not satisfied the conditions set forth in clauses (i) and (ii) of the preceding sentence hereof, she shall not be entitled to serve as a consultant to the Company. Dur-ing the Consulting Period, Executive shall be paid an annual retainer of $10,000, payable in equal monthly installments and subject to such payroll deductions as are required by law or otherwise agreed to by Executive and the Company. During the Consulting Period, Executive shall provide consulting services to the Company on such terms as are mutually convenient to Executive and the Company. 7. Trade Secrets. Executive acknowledges that from time to time she will have knowledge of business matters and affairs of the Company and its affiliates (collectively, the "Grey Group") not available to others, and that the work to be performed by her shall place her in a position of trust with respect to the clients and business operations of the Grey Group. Executive acknowledges that such information is a valuable trade secret and is the sole property of the Grey Group. Accordingly, Executive, other than in the course of performing her duties hereunder, shall not during the term of this Agreement, or at any time thereafter (unless the same shall have otherwise become public knowledge), reveal, divulge or otherwise make known any of said information to any person other than an officer or employee of the Company or such other person as the Board may designate. -9- 10 8. Non-Competition. So long as Executive is employed by the Company hereunder and for a perod of two years following Executive's termination of employment for any reason, Executive shall not: (a) persuade or attempt to persuade either directly or indirectly) any client of the Grey Group to discontinue using any marketing, advertising, pubic relations or other services rendered by any member of the Grey Group to any such client; (b) except in the performance of her normal and proper job function for the Company, persuade or attempt to persuade (either directly or indirectly) any employee of any member of the Grey Group to terminate his or her employment with such member of the Grey Group; (c) without the prior written consent of the Company (which consent shall not be unreasonably withheld) render (either directly or indirectly), other than on behalf of the Company or any member of the Grey Group, any services (of the nature performed or reasonably capable of being performed by a member of the Grey Group) to or for any client of a member of the Grey Group or any person, firm or corporation which had been a client of any member of the Grey Group at any time during the one-year period prior to the termination of her employment hereunder; (d) solicit (either directly or indirectly), other than on behalf of the Company or any member of the Grey Group, any business (of the nature carried on or reasonably capable of being carried on by a member of the Grey Group) from any client of any member of the Grey Group, or any person firm or corporation which had been a client of any such member at any time during the one-year period prior to the termination of her employment; or (e) whether as officer, director, employee or consultant, be engaged in or -10- 11 have any financial interest (other than an interest of less than 1% of the stock of a publicly traded company) in or affiliation with or render any services to or for any advertising agency or public relations agency, or any other person firm or organization which is in competition with any member of the Grey Group; provided, however, that the provisions of Subsection (c) shall be applicable for six months following Executive's termination and of the provisions of Subsection (e) of this Section 8 shall not be applicable to Executive if her employment is terminated by the Company without Cause prior to expiration of the Term or pursuant to the Company issuing the notice contemplated in the last sentence of Section 2 hereof. 9. Client Conflict Policy. Executive shall respect and abide by the Grey Group's client conflict policy as it may be in effect from time to time. 10. Notice. Any notice, advice or accounting to any party to this Agreement shall be sufficient if in writing and sent by certified mail, return receipt requested, to such party's respective address hereinabove provided or to such other address as may be designated in writing by such party from time to time. A copy of any notice given to Executive shall also be given to any legal counsel designated by Executive in writing to receive such a copy. Notice given in the manner herein provided shall be deemed to be given when personally delivered or, if mailed, three days after such mailing. -11- 12 11. Waiver. No provisions of this Agreement shall be waived, altered or amended, except in a writing signed by the parties hereto. Any such waiver shall be limited to the particular instance and the particular time when and for which it is given. 12. Specific Performance. If Executive should fail to comply with the terms of Sections 7 or 8 hereof, the Company may enforce any right it may have by law for damages, and, in addition, shall be entitled, as a matter of right, to equitable or other injunctive relief against Executive to prevent her failing to comply with the provisions of Sections 7 or 8 hereof. Any rights under this Section 12 may be enforced in the appropriate court in the Borough of Manhattan, City and State of New York. 13. Entire Agreement. This Agreement constitutes the entire agreement between the Company and Executive with respect to the subject matter hereof, supersedes any prior agreement(s) between the parties with respect to the same subject matter, and may be amended, modified or changed only by an agreement in writing signed by the parties hereto. 14. Severability. The provisions of this Agreement are severable and the invalidity of any one provision shall in no event affect the validity of any other paragraph, clause or provision whatsoever. 15. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. -12- 13 16. Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, heirs and personal representatives; provided, however, that the services to be rendered by Executive hereunder are to be performed personally by Executive. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ___________________________ BARBARA S. FEIGIN GREY ADVERTISING INC. (SEAL) By_________________________ Edward H. Meyer Chairman and Chief Executive Officer Attest: By_______________________ -13- EX-11.01 4 STATEMENT RE: COMPUTATION OF NET INCOME PER SHARE 1 Exhibit 11.01 Grey Advertising Inc. and Consolidated Subsidiary Companies Exhibit - Statement Re: Computation of Net Income Per Share
For the Year Ended Restated(2) December 31 December 31 1993 1992 ----------- ----------- PRIMARY Average shares outstanding(1) 1,247,711 1,163,232 Net effect of dilutive stock options- based on the treasury stock method using average market price 16,189 42,009 ----------- ----------- TOTAL 1,263,900 1,205,241 =========== =========== Net Income $17,681,000 $15,904,000 Less: Effect of dividend requirements and the increase (decrease) in redemption value of redeemable preferred stock (672,000) (621,000) ----------- ----------- NET EARNINGS USED IN COMPUTATION $17,009,000 $15,283,000 =========== =========== $ 13.46 $ 12.68 =========== =========== FULLY DILUTED Average shares outstanding(1) 1,247,711 1,163,232 Net effect of dilutive stock options - based on the treasury stock method using the period-end market price, if higher than the average market price 20,639 44,567 Assumed conversion of 8.5% convertible subordinated debentures issued December 1993 50,999 51,000 ----------- ----------- TOTAL 1,319,349 1,258,799 =========== =========== Net Income $17,681,000 $15,904,000 Less: Effect of dividend requirements and the increase (decrease) in redemption value of redeemable preferred stock (672,000) (621,000) Add: 8.5% covertible subordinated debentures Interest, net of Income tax effect 139,000 140,000 ----------- ----------- NET EARNINGS USED IN COMPUTATION $17,148,000 $15,423,000 =========== =========== $ 13.00 $ 12.25 =========== ===========
(1) Includes 10,237 shares and 259 shares for 1993 and 1992, respectively, expected to be issued pursuant to the terms of the Senior Management Incentive Plan (2) After restatement for the increase in the Provision for Taxes on Income of $600,000 due to the adoption of FAS109, Accounting for Income Taxes. EX-21.01 5 SUBSIDIARIES OF GREY 1 EXHIBIT 21.01 EXHIBIT 21.01 SUBSIDIARIES OF GREY (as of March 1, 1994)
Name Jurisdiction of Organization ---- ---------------------------- Alonso y Asociados S.A. Mexico AS Grey Oy Finland Beaumont-Bennett Inc. New York CR Grey Advertising Pte. Ltd. Singapore CSS Grey Cyprus Cenajans Grey Reklamcilik A.S. Turkey Creative Collaboration Grey S.A. Switzerland Crescendo Productions Inc. New York Dialogic S.A. Belgium Dorland Grey S.A. Belgium Dorland Grey S.A. France Esfera Grey, S.A. Columbia Fischer-Grey, C.A. Venezuela Font Vaamonde Inc. Delaware G2 Advertising Inc. California GCG Norge A/S Norway GCG Scandinavia A/S Denmark GCI Italy S.r.l. Italy GCI Group Inc. New York GCI - Ringpress GmbH Germany GCI Group Ltd. United Kingdom
- 1 - 2 GEM FC Inc. California Great Productions Inc. Delaware Great Spot Films Ltd. Delaware Grey Advertising (Hong Kong) Ltd. Hong Kong Grey Advertising (NSW) Pty. Limited Australia Grey Advertising (New Zealand) Ltd. New Zealand Grey Advertising de Venezuela, C.A. Venezuela Grey Advertising (Victoria) Pty. Ltd. Australia Grey Advertising Inc. Maryland Grey Advertising Ltd. Canada Grey Argentina S.A.C. y de P. Argentina Grey Athens Advertising S.A. Greece Grey Australia Pty. Limited Australia Grey Austria GmbH Austria Grey Chile S.A. Chile Grey Communications Group A/S Denmark Grey Communications Group B.V. The Netherlands Grey Communications Group Ltd. United Kingdom Grey-Daiko Advertising, Inc. Japan Grey Denmark A/S Denmark Grey Diciembre S.A. Uruguay Grey Direct Inc. Delaware Grey Direct International GmbH Germany Grey Directory Marketing Inc. Delaware Grey Dusseldorf GmbH Co. Kommanditgesellschaft Germany
- 2 - 3 Grey Entertainment Inc. New York Grey Espana S.A. Spain Grey Holding S.A. Belgium Grey Holdings A.B. Sweden Grey Holdings Pty. Ltd. South Africa Grey IFC Inc. Delaware Grey India Inc. Delaware Grey Advertising (Malaysia) Sdn. Bhd. Malaysia Grey Media Connections Inc. New York Grey Mexico, S.A. de C.V. Mexico Grey Peru S.A. Peru Grey Strategic Marketing Inc. Delaware Grey Thailand Co. Ltd. Thailand Greycom SARL France Gross Townsend Frank Hoffman Inc. New York Hwa Wei Grey Advertising Co. Ltd. Taiwan Indigo Entertainment Inc. Delaware JCH Group Ltd. New York Local Marketing Corporation Ohio Milano e Grey S.p.A. Italy National Research Foundation for Business Statistics, Inc. New York Principal Communications Inc. Delaware
- 3 - 4 Preferred Professionals Inc. New York Rada Communications Inc. Delaware Rigel Limited Cayman Islands SEK Grey Ltd. Finland The Tape Center Inc. Delaware 300 East 42nd Street Promotions, Inc. New York Trace, S.A. Spain Triple Seven Concepts Inc. Delaware Visual Communications Group Inc. New York W&L/Dialog Grey AG Switzerland West Indies Grey Advertising Inc. Puerto Rico Z&G Grey Comunicacao Ltda. Brazil
- 4 - EX-23.01 6 CONSENT OF AUDITORS 1 EXHIBIT 23.01 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 2-98101, 2-97465 and 33-11253) pertaining to the Incentive Stock Option and Restricted Stock Plans of Grey Advertising Inc. of our report dated February 11, 1994 on the consolidated financial statements and schedules of Grey Advertising Inc. and consolidated subsidiary companies included in the Annual Report (Form 10-K) for the year ended December 31, 1993. ERNST & YOUNG New York, New York March 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----