-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BvWh/Y+sW40OugkiWaw7XifLbUTubPrhNZDPhtK9NinNgeoNRmDd09fycC5z8Trw cC6QooalCH5eGuN0oEGZmw== 0000950123-98-005146.txt : 19980518 0000950123-98-005146.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950123-98-005146 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREY ADVERTISING INC /DE/ CENTRAL INDEX KEY: 0000043952 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 130802840 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07898 FILM NUMBER: 98623432 BUSINESS ADDRESS: STREET 1: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125462000 MAIL ADDRESS: STREET 1: 777 THIRD AVE STREET 2: 777 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 GREY ADVERTISING INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-7898 GREY ADVERTISING INC. (Exact name of registrant as specified in its charter)
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:
NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of April 30, 1998, the total number of shares outstanding of Registrant's Common Stock, par value $1 per share ("Common Stock"), was 962,796 and of Registrant's Limited Duration Class B Common Stock, par value $1 per share ("Class B Common Stock"), was 274,969. 2 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES INDEX
PAGE NO. -------- Financial Statements: Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 5 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Other Information 13 Signatures 14 Index to Exhibits 15
2 3 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- ASSETS (A) Current assets: Cash and cash equivalents $ 97,139,000 $ 150,553,000 Marketable securities 43,757,000 15,401,000 Accounts receivable 653,690,000 647,524,000 Expenditures billable to clients 53,967,000 54,687,000 Other current assets 54,501,000 56,225,000 -------------- -------------- Total current assets 903,054,000 924,390,000 Investments in and advances to nonconsolidated affiliated companies 20,021,000 18,386,000 Fixed assets-at cost, less accumulated depreciation of $118,334,000 and $116,443,000 90,157,000 88,006,000 Marketable securities 37,362,000 57,340,000 Intangibles and other assets - including loans to executive officers of $5,572,000 in 1998 and 1997 110,295,000 111,865,000 ============== ============== Total assets $1,160,889,000 $1,199,987,000 ============== ==============
See accompanying notes to condensed consolidated financial statements. (A) The consolidated balance sheet has been derived from the audited financial statements at that date. 3 4 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
MARCH 31, 1998 DECEMBER 31, 1997 -------------- ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY (A) Current liabilities: Accounts payable $ 683,854,000 $ 709,959,000 Notes payable to banks 41,729,000 22,455,000 Accrued expenses and other 106,603,000 122,269,000 Income taxes payable 9,644,000 19,181,000 --------------- --------------- Total current liabilities 841,830,000 873,864,000 Other liabilities, including deferred compensation of $35,313,000 in 1998 and $36,481,000 in 1997 60,498,000 61,723,000 Long-term debt 78,025,000 78,025,000 Minority interest 11,994,000 13,309,000 Redeemable preferred stock - at redemption value; par value $1 per share; authorized 500,000 shares; issued and outstanding 30,000 shares in 1998 and 32,000 shares in 1997 10,459,000 10,760,000 Common stockholders' equity: Common Stock - par value $1 per share; authorized 10,000,000 shares; issued 1,184,080 in 1998 and 1,124,324 in 1997 1,184,000 1,124,000 Limited Duration Class B Common Stock - par value $1 per share; authorized 2,000,000 shares; issued 303,091 shares in 1998 and 307,460 shares in 1997 303,000 308,000 Paid-in additional capital 38,582,000 44,349,000 Retained earnings 172,653,000 169,214,000 Cumulative translation adjustment (11,404,000) (9,422,000) Unrealized gain on marketable securities 440,000 189,000 Loans to officer used to purchase Common Stock and Limited Duration Class B Common Stock (4,726,000) (4,726,000) --------------- --------------- 197,032,000 201,036,000 Less - cost of 224,219 and 222,098 shares of Common Stock and 26,762 and 26,762 shares of Limited Duration Class B Common Stock held in treasury at March 31, 1998 and December 31, 1997, respectively 38,949,000 38,730,000 --------------- --------------- Total common stockholders' equity 158,083,000 162,306,000 =============== =============== Total liabilities and stockholders' equity $ 1,160,889,000 $ 1,199,987,000 =============== ===============
See accompanying notes to condensed consolidated financial statements. (A) The consolidated balance sheet has been derived from the audited financial statements at that date. 4 5 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997 ------------------------------------- Commissions and fees $ 215,714,000 $ 188,748,000 Expenses: Salaries and employee related expenses 136,193,000 122,086,000 Office and general expenses 68,997,000 58,019,000 ------------------------------------- 205,190,000 180,105,000 ------------------------------------- 10,524,000 8,643,000 Other income - net 1,572,000 939,000 ------------------------------------- Income of consolidated companies before taxes on income 12,096,000 9,582,000 Provision for taxes on income 6,504,000 5,263,000 ------------------------------------- Income of consolidated companies 5,592,000 4,319,000 Minority interest applicable to consolidated companies (1,075,000) (369,000) Equity in earnings of nonconsolidated affiliated companies 516,000 625,000 ------------------------------------- Net income $ 5,033,000 $ 4,575,000 ===================================== Weighted average number of common shares outstanding Basic 1,181,642 1,180,611 Diluted 1,367,401 1,352,311 Earnings per common share Basic $4.50 $4.07 Diluted $3.91 $3.58 Dividends per common share $1.00 $1.00 =====================================
See accompanying notes to condensed consolidated financial statements. 5 6 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997 ------------------------------------- OPERATING ACTIVITIES Net income $ 5,033,000 $ 4,575,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization of fixed assets 6,909,000 5,726,000 Amortization of intangibles 1,693,000 1,326,000 Deferred compensation 2,799,000 3,016,000 Equity in earnings of nonconsolidated affiliated companies, net of dividends received of $68,000 in 1998 and none in 1997 (448,000) (625,000) Gains from the sale of marketable securities (131,000) Minority interest applicable to consolidated companies 1,075,000 369,000 Restricted stock (income) expense (57,000) 49,000 Deferred income taxes 520,000 (1,775,000) Changes in operating assets and liabilities: Increase in accounts receivable (9,903,000) (7,124,000) Decrease in expenditures billable to clients 222,000 427,000 Decrease (increase) in other current assets 1,990,000 (3,150,000) Decrease (increase) in other assets 1,355,000 (2,022,000) Decrease in accounts payable (23,428,000) (32,473,000) Decrease in accrued expenses and other (31,926,000) (9,193,000) Decrease in income taxes payable (4,063,000) (4,675,000) (Decrease) increase in other liabilities (759,000) 474,000 ------------------------------------- Net cash used in operating activities (49,119,000) (45,075,000) INVESTING ACTIVITIES Purchases of fixed assets (9,485,000) (6,254,000) Trust fund deposits (1,328,000) (1,051,000) Increase in investments and advances to nonconsolidated affiliated companies (1,187,000) (168,000) Purchases of marketable securities (48,507,000) (6,277,000) Proceeds from the sale of marketable securities 40,492,000 7,320,000 Increase in intangibles, primarily goodwill (81,000) (2,948,000) ------------------------------------- Net cash used in investing activities (20,096,000) (9,378,000)
6 7 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997 -------------------------------------- FINANCING ACTIVITIES Net proceeds from short-term borrowings 19,465,000 15,777,000 Common Shares acquired for treasury (39,000) (56,000) Redemption of preferred stock (651,000) Cash dividends paid on Common Shares (1,180,000) (1,183,000) Cash dividends paid on redeemable preferred stock (64,000) (64,000) Repurchase of restricted stock (26,000) Proceeds from exercise of stock options 71,000 -------------------------------------- Net cash provided by financing activities 17,505,000 14,545,000 Effect of exchange rate changes on cash (1,704,000) (2,875,000) -------------------------------------- Decrease in cash and cash equivalents (53,414,000) (42,783,000) Cash and cash equivalents at beginning of period 150,553,000 112,485,000 -------------------------------------- Cash and cash equivalents at end of period $ 97,139,000 $ 69,702,000 =====================================
See accompanying notes to condensed consolidated financial statements. 7 8 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. As permitted by the Securities and Exchange Commission, the accompanying unaudited Consolidated Financial Statements and Notes thereto have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. Reference should be made to the Company's Annual Report on Form 10-K for the year ended December 31, 1997 filed with the Securities and Exchange Commission. 2. The financial statements as of March 31, 1998 and for the three months ended March 31, 1998 and 1997 are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair representation have been included. 3. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. 4. The provision for taxes on income is greater than the Federal statutory rate principally due to state and local income taxes, and effective foreign tax rates in excess of the Federal statutory rate. 5. As of March 31, 1998 and December 31, 1997, the Company had outstanding 20,000 shares of Series I Preferred Stock and 5,000 shares each of its Series II and Series III Preferred Stock. The holder of these shares is the Chairman and Chief Executive Officer of the Company. In addition, on December 31, 1997 there were outstanding 2000 shares of Series 1 Preferred Stock which were held by a former employee; these shares were redeemed during the quarter ended March 31, 1998. Each share of Preferred Stock is to be redeemed by the Company at a price equal to the book value per share attributable to one share of Common Stock and one share of Class B Common Stock (subject to certain adjustments) upon redemption, less a fixed discount established upon the issuance of the Preferred Stock. Each class of Preferred Stock is entitled to receive cumulative preferential dividends at the annual rate of $.25 per share, and to participate in dividends on one share of the Common Stock and one share of the Class B Common Stock to the extent such dividends exceed the per share preferential dividend. The redemption date for the Series I, Series II and Series III Preferred Stock is fixed at April 7, 2004. The terms of the Series I, Series II and Series III Preferred Stock also give the holder, his estate or his legal representative, as the case may be, the option to require the Company to redeem his Preferred Stock for a period of 12 months following his (i) death, (ii) permanent disability or permanent mental disability, (iii) termination of full-time employment for good reason or (iv) termination of full-time employment by the Company without cause. In connection with his ownership of Series I, Series II and Series III Preferred Stock, the holder issued to the Company full recourse promissory notes (which are included in Other Assets in the accompanying condensed consolidated balance sheets). 8 9 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. The computations of basic earnings per common share for the three months ended March 31, 1998 and 1997 are based on the weighted average number of common shares outstanding and, for diluted earnings per common share, are adjusted for the effect, if any, of the assumed exercise of dilutive stock options, for shares issuable pursuant to the Company's Senior Management Incentive Plan and for the assumed conversion of the 8-1/2% Convertible Subordinated Debentures. Also, for the purpose of computing earnings per common share for the three months ended March 31, 1998 and March 31, 1997, the Company's net income was adjusted by dividends paid on the Company's preferred stock and also by the change in redemption value of the Company's preferred stock. In computing diluted earnings per common share, the average quarterly market price was used to determine the number of shares which would be assumed to be repurchased. The market price for a share of Class B Common Stock, which is not publicly traded, is deemed to be equal to the market price of a share of Common Stock, into which a share of Class B Common Stock may be converted at the option of the holder, as of the date such valuation is made. The following table shows the amounts used in computing earnings per common share ("EPS") and the effect on income and the weighted average number of shares of dilutive potential common stock:
FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ 1998 1997 (2) ------------------------------ BASIC EARNINGS PER COMMON SHARE WEIGHTED AVERAGE SHARES 1,181,642 1,180,611 ------------------------------ Net income $5,033,000 $4,575,000 Effect of dividend requirements and the change in redemption value of redeemable preferred stock 286,000 236,000 ------------------------------ NET EARNINGS USED IN COMPUTATION $5,319,000 $4,811,000 ------------------------------ PER SHARE AMOUNT $4.50 $4.07 ============================== DILUTED EARNINGS PER COMMON SHARE Weighted average shares used in the Basic EPS calculation 1,181,642 1,180,611 Net effect of dilutive stock options and stock incentive plans (1) 134,720 120,808 Assumed conversion of 8.5% convertible subordinated debentures issued December 1983 51,039 50,892 ------------------------------ ADJUSTED WEIGHTED AVERAGE SHARES 1,367,401 1,352,311 ------------------------------ Net earnings used in the Basic EPS calculation $5,319,000 $4,811,000 8.5% convertible subordinated debentures interest net of income tax effect 34,000 35,000 ------------------------------ NET EARNINGS USED IN COMPUTATION $5,353,000 $4,846,000 ------------------------------ PER SHARE AMOUNT $3.91 $3.58 ==============================
(1) Includes 94,919 and 94,686 shares for 1998 and 1997, respectively, issuable pursuant to the terms of the Senior Management Incentive Plan. (2) After restatement for adoption of FAS 128, Earnings Per Share 9 10 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. As of January 1, 1998, the Company adopted Financial Accounting Standards Board Statement No. 130, Reporting Comprehensive Income ("FAS 130"). FAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income or stockholders' equity. FAS 130 requires the unrealized gains and losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity, to be included in other comprehensive income. The prior year Consolidated Statement of Common Stockholders' Equity will be reclassified to conform to the requirements of FAS 130. During the first quarter of 1998 and 1997, total comprehensive income (loss) amounted to $3,302,000 and ($3,929,000), respectively. The difference between net income and comprehensive income (loss) in both 1998 and 1997 is primarily attributable to the reduction of the net assets of the Company's European operations due to the strengthening of the US dollar against the European currencies. 8. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, Disclosure About Segments of an Enterprise and Related Information ("FAS 131"). FAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. FAS 131 is effective for fiscal years beginning after December 15, 1997. The adoption of this statement is not expected to have any impact on the Company's consolidated financial statements. 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Income from commissions and fees increased 14.3% during the first quarter of 1998 when compared to the same period in 1997. Absent exchange rate fluctuations, gross income increased 19.3 % in 1998 when compared to the same period in 1997. In the first quarters of 1998 and 1997, respectively, 46.7% and 46.4% of consolidated gross income was attributable to domestic operations and 53.3% and 53.6% to international operations. In the first quarter of 1998, gross income from domestic operations increased 15.0% versus the respective prior period, while gross income from international operations increased 13.6%, (23.0% absent exchange rate fluctuations) for the quarter. The increase in gross income primarily resulted from expanded activities from existing clients, and the continued growth of the Company's general agency and specialized operations. Salaries and employee related expenses increased 11.6% in 1998 when compared to the respective prior period. Office and general expenses increased 18.9% in 1998 versus the respective prior period. These changes, taken together, are generally in line with the increase in gross income. Inflation did not have a material effect on revenue or expenses during 1998 or 1997. Minority interest increased by $706,000 in the first quarter of 1998 as compared to the respective prior period. The increase is primarily due to changes in the level of profits of majority-owned companies. Equity in earnings of nonconsolidated affiliated companies decreased by $109,000 in the first quarter of 1998 as compared to the respective prior period. The decrease is primarily due to changes in the level of profits of nonconsolidated affiliated companies. The effective tax rate was 53.8% in the first quarter of 1998 versus 54.9% in the same period in 1997. The decrease is due, in large part, to the change in the mix of pre-tax income from consolidated companies in countries with lower effective tax rates. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Net income was $5,033,000 in the first quarter of 1998 as compared to $4,575,000 in the respective prior period. Basic and diluted earnings per common share for the first quarter of 1998 was $4.50 and $3.91, respectively, as compared to $4.07 and $3.58 in the comparable quarter in 1997. LIQUIDITY AND CAPITAL RESOURCES Working capital increased by $10,698,000 from $50,526,000 at December 31, 1997 to $61,224,000 at March 31, 1998. The increase in working capital is largely attributable to the increase in short-term marketable securities. Cash and cash equivalents decreased by $53,414,000 from $150,553,000 to $97,139,000. The decrease in cash and cash equivalents is largely attributable to the settlement of year-end payable balances which were higher at the end of 1997. Domestically, the Company has committed lines of credit totaling $51,000,000. These lines of credit were partially utilized during the three months ended March 31, 1998 and 1997 to secure obligations of selected foreign subsidiaries. There was $3,000,000 and $26,000,000 outstanding under these credit lines as of March 31, 1998 and 1997, respectively. Other lines of credit are available to the Company in foreign countries in connection with short-term borrowings and bank overdrafts used in the normal course of business. There was $38,729,000 and $80,335,000 outstanding at March 31, 1998 and 1997, respectively. 12 13 PART II OTHER INFORMATION 13 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Reference is made to the Index annexed hereto and made a part hereof. (b) Reports on Form 8-K: Press Release issued by the Company on December 23, 1997. (Incorporated herein by reference to Grey's report on Form 8-K dated and filed as of January 6, 1998.) 13 14 GREY ADVERTISING INC. AND CONSOLIDATED SUBSIDIARY COMPANIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GREY ADVERTISING INC. (REGISTRANT) DATE: May 14, 1998 By:/s/ Steven G. Felsher ----------------------------- Steven G. Felsher Executive Vice President - Finance - Worldwide Secretary and Treasurer (Duly Authorized Officer) DATE: May 14, 1998 By:/s/ Lester M. Feintuck ----------------------------- Lester M. Feintuck Senior Vice President - Chief Financial Officer - US Operations Controller (Chief Accounting Officer) 14 15 INDEX TO EXHIBITS
Page Number in Number Assigned to Sequential Numbering Exhibit (i.e. 601 of Table of Item 601 Exhibits System Where Exhibit Regulation S-K) Description of Exhibits May be Found --------------- ----------------------- ------------ 10.01 Tenth Amendment to Employment Agreement, dated 16 as of April 30, 1998, by and between Grey and Edward H. Meyer. 10.02 Second Amendment to Deferred Compensation Trust 24 Agreement, dated as of April 30, 1998, by and between Grey and United States Trust Company of New York. 27 Financial Data Schedule 30
15 EX-10.01 2 TENTH AMENDMENT TO EMPLOYMENT AGREEMENT 1 TENTH AMENDMENT AGREEMENT made as of April 30, 1998, between GREY ADVERTISING INC., a Delaware corporation with principal offices at 777 Third Avenue, New York, New York 10017 ("Grey"), and Edward H. Meyer, residing at 580 Park Avenue, New York, New York ("Meyer"). Meyer is employed by Grey as its President, Chairman of the Board and Chief Executive Officer pursuant to an employment agreement originally executed effective February 9, 1984 and amended from time to time thereafter (such employment agreement, as so amended, being hereinafter referred to as the "Current Agreement"). The parties desire to amend the Current Agreement in certain respects. NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree as follows: 1. Capitalized Terms. Capitalized terms used herein, unless otherwise defined herein, have the meaning ascribed to such terms in the Current Agreement. 2. Section 6 of the Current Agreement is hereby amended and restated to read as follows: 6. Disability If, during the term of this Agreement, Meyer should be unable regularly to perform his duties as required by this Agreement because of Disability, Grey shall nevertheless pay or credit to him, as the case may be in accordance with Grey's prior policies, (i) during the first two years of such Disability (or, if earlier, to the termination date of this Agreement), the Compensation he would have been entitled to pursuant to Section 3 hereof, including but not limited to his full Basic Salary, full bonus (based upon the discretionary bonus awarded to Meyer for the calendar year immediately preceding such Disability), full allocations (i.e., 15% of the total SMIP pool) and payouts under the Senior Management Incentive Plan, credits to the Pension 16 2 Account and the Sub-Account in accordance with Section 4 hereof, and continued health benefits and (ii) during the period (if any) of Disability beginning on the second anniversary of such Disability and ending on the termination date of this Agreement, his full Basic Salary, full allocations (i.e., 15% of the total SMIP pool) and payouts under the Senior Management Incentive Plan, credits to the Pension Account and the Sub-Account in accordance with Section 4 hereof, and continued health benefits, with such amounts being appropriately reduced to reflect partial years. During the entire period of his incapacity, Meyer shall perform such services for Grey as he is reasonably able to perform based upon the nature and extent of his Disability. As used in this Agreement, "Disability" shall mean Meyer's physical or mental incapacity so as to render him incapable of carrying out his duties under this Agreement. To establish a status of Disability as provided in the preceding sentence, there must first be issued in writing a determination of Disability. A determination of Disability may be issued at the initiation of Grey, Meyer or a legal representative of Meyer. A determination of Disability shall be issued upon the written certification of a qualified medical doctor agreed to by Grey and Meyer or, in the event of Meyer's incapacity to designate a doctor, Meyer's legal representative. In the absence of agreement between Grey and Meyer (or his legal representative), each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to the Disability. In the event that either Meyer or Grey shall desire to establish whether Meyer is Disabled, Meyer (or his legal representative) and Grey shall use their respective best efforts to cooperate so that a prompt determination can be reached and Meyer shall make himself available, as reasonably requested by Grey, for examination by a doctor in accordance with this paragraph. Notwithstanding the foregoing, (a) if Meyer 17 3 should be able regularly to perform significant, important or otherwise valuable services in connection with management, operations, administration or client relations of Grey substantially equivalent to half-time employment, then he may elect to continue as Chairman of the Board of Grey and (b) even if Meyer shall not be able to regularly resume any such duties referred to in the first paragraph of this Section 6 or assume the duties referred to in this paragraph, he shall be entitled to receive office facilities, assistance and other arrangements as provided in Section 13 hereof. 3. Section 4 of the Current Agreement is hereby amended and restated to read as follows: 4. Supplemental Pension. (a) Meyer shall, upon termination of his employment with Grey, be entitled to receive a supplemental pension, determined in accordance with the succeeding provisions of this Section 4. As of the date hereof, Grey shall credit to a bookkeeping account for the benefit of Meyer (the "Pension Account") an amount equal to $1,160,000 (less any amounts then required to be withheld by Grey for Medicare or other taxes, unless such amounts are deducted by Grey from amounts otherwise payable to Meyer, which amounts shall be so deducted by Grey to the extent available), and as of the beginning of each month (commencing with May 1998 through and including December 2002), provided Meyer is then employed by Grey, Grey shall credit to the Pension Account an amount equal to $30,000 (less any amounts then required to be withheld by Grey for Medicare or other taxes unless such amounts are deducted by Grey from amounts otherwise payable to Meyer, which amounts shall be so deducted by Grey to the extent available). At the same time, or as soon as practicable thereafter, an amount equal to the amount of such credits shall be transferred by Grey to a sub-account (the "Sub-Account") created under the Trust established by Grey pursuant to the Trust Agreement ("Trust" and "Trust Agreement" shall have the meanings ascribed to such terms 18 4 in the Amendment and Extension Agreement dated as of March 22, 1995, between Grey and Meyer), and such amounts shall be invested in accordance with the terms of the Trust Agreement. The Pension Account and the Sub-Account shall be debited with amounts representing all losses of and distributions from the Trust attributable to such Sub-Account and shall be credited with all earnings of and deposits to the Trust attributable to such Sub-Account. (b) In the event Meyer's employment with Grey terminates for any reason prior to December 31, 2002, Grey shall pay to Meyer (or, in the case of Meyer's death, to his estate), in a cash lump sum within thirty (30) days following such termination, the balance then held in the Sub-Account. For purposes of this paragraph (b), Meyer's Disability under Section 6 hereof during the term of this Agreement shall not be treated as a termination of employment and, in such event, the balance in the Sub-Account shall be payable in accordance with this paragraph (b) upon Meyer's death or in accordance with paragraph (c) below upon the expiration of the term of this Agreement, as applicable. (c) Subject to paragraph (d) below, upon Meyer's retirement from Grey at December 31, 2002, Meyer shall be entitled to receive from Grey a supplemental pension equal to $40,000 per month, payable in cash during the first week of each month commencing January 2003 through and including the month in which occurs Meyer's death (the "payout period"); provided, however, that if the balance in the Sub-Account as of the end of any month within the payout period is less than $300,000 (after taking into account the amounts to be deducted pursuant to paragraph (e) below), then the remaining balance in the Sub-Account shall be paid to Meyer during the first week of the next succeeding month. In the event of Meyer's death prior to full payment of the Sub-Account, Grey shall pay to Meyer's estate in cash, as soon as practicable following Meyer's death, the balance held in the Sub-Account immediately prior to such payment. (d) Upon the occurrence of a Change in Con- 19 5 trol of Grey (as defined in Section 10(b) of this Agreement) during the payout period, Grey shall pay to Meyer, as soon as practicable following such Change in Control of Grey, the balance held in the Sub-Account immediately prior to such payment. (e) Notwithstanding anything to the contrary contained in this Section 4, there shall be deducted from any lump sum payments payable to Meyer (or his estate) or, in the case of monthly payments to Meyer pursuant to paragraph (c) above, there shall be deducted from the final payment(s) which would otherwise be made to Meyer, the sum of the following amounts (such sum being hereinafter referred to as the "Deducted Amount"), except to the extent that the Deducted Amount is or has been deducted by Grey from amounts otherwise payable to Meyer: (1) the costs of the Trust solely attributable to the administration of the Sub-Account, which costs shall be determined by the trustee of the Trust (i) on an annual basis as soon as practicable following the end of each calendar year (commencing with 1998) and (ii) as soon as practicable following Meyer's death or the occurrence of a Change in Control of Grey during the payout period, for the period from the beginning of the calendar year in which occurs Meyer's death or such Change in Control of Grey (as the case may be) to and including the date of any lump sum payments to Meyer or Meyer's estate hereunder. (2) an amount equal to (i) the interest, determined separately from the date of payment of the income tax liabilities referred to below to the date of the lump sum payment or final monthly payment(s) to or in respect of Meyer referred to above (whichever is applicable), on Grey's aggregate income tax liability attributable to net 20 6 realized earnings on the Sub-Account in excess of seven percent (7%) in any year (based on the average of the balances in the Sub-Account at the beginning of each month in such year, excluding, in the case of 1998, the months of January through April and without regard to any earnings or losses during such year), such amount to be reduced (but not below zero) by (ii) the interest, determined separately from the date Grey realizes a tax benefit in respect of the losses referred to below to the date of the lump sum payment or final monthly payment(s) to or in respect of Meyer referred to above (whichever is applicable), on any tax benefits realized by Grey in respect of net realized losses on the Sub-Account in any year. Interest hereunder shall accrue annually (i.e., shall be determined at the end of each calendar year and at the date of final payment(s) to or in respect of Meyer pursuant to this Section 4) at a rate equal to Grey's returns on short-term cash during such year (or during the period to such final payment date, as the case may be). (3) the aggregate amount paid (in excess of amounts otherwise withheld by Grey in accordance with applicable law from payments due to Meyer) by Grey for Medicare or other similar taxes in respect of net earnings on the Sub-Account in excess of seven percent (7%) in any year (based on the average of the balances in the Sub-Account at the beginning of each month in such year, excluding, in the case of 1998, the months of January through April and without regard to any earnings or losses during such year), plus interest thereon, from the date of payment of such taxes to 21 7 the date of the lump sum payment or final monthly payment(s) to or in respect of Meyer referred to above, such interest to accrue annually (i.e., to be determined at the end of each calendar year and at the date of final payment to or in respect of Meyer pursuant to this Section 4) at a rate equal to Grey's returns on short-term cash during such year (or during the period to such final payment date, as the case may be). As soon as practicable following the end of each calendar year commencing with 1998 (and prior to the final payment(s) to or in respect of Meyer pursuant to this Section 4), Grey shall provide to Meyer a written statement setting forth in reasonable detail the computation of the Deducted Amount as of the end of such year (or as of the date of such final payment(s)), including any changes from the Deducted Amount set forth in the immediately preceding written statement provided hereunder. To the extent that the funds in the Sub-Account at any time are less than the Deducted Amount, then any shortfall shall be paid to Grey by Meyer (or his estate) as soon as practicable following determination of such shortfall. (f) The obligations of Grey hereunder shall constitute general obligations and all payments shall be made from general assets and property of Grey; provided, however, that it is expressly understood that Grey's obligations under this Section 4 shall be limited to the funds held in the Trust and reflected in the Sub-Account, as debited and credited in accordance with this Section 4, and that Grey shall have no obligation to pay amounts other than from such funds. Nothing contained herein shall give Meyer any rights which are greater than those of a general creditor of Grey nor create or be construed to create a trust or fiduciary relationship of any kind. 4. Status of Current Agreement. This Amendment shall be effective as of day and year first above written, and, except as set forth herein, the Current 22 8 Agreement shall remain in full force and effect and shall be otherwise unaffected hereby. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written. GREY ADVERTISING INC. By /s/Steven G. Felsher -------------------- /s/Edward H. Meyer -------------------- Edward H. Meyer 23 EX-10.02 3 AMENDMENT TO DEFERRED COMPENSATION AGREEMENT 1 SECOND AMENDMENT TO GREY ADVERTISING INC. DEFERRED COMPENSATION TRUST This Second Amendment (the "Second Amendment"), made as of the 30th day of April, 1998, by and between Grey Advertising Inc. (the "Company") and United States Trust Company of New York (the "Trustee"); WHEREAS, the Company and the Trustee entered into the Grey Advertising Inc. Deferred Compensation Trust, dated as of March 22, 1995, as amended by instrument dated as of February 26, 1996, pursuant to which a trust (the "Trust") has been created; WHEREAS, the Company has entered into an employment agreement (the "Agreement") first executed effective February 9, 1984, with Edward H. Meyer (the "Executive"), which Agreement has been last amended and extended as of the date hereof by the Tenth Amendment thereof (the "Tenth Amendment"), a copy of which is annexed hereto as Exhibit A; WHEREAS, the Tenth Amendment contains, as Section 3 thereof, a provision titled "Supplemental Pension" (such section hereinafter referred to as the "Pension Agreement"); WHEREAS, the Company may incur liability under the terms of such 24 2 Pension Agreement with respect to the Executive; WHEREAS, the Pension Agreement contemplates the establishment of a Sub-Account under the Trust (hereinafter called the "Sub-Account") and the contribution by the Company to the Trust from time to time of amounts that shall be held therein and credited to the Sub-Account for the benefit of the Executive; WHEREAS, the Company desires further to amend the Trust Agreement and, in accordance with Section 12 of the Trust Agreement, is permitted to do so with the consent of the Executive; NOW, THEREFORE, the parties are entering into this Second Amendment and hereby agree as follows: 1. Section 1(e) of the Trust Agreement is hereby amended in its entirety to read as follows: At such time as a contribution to the Trust is required pursuant to the Deferred Compensation Agreement or the Pension Agreement, the Company shall contribute in cash to the Trustee hereunder an amount equal to the contributions required to be made pursuant to the terms of the Deferred Compensation Agreement or the Pension Agreement, as the case may be. The Trustee shall not have any right to compel such contributions. 2. Sections 2(a) and 2(b) of the Trust Agreement are hereby amended by inserting the words "or the Pension Agreement, as the case may be," after the words "Deferred Compensation Agreement," wherever appearing in such 25 3 Sections. 3. Section 2(c) of the Trust Agreement is hereby amended in its entirety to read as follows: The Company may make payment of benefits directly to the Executive in accordance with the terms of the Deferred Compensation Agreement or the Pension Agreement, as the case may be. To the extent that the Company pays any amounts then due to the Executive pursuant to the terms of the Deferred Compensation Agreement or the Pension Agreement, as the case may be, then the Trustee, upon receipt of certification from the Company and the Executive that such payment has been made, shall return to the Company an equal amount of Trust assets that have been credited to the Executive's Trust Account or Sub-Account (as such terms are defined in Section 5(a) hereof), as applicable. 4. Section 3(b)(3) and Section 4 of the Trust Agreement are hereby amended by adding the words "or the Pension Agreement, as the case may be" after the words "Deferred Compensation Agreement" wherever appearing in such Sections. 5. The first sentence of Section 5(a) of the Trust Agreement is hereby amended in its entirety to read as follows: Contributions to the Trust on behalf of the Executive pursuant to the Deferred Compensation Agreement and any interest and earnings thereon shall be credited, and any distribution from the Trust in respect of the Deferred Compensation Agreement or losses thereon shall be debited, to an account (the "Trust Account") established and held by the Trustee for the Executive; and contributions to the Trust on behalf of the Executive pursuant to the Pension Agreement and any interest and earnings thereon shall be credited, and any distribution from the Trust in respect of the Pension Agreement or losses thereon 26 4 shall be debited, to a sub-account (the "Sub-Account") established and held by the Trustee for the Executive. 6. The last sentence of Section 6 of the Trust Agreement is hereby amended to read as follows: Except as otherwise provided in the Pension Agreement, the Company shall be solely responsible for the payment of all applicable income and other taxes imposed on the Trust with respect to interest and other earnings on amounts held in the Trust, whether held in the Trust Account or Sub-Account. 7. Section 7 of the Trust Agreement is hereby amended by adding the words "and the Sub-Account" after the words "the Trust Account" wherever appearing in such Section. 8. Section 8(a) of the Trust Agreement is hereby amended by adding the words ", the Pension Agreement" after the words "Deferred Compensation Agreement" in such Section. 9. Sections 12(b) and 12(c) are hereby amended by adding the words "and the Pension Agreement" after the words "Deferred Compensation Agreement" in such Sections. 10. A new Section 16 is added to the Trust Agreement, to read as follows: Section 16. Certain Reports. Each party shall furnish to the other parties the reports and other information required to be fur- 27 5 nished by such party in connection with the determination of the "Deducted Amount" (as defined in the Pension Agreement). 11. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Trust Agreement. 12. Except as expressly amended hereby, all of the terms and provisions of the Trust Agreement shall remain unchanged and continue in full force and effect and the parties hereto shall be entitled to all of the applicable benefits thereof and shall be responsible for all of their respective obligations thereunder. 13. On and after the date hereof, each reference in the Trust Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Trust Agreement shall mean and be a reference to the Trust Agreement as amended hereby. 14. This Amendment may be executed in counterparts, both of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 15. This Second Amendment shall be construed in accordance with and governed by the laws of New York, without regard to its conflicts of law principles. 28 6 IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written. GREY ADVERTISING INC. By: /s/ Steven G. Felsher Name: Steven G. Felsher --------------------------- Title: Executive Vice President UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: /s/ Harriet Friday Leahy ----------------------------------- Name: Harriet Friday Leahy Title: Vice President Consented and Agreed to as of the date first above written: By: /s/ Edward H. Meyer -------------------------- Edward H. Meyer 29 EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the unaudited condensed consolidated Balance Sheet as of March 31, 1998 and the unaudited condensed consolidated Statement of Income for the three months ended March 31, 1998 of Grey Advertising Inc. and consolidated subsidiary companies and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1998 MAR-31-1998 97,139 43,757 653,690 0 0 903,054 208,491 118,334 1,160,889 841,830 78,025 10,459 0 1,487 156,596 1,160,889 215,714 215,714 0 0 205,190 0 3,200 12,096 6,504 5,033 0 0 0 5,033 4.50 3.91
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