<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
TRUE NORTH COMMUNICATIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 7311 36-1088161
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
101 EAST ERIE STREET
CHICAGO, ILLINOIS 60611
(312) 425-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
THEODORE J. THEOPHILOS, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
101 EAST ERIE STREET
CHICAGO, ILLINOIS 60611
(312) 425-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ANDREW H. SHAW, ESQ. KEVIN KEOGH, ESQ.
SIDLEY & AUSTIN WHITE & CASE
ONE FIRST NATIONAL PLAZA 1155 AVENUE OF THE AMERICAS
CHICAGO, ILLINOIS 60603 NEW YORK, NEW YORK 10036
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after the effective date of this Registration Statement and the
effective time of the merger of Cherokee Acquisition Corporation, a wholly
owned subsidiary of True North Communications Inc. ("True North"), with and
into Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Bozell") pursuant to the Merger
Agreement (as defined herein).
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.33 1/3 per
share.......................... 19,693,041 shares (1) N.A. $76,069,200 (2) $23,051 (3)
- ----------------------------------------------------------------------------------------------------------
Preferred Stock Purchase Rights..... 19,693,041 rights (1) (4) (4) (4)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Based upon the maximum number of shares constituting the Share Issuance
(as defined herein) assuming the exercise of all currently outstanding
options and warrants to purchase Bozell Common Stock (as defined herein).
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and computed pursuant to Rule 457(f) under the
Securities Act by multiplying $1.97, which was the book value per share of
Bozell Common Stock at September 30, 1997, by 38,613,807, the number of
shares of Bozell Common Stock outstanding at the close of business on
November 18, 1997, assuming the exercise of all then outstanding options
and warrants to purchase Bozell Common Stock.
(3) Pursuant to Rule 457(b) under the Securities Act, $14,240 of the
registration fee was paid on September 15, 1997 in connection with the
filing of preliminary joint proxy materials.
(4) The Preferred Stock Purchase Rights of True North initially are attached
to and trade with the shares of True North Common Stock being registered
hereby. Value attributable to such Preferred Stock Purchase Rights, if
any, is reflected in the market price of True North Common Stock.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
101 EAST ERIE ST., CHICAGO, ILLINOIS 60611
(312) 425-6500
November 26,
1997
Bruce Mason
Chairman of the Board and Chief Executive Officer
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
True North Communications Inc. on Tuesday, December 30, 1997 at 9:00 a.m.,
local time, at the Omni Chicago Hotel, Chagall Ballroom--Third Floor--Salon A,
676 North Michigan Avenue, Chicago, Illinois, concerning our proposed
acquisition of Bozell, Jacobs, Kenyon & Eckhardt, Inc. by means of a stock-
for-stock merger and certain other matters as detailed below.
It is important that your shares of True North Common Stock be represented
at the Special Meeting regardless of the number of shares you hold. You are
urged to specify your voting preferences by marking, dating and signing the
enclosed proxy card and returning it in the enclosed business reply envelope.
No postage is required if mailed in the United States. If you wish to vote in
accordance with recommendations of Management and the Board of Directors, all
you need to do is date and sign the proxy card and return it in the envelope.
With this letter is the proxy statement that provides very detailed
information concerning the acquisition and certain other matters. I encourage
you to review this information. There are a number of points concerning the
proposed Bozell acquisition that I wish to highlight:
. The True North Board believes that the merger represents an opportunity
to achieve a long-stated objective of True North of acquiring a second
global agency brand network to complement its FCB brand and to better
compete for worldwide accounts of global advertising clients.
. The True North Board further believes that Bozell's strong financial
results, respected and capable management, and compatible approach to
client service and stockholder value make it a particularly appealing
acquisition candidate.
. The merger would also strengthen True North's position in interactive
digital technology by adding Bozell's Poppe Tyson, Inc., an interactive
marketing communications firm, to True North's TN Technologies unit
specializing in interactive communications which includes Modem Media and
R/GA Interactive.
. As part of the merger, True North would also acquire another respected
U.S. agency, Temerlin McClain, and the U.S. public relations firm Bozell
Sawyer Miller Group. The merger would also better establish True North in
the important and growing areas of integrated marketing services,
healthcare advertising and sales promotion operations, and would
significantly increase True North's market presence in the important area
of media buying.
. The True North Board believes that the merger should produce improved
stockholder value by better leveraging True North's existing corporate
structure and spreading it over a larger base. This structure is designed
to free local agency management from administration of media buying and
back office support functions and give them leading edge technology so
they can devote their full energy and creativity to growing clients'
businesses. Leveraging this structure is expected to reduce costs and
increase profitability of the combined enterprise.
<PAGE>
. It is currently anticipated, based upon Bozell's anticipated net income
for 1998, that the merger will be accretive to True North's results of
operations for 1998 and subsequent years.
In sum, the True North Board believes that the Merger would create not only
a combined entity bigger and stronger than either True North or Bozell on a
stand-alone basis, but also an enterprise positioned to compete more
effectively for multi-national advertising clients on both a strategic and
financial basis.
At the Special Meeting, you will be asked to approve the following, all of
which are described in detail in the accompanying proxy statement:
. The merger and the Agreement and Plan of Merger dated as of July 30, 1997
among True North, a wholly-owned merger subsidiary of True North, and
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
. The issuance of shares of Common Stock of True North in connection with
the merger.
. An amendment to the Restated Certificate of Incorporation of True North
to increase the number of authorized shares of True North Common Stock
from 50,000,000 to 90,000,000.
. Election of directors of True North, contingent upon the consummation of
the merger.
. An amended and restated True North Stock Option Plan to increase the
shares of True North Common Stock which may be issued thereunder.
MANAGEMENT AND THE BOARD OF DIRECTORS OF TRUE NORTH, WITH ONE DIRECTOR
DISSENTING, HAVE DETERMINED THAT THE AGREEMENT AND PLAN OF MERGER AND THE
MERGER, THE ISSUANCE OF SHARES IN THE MERGER AND THE AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION ARE ADVISABLE AND FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF TRUE NORTH; HAVE APPROVED SUCH MATTERS; AND
RECOMMEND THAT YOU VOTE IN FAVOR THEREOF AS WELL AS FOR EACH PERSON NOMINATED
BY THE BOARD OF DIRECTORS TO SERVE AS A BOARD MEMBER AND FOR THE AMENDED AND
RESTATED STOCK OPTION PLAN. ALI WAMBOLD, THE TRUE NORTH DIRECTOR DESIGNATED BY
PUBLICIS COMMUNICATION, DISSENTED WITH RESPECT TO THE FOREGOING MATTERS. FOR A
DISCUSSION OF THE REASONS WHY MR. WAMBOLD VOTED AGAINST THE MERGER AND RELATED
MATTERS, SEE "THE MERGER--BACKGROUND OF THE MERGER" IN THE ENCLOSED PROXY
STATEMENT.
PLEASE COMPLETE THE PROXY CARD AND RETURN IT TODAY, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING. If you do attend and wish to vote in person,
you may revoke your proxy at any time. You may also revoke your proxy at any
time prior to its exercise by filing a written notice of such revocation with
the Secretary of True North at or prior to the Special Meeting or by
delivering to True North a duly executed later dated proxy.
Thank you for your attention to and consideration of this matter.
Sincerely,
/s/ Bruce Mason
Bruce Mason
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 1997
To the Stockholders of True North Communications Inc.:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of True North Communications Inc., a Delaware corporation
("True North"), to be held at the Omni Chicago Hotel, Chagall Ballroom--Third
Floor--Salon A, 676 North Michigan Avenue, Chicago, Illinois, on Tuesday,
December 23, 1997, at 9:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of July 30, 1997 (the "Merger Agreement") among True
North, Cherokee Acquisition Corporation, a Delaware corporation and wholly-
owned subsidiary of True North ("CAC"), and Bozell, Jacobs, Kenyon &
Eckhardt, Inc., a Delaware corporation ("Bozell"), and the merger
contemplated thereby (the "Merger");
2. To consider and vote upon a proposal to approve the issuance of shares
of Common Stock, $.33 1/3 par value, of True North ("True North Common
Stock") in connection with the Merger and pursuant to the terms of the
Merger Agreement (the "Share Issuance");
3. To consider and vote upon a proposal to approve an Amendment to the
Restated Certificate of Incorporation of True North to increase the number
of authorized shares of True North Common Stock from 50,000,000 to
90,000,000 (the "Charter Amendment");
4. To elect 12 directors (contingent upon consummation of the Merger) to
serve until the next annual meeting of stockholders or their respective
successors are elected and qualified; and
5. To approve True North's Stock Option Plan, as amended to increase the
shares of True North Common Stock which may be issued pursuant thereto from
7,614,000 to 12,114,000 (the "Stock Option Plan Amendment").
A conformed copy of the Merger Agreement is attached to the accompanying
Joint Proxy Statement/Prospectus as Annex I.
Stockholders of record at the close of business on November 18, 1997 are
entitled to receive notice of and to vote at the Special Meeting and any
adjournment or postponement thereof. Approval of each of the Merger Agreement
and the Merger, and the Charter Amendment, will require the affirmative vote
of a majority of the outstanding shares of True North Common Stock entitled to
vote thereon. Approval of each of the Share Issuance and the Stock Option Plan
Amendment will require the affirmative vote of a majority of the votes cast on
such proposal, provided that the total number of votes cast on the applicable
proposal represents a majority of the outstanding shares of True North Common
Stock entitled to vote thereon at the Special Meeting. Directors are elected
by a plurality of the votes cast. THE PROPOSALS TO APPROVE THE MERGER
AGREEMENT AND THE MERGER, AND THE STOCK OPTION PLAN AMENDMENT, ARE THE ONLY
PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING WHICH ARE NOT EXPRESS
CONDITIONS TO THE CONSUMMATION OF THE MERGER.
THE BOARD OF DIRECTORS OF TRUE NORTH, WITH ONE DIRECTOR DISSENTING, HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER, THE SHARE ISSUANCE AND
THE CHARTER AMENDMENT ARE ADVISABLE AND FAIR TO AND IN THE BEST INTERESTS OF
THE STOCKHOLDERS OF TRUE NORTH; HAS APPROVED SUCH MATTERS; AND RECOMMENDS THAT
YOU VOTE IN FAVOR THEREOF AS WELL AS FOR EACH PERSON NOMINATED BY THE BOARD OF
DIRECTORS TO SERVE AS A BOARD MEMBER AND FOR THE STOCK OPTION PLAN AMENDMENT.
Ali Wambold, the True North director designated by Publicis Communication (the
"Publicis Designee") dissented with respect to the foregoing matters. In
casting
<PAGE>
his dissenting vote, the Publicis Designee stated that his opposition was
based on the following factors: (i) concern over the management structure of
the merged entities and (ii) that, notwithstanding the fairness of the Merger
to True North from a financial point of view (as addressed in the written
opinion of Morgan Stanley & Co. Incorporated), he believed that True North
agreed to pay too much for Bozell.
It is important that your shares of True North Common Stock be represented
at the Special Meeting regardless of the number of shares you hold. You are
urged to specify your voting preferences by marking, dating and signing the
enclosed proxy card and returning it in the enclosed business reply envelope.
No postage is required if mailed in the United States. If you wish to vote in
accordance with the directors' recommendations, all you need do is date and
sign the proxy card and return it in the envelope.
PLEASE COMPLETE AND RETURN THE PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING. If you do attend and wish to vote in person, you may
revoke your proxy at that time. You may also revoke your proxy at any time
prior to its exercise by filing a written notice of such revocation with the
Secretary of True North at or prior to the Special Meeting or by delivering to
True North a duly executed later dated proxy.
The accompanying Joint Proxy Statement/Prospectus is also being used to
solicit voting instructions for the shares of True North Common Stock which
are held by the trustee of True North's Stock Purchase Plan for the benefit of
the participants in such Plan. It is important that each participant mark,
date and sign the voting instruction card which is enclosed with the Joint
Proxy Statement/Prospectus and return it in the enclosed business reply
envelope. No postage is required if mailed in the United States.
By order of the Board of Directors,
/s/ Dale F. Perona
Dale F. Perona
Secretary
101 East Erie Street
Chicago, Illinois 60611
November 26, 1997
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
40 WEST 23RD STREET
NEW YORK, NEW YORK 10010
November 26, 1997
TO OUR STOCKHOLDERS:
On behalf of the Board of Directors and management of Bozell, Jacobs, Kenyon
& Eckhardt, Inc. ("Bozell"), I cordially invite you to attend a Special
Meeting of Stockholders to be held in the Second Floor Staircase Room at
Bozell's offices at 40 West 23rd Street, New York, New York on Tuesday,
December 30, 1997, at 10:00 a.m., New York time.
The purpose of the Special Meeting is to consider and vote on a proposal to
approve and adopt the Agreement and Plan of Merger dated as of July 30, 1997
(the "Merger Agreement") among Bozell, True North Communications Inc. ("True
North") and Cherokee Acquisition Corporation ("CAC"), a wholly-owned
subsidiary of True North, which provides for the merger (the "Merger") of CAC
with and into Bozell, with Bozell surviving as a wholly-owned subsidiary of
True North. Pursuant and subject to the terms and conditions of the Merger
Agreement, each share of Bozell common stock outstanding immediately prior to
the effective time of the Merger (other than shares owned directly or
indirectly by True North or Bozell which will be cancelled) will be converted
into 0.51 share (the "Exchange Ratio") of True North common stock. Cash will
be paid in lieu of any fractional share of True North common stock. A
conformed copy of the Merger Agreement is attached as Annex I to the
accompanying Joint Proxy Statement/Prospectus.
FOR THE REASONS DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, YOUR BOARD OF DIRECTORS (I) HAS DETERMINED THAT THE
MERGER IS IN THE BEST INTERESTS OF BOZELL AND ITS STOCKHOLDERS, (II) HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND (III) RECOMMENDS THAT YOU VOTE
IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT AT THE SPECIAL MEETING.
In determining that the Merger is in the best interests of Bozell and its
stockholders and to recommend approval and adoption of the Merger Agreement,
your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement, as well as other factors. In addition, the
Board of Directors has received the written opinion, dated July 30, 1997, of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bozell's financial
advisor, that, as of such date and based upon and subject to the assumptions,
limitations and other matters set forth therein, the Exchange Ratio was fair
from a financial point of view to the holders of shares of Bozell common
stock. The full text of such opinion is set forth as Annex III to the
accompanying Joint Proxy Statement/Prospectus.
The Merger and the Merger Agreement are described in the accompanying Joint
Proxy Statement/Prospectus. We urge you to read this material carefully.
Please complete and return the enclosed proxy card whether or not you plan
to attend the Special Meeting. Any proxy in the enclosed form may be revoked
by the stockholder executing it at any time prior to its exercise by giving
written notice thereof to Bozell at 40 West 23rd Street, New York, New York
10010, Attention: Valentine J. Zammit, Vice Chairman and Chief Financial
Officer of Bozell, by signing and returning a later-dated proxy or by voting
in person at the Bozell Special Meeting. Attendance at the Bozell Special
Meeting will not in and of itself constitute the revocation of a proxy.
On behalf of your Board of Directors and management, I thank you for your
support and urge you to vote FOR approval and adoption of the Merger
Agreement.
Sincerely,
/s/ Charles D. Peebler, Jr.
Charles D. Peebler, Jr.
Chief Executive Officer
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
A special meeting of stockholders of Bozell, Jacobs, Kenyon & Eckhardt, Inc.
("Bozell"), will be held in the Second Floor Staircase Room at Bozell's
offices at 40 West 23rd Street, New York, New York on Tuesday, December 30,
1997, at 10:00 a.m., New York time, to consider and vote on a proposal to
approve and adopt the Agreement and Plan of Merger dated as of July 30, 1997
(the "Merger Agreement") among Bozell, True North Communications Inc. ("True
North") and Cherokee Acquisition Corporation ("CAC"), a wholly-owned
subsidiary of True North, which provides for the merger (the "Merger") of CAC
with and into Bozell, with Bozell surviving as a wholly-owned subsidiary of
True North. Pursuant and subject to the terms and conditions of the Merger
Agreement, each share of Bozell common stock outstanding immediately prior to
the effective time of the Merger (other than shares owned directly or
indirectly by True North or Bozell which will be cancelled) will be converted
to 0.51 share of True North common stock.
A conformed copy of the Merger Agreement is attached to the accompanying
Joint Proxy Statement/Prospectus as Annex I.
Stockholders of record at the close of business on November 20, 1997 are
entitled to receive notice of and to vote at the Special Meeting and any
adjournment or postponement of the meeting. Assuming the presence of a quorum
at the Special Meeting, approval and adoption of the Merger Agreement requires
the affirmative vote of a majority of the voting power of the outstanding
shares of Class A and Class B Common Stock of Bozell entitled to vote thereon.
It is important that your shares be represented at the Special Meeting
regardless of the number of shares you hold. You are urged to specify your
voting preference by marking, dating and signing the enclosed proxy card and
returning it in the enclosed business reply envelope. No postage is required
if mailed in the United States. If you wish to vote in accordance with the
recommendations of the Board of Directors of Bozell, all you need to do is
date and sign the proxy card and return it in the enclosed envelope.
PLEASE COMPLETE AND RETURN THE PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING. Any proxy in the enclosed form may be revoked by the
stockholder executing it at any time prior to its exercise by giving written
notice thereof to Bozell at 40 West 23rd Street, New York, New York 10010,
Attention: Valentine J. Zammit, Vice Chairman and Chief Financial Officer of
Bozell, by signing and returning a later-dated proxy or by voting in person at
the Bozell Special Meeting. Attendance at the Bozell Special Meeting will not
in and of itself constitute the revocation of a proxy.
By order of the Board of Directors
LEO-ARTHUR KELMENSON
Chairman of the Board of Directors
40 West 23rd Street
New York, New York 10010
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
AND
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
JOINT PROXY STATEMENT
----------------
TRUE NORTH COMMUNICATIONS INC.
PROSPECTUS
----------------
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to the holders of Common Stock, par value $.33 1/3 per share
("True North Common Stock"), of True North Communications Inc., a Delaware
corporation ("True North"), in connection with the solicitation of proxies by
the Board of Directors of True North (the "True North Board") for use at its
Special Meeting of Stockholders to be held at the Omni Chicago Hotel, Chagall
Ballroom--Third Floor--Salon A, 676 North Michigan Avenue, Chicago, Illinois,
on December 30, 1997 at 9:00 a.m., local time, and any adjournments thereof
(the "True North Special Meeting").
This Proxy Statement/Prospectus is also being furnished to the holders of
Class A Common Stock, par value $.001 per share ("Bozell Class A Common
Stock"), and Class B Common Stock, par value $.001 per share ("Bozell Class B
Common Stock" and, together with Bozell Class A Common Stock, "Bozell Common
Stock"), of Bozell, Jacobs, Kenyon & Eckhardt, Inc., a Delaware corporation
("Bozell"), in connection with the solicitation of proxies by the Board of
Directors of Bozell (the "Bozell Board") for use at its Special Meeting of
Stockholders to be held in the Second Floor Staircase Room at Bozell's offices
at 40 West 23rd Street, New York, New York on Tuesday, December 30, 1997, at
10:00 a.m., New York time and any adjournments thereof (the "Bozell Special
Meeting" and, together with the True North Special Meeting, the "Special
Meetings").
This Proxy Statement/Prospectus relates to the Agreement and Plan of Merger
dated as of July 30, 1997 (the "Merger Agreement") among True North, Cherokee
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
True North ("CAC"), and Bozell. The Merger Agreement provides for the merger
(the "Merger") of CAC with and into Bozell, with Bozell surviving as a wholly-
owned subsidiary of True North. Subject to the terms and conditions of the
Merger Agreement, each share of Bozell Common Stock outstanding immediately
prior to the Effective Time (as defined in the Merger Agreement) of the Merger
will be converted into 0.51 of a share (the "Exchange Ratio") of True North
Common Stock, including the corresponding percentage of a right (individually,
a "True North Right," and collectively, the "True North Rights") to purchase
shares of Series A Junior Participating Preferred Stock, par value $1.00 per
share, of True North ("True North Series A Preferred Stock"). Cash will be
paid in lieu of any fractional share of True North Common Stock.
Notwithstanding the foregoing, holders of Bozell Common Stock have the right
to an appraisal of the fair value of their stock in lieu of conversion thereof
into True North Common Stock in the Merger upon full compliance with Section
262 of the Delaware General Corporation Law (the "DGCL"). A vote in favor of
approving and adopting the Merger Agreement precludes the exercise of such
appraisal right; an abstention, a failure to vote or a vote against the Merger
Agreement neither waives the right to dissent nor constitutes notice of intent
to exercise appraisal rights. See "APPRAISAL RIGHTS." A conformed copy of the
Merger Agreement is attached hereto as Annex I.
SEE "RISK FACTORS" COMMENCING ON PAGE 18 FOR A DESCRIPTION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY HOLDERS OF BOZELL COMMON STOCK AND TRUE
NORTH COMMON STOCK BEFORE VOTING ON MATTERS PERTAINING TO THE MERGER.
(continued on next page)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
The date of this Proxy Statement/Prospectus is November 26, 1997.
<PAGE>
The consummation of the Merger is subject, among other things, to (i) the
approval and adoption of the Merger Agreement by the affirmative vote of the
holders of a majority of the voting power of the outstanding shares of Bozell
Common Stock entitled to vote thereon at the Bozell Special Meeting; (ii) the
approval of the issuance of True North Common Stock (the "Share Issuance") in
connection with the Merger and pursuant to the terms of the Merger Agreement,
including the issuance of True North Common Stock in connection with the
conversion of any Warrants to purchase shares of Bozell Common Stock
outstanding immediately prior to the Effective Time (collectively, the
"Warrants" or the "Bozell Warrants"), by the affirmative vote of a majority of
the votes cast thereon at the True North Special Meeting, provided that the
total votes cast on the proposal represent a majority of the outstanding
shares of True North Common Stock; (iii) the approval of an amendment to True
North's Restated Certificate of Incorporation, as amended (the "True North
Charter"), to increase the number of authorized shares of True North Common
Stock from 50,000,000 to 90,000,000 (the "Charter Amendment"), by the
affirmative vote of a majority of the outstanding shares of True North Common
Stock entitled to vote thereon at the True North Special Meeting; (iv) the
election of 12 directors to serve on the True North Board (contingent upon
consummation of the Merger) by a plurality of the votes cast thereon at the
True North Special Meeting (the "Election of Directors") and (v) the receipt
of certain regulatory approvals.
The holders of True North Common Stock will also be asked to consider and
vote upon the approval of the Merger Agreement and the Merger, which will
require the affirmative vote of a majority of the outstanding shares of True
North Common Stock entitled to vote thereon at the True North Special Meeting,
and the approval of the True North Communications Inc. Stock Option Plan (the
"True North Stock Option Plan"), as amended to increase the shares of True
North Common Stock which may be issued pursuant thereto from 7,614,000 to
12,114,000 (the "Stock Option Plan Amendment"), which will require the
affirmative vote of a majority of the votes cast thereon at the True North
Special Meeting, provided that the total votes cast on the proposal represent
a majority of the outstanding shares of True North Common Stock. THE PROPOSALS
TO APPROVE THE MERGER AGREEMENT AND THE MERGER, AND THE STOCK OPTION PLAN
AMENDMENT, ARE THE ONLY PROPOSALS TO BE CONSIDERED AT THE TRUE NORTH SPECIAL
MEETING WHICH ARE NOT EXPRESS CONDITIONS TO THE CONSUMMATION OF THE MERGER.
This Proxy Statement/Prospectus also constitutes the Prospectus of True
North filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of True North Common Stock constituting the Share Issuance, as well as
the shares of True North Common Stock issuable upon exercise of specified
options to purchase Bozell Common Stock, and associated True North Rights.
True North Common Stock trades on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "TNO." There is no established public trading market
for Bozell Common Stock. On July 30, 1997, the last trading day prior to the
public announcement of the execution of the Merger Agreement, the last sale
price of True North Common Stock, as reported on the NYSE Composite
Transactions Tape, was $23 1/16 per share. On November 25, 1997, the last
trading day prior to the date of this Proxy Statement/Prospectus, the last
reported sale price of True North Common Stock, as reported on the NYSE
Composite Transactions Tape, was $26 3/4 per share.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of True North and Bozell on or about
December 1, 1997.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.................................................. 1
INCORPORATION OF DOCUMENTS BY REFERENCE................................ 1
SUMMARY................................................................ 3
Risk Factors......................................................... 3
True North Special Meeting........................................... 3
Bozell Special Meeting............................................... 4
Parties to the Merger Agreement...................................... 5
The Merger........................................................... 6
The Merger Agreement................................................. 9
Comparative Rights of Stockholders; Description of True North Common
Stock............................................................... 11
Appraisal Rights..................................................... 11
True North Selected Historical Financial Data........................ 12
Bozell Selected Historical Financial Data............................ 13
Selected Unaudited Pro Forma Combined Financial Data................. 14
Comparative Per Share Data of True North and Bozell.................. 16
Market Prices and Dividends Paid..................................... 17
RISK FACTORS........................................................... 18
Fixed Exchange Ratio................................................. 18
Uncertainties in Integrating Business Operations and Achieving Cost
Savings............................................................. 18
Uncertainties as to Amount of One-Time Merger-Related Charge......... 18
Interests of Certain Persons in the Merger........................... 18
Publicis Settlement.................................................. 19
Opposition of Publicis............................................... 20
Anti-Takeover Provisions............................................. 20
Future Sales and Price of True North Common Stock.................... 20
TRUE NORTH SPECIAL MEETING............................................. 21
Date, Place and Time................................................. 21
Purposes............................................................. 21
Record Date; Voting Rights........................................... 21
Quorum............................................................... 21
Proxies.............................................................. 22
Solicitation of Proxies.............................................. 22
Required Vote........................................................ 22
Share Ownership of Management........................................ 23
BOZELL SPECIAL MEETING................................................. 23
Date, Place and Time................................................. 23
Purpose.............................................................. 23
Record Date; Voting Rights........................................... 23
Quorum............................................................... 24
Proxies.............................................................. 24
Solicitation of Proxies.............................................. 24
Required Vote........................................................ 25
Appraisal Rights..................................................... 25
Share Ownership of Management........................................ 25
PARTIES TO THE MERGER AGREEMENT........................................ 25
True North........................................................... 25
Bozell............................................................... 25
CAC.................................................................. 26
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THE MERGER................................................................. 26
General.................................................................. 26
Background of the Merger................................................. 26
True North's Reasons for the Merger; Recommendation of its Board of
Directors............................................................... 35
Opinion of True North's Financial Advisor................................ 37
Bozell's Reasons for the Merger; Recommendation of its Board of
Directors............................................................... 40
Opinion of Bozell's Financial Advisor.................................... 41
Interests of Certain Persons in the Merger............................... 45
Certain Federal Income Tax Consequences.................................. 52
Accounting Treatment..................................................... 54
Governmental and Regulatory Approvals.................................... 54
Percentage Ownership Interest of Bozell Stockholders After the Merger.... 54
Stock Exchange Listing................................................... 55
Resales of True North Common Stock....................................... 55
THE MERGER AGREEMENT....................................................... 55
Conversion of Shares in the Merger....................................... 55
No Fractional Shares..................................................... 56
Adjustment of Exchange Ratio............................................. 56
Exchange Agent; Procedures for Exchange of Certificates and Delivery of
Cash.................................................................... 57
Stock Options............................................................ 58
Warrants................................................................. 58
Representations and Warranties........................................... 58
Conduct of Business Pending the Merger................................... 58
No Solicitation.......................................................... 60
Third Party Standstill Agreements........................................ 61
Conditions Precedent to the Merger....................................... 61
Termination.............................................................. 63
Fees and Expenses........................................................ 64
Employee Benefits........................................................ 65
Indemnification; Directors and Officers Insurance........................ 66
Management and Operation of True North................................... 67
Amendment................................................................ 67
Waiver................................................................... 67
Governing Law............................................................ 67
STOCKHOLDERS AGREEMENTS.................................................... 68
DESCRIPTION OF TRUE NORTH COMMON STOCK..................................... 68
Capital Stock............................................................ 68
Voting Rights............................................................ 68
Dividends and Other Rights............................................... 68
Anti-Takeover Provisions................................................. 69
Transfer Agent and Registrar............................................. 70
After the Merger......................................................... 70
COMPARATIVE RIGHTS OF STOCKHOLDERS......................................... 71
Number of Directors...................................................... 71
Power to Call Special Meetings........................................... 71
Voting Rights............................................................ 72
Appraisal Rights......................................................... 72
Action by Written Consent................................................ 72
Rights Agreement......................................................... 72
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APPRAISAL RIGHTS.......................................................... 73
ELECTION OF DIRECTORS OF TRUE NORTH....................................... 74
Election of Directors................................................... 74
Voting Securities and Principal Holders Thereof......................... 78
Executive Compensation.................................................. 79
Stock Options........................................................... 80
Other Agreements........................................................ 80
Compensation Committee Interlocks and Insider Participation............. 81
PROPOSAL TO APPROVE TRUE NORTH CHARTER AMENDMENT.......................... 82
PROPOSAL TO APPROVE TRUE NORTH STOCK OPTION PLAN, AS AMENDED AND RESTATED. 83
Additional Information.................................................. 83
BUSINESS OF TRUE NORTH.................................................... 85
INFORMATION REGARDING BOZELL.............................................. 86
Personnel............................................................... 87
Properties.............................................................. 87
Market Price and Dividends on Bozell Common Stock and Related
Stockholder Matters.................................................... 87
Voting Securities and Principal Holders Thereof......................... 88
Certain Transactions.................................................... 89
Unaudited Quarterly Data................................................ 90
Management's Discussion and Analysis of Financial Condition............. 90
Six Months Ended September 30, 1997 Compared to Six Months Ended
September 30, 1996................................................... 90
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March
31, 1996............................................................. 91
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March
31, 1995............................................................. 91
Liquidity and Capital Resources....................................... 92
Inflation............................................................. 93
EXPERTS................................................................... 93
LEGAL OPINIONS............................................................ 93
STOCKHOLDER PROPOSALS..................................................... 94
OTHER MATTERS............................................................. 94
BOZELL CONSOLIDATED FINANCIAL STATEMENTS.................................. F-1
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION........................ F-24
Annex IMerger Agreement
Annex IIOpinion of Morgan Stanley & Co. Incorporated
Annex IIIOpinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex IVTrue North Stock Option Plan, as Proposed to be Amended and
Restated
Annex VSection 262 of the DGCL
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AVAILABLE INFORMATION
True North is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following Regional Offices of the SEC: Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the SEC at 450 Fifth
Street, N.W. Washington, D.C. 20549, at prescribed rates. In addition, the SEC
maintains a Web site (http://www.sec.gov) that contains reports, proxy
statements and other information regarding registrants who file electronically
with the SEC. True North files electronically with the SEC. Copies of such
materials relating to True North can also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Reference is made to the
Registration Statement and the Exhibits thereto for further information.
Statements contained or incorporated by reference herein concerning the
provisions of any agreement or other document filed as an Exhibit to the
Registration Statement or otherwise filed with the SEC are not necessarily
complete and reference is hereby made to the copy thereof so filed for more
detailed information, each such statement being qualified in its entirety by
such reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER
THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER OF SHARES OF BOZELL COMMON STOCK OR TRUE NORTH COMMON STOCK TO WHOM THIS
PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO TRUE
NORTH COMMUNICATIONS INC., 101 EAST ERIE STREET, CHICAGO, ILLINOIS 60611,
ATTENTION: SECRETARY, TELEPHONE NUMBER (312) 425-6500. IN ORDER TO ENSURE
DELIVERY OF DOCUMENTS PRIOR TO THE APPLICABLE SPECIAL MEETING, ANY REQUEST
THEREFOR SHOULD BE MADE NOT LATER THAN DECEMBER 22, 1997.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed by True North with the SEC (file
number 1-5029) pursuant to the Securities and Exchange Act of 1934, as amended
(the "Exchange Act") are incorporated herein by reference:
1. True North's Annual Report on Form 10-K for the year ended December
31, 1996, Amendment No. 1 thereto on Form 10-K/A dated June 27, 1997 and
Amendment No. 2 thereto on Form 10-K/A dated November 26, 1997;
2. True North's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1997;
3. True North's Current Reports on Form 8-K dated January 22, May 19,
June 25, July 31, November 17 and November 18, 1997; and
4. The description of the True North Rights set forth in Item 1 of True
North's Registration Statement on Form 8-A, filed with the SEC on November
18, 1988, and any amendment or report filed for the purpose of updating
such description.
All documents filed by True North pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the True North Special Meeting or the Bozell
Special Meeting shall be deemed to be incorporated by reference herein and to
be a part hereof from the respective dates of filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein, or in
any other subsequently filed document which also is or is deemed
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to be incorporated by reference herein, modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
----------------
CERTAIN STATEMENTS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING
WITHOUT LIMITATION CERTAIN STATEMENTS UNDER THE CAPTIONS "THE MERGER--TRUE
NORTH'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS," "--
OPINION OF TRUE NORTH'S FINANCIAL ADVISOR" AND "INFORMATION REGARDING BOZELL,"
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E(I)(1) OF THE EXCHANGE ACT. SUCH FORWARD-
LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS OF TRUE NORTH (INCLUDING, FROM AND
AFTER THE EFFECTIVE TIME, THE ACTUAL RESULTS OF BOZELL WHICH WILL BE
CONSOLIDATED THEREIN) TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS
EXPRESSED OR IMPLIED BY THESE STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHER
THINGS, THE FOLLOWING: GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN
DEMAND FOR TRUE NORTH'S SERVICES, CHANGES IN COMPETITION, THE ABILITY OF TRUE
NORTH TO INTEGRATE ACQUISITIONS OR COMPLETE FUTURE ACQUISITIONS, INTEREST RATE
FLUCTUATIONS, DEPENDENCE UPON AND AVAILABILITY OF QUALIFIED PERSONNEL, AND
CHANGES IN GOVERNMENTAL REGULATION. IN LIGHT OF THESE AND OTHER UNCERTAINTIES,
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT SHOULD NOT BE
REGARDED AS A REPRESENTATION BY TRUE NORTH THAT TRUE NORTH'S PLANS AND
OBJECTIVES WILL BE ACHIEVED.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER TRUE NORTH OR BOZELL. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TRUE NORTH OR BOZELL SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
----------------
As used herein, unless the context otherwise clearly requires, "True North"
refers to True North Communications Inc. and its consolidated subsidiaries and
"Bozell" refers to Bozell, Jacobs, Kenyon & Eckhardt, Inc. and its
consolidated subsidiaries. Capitalized terms not defined herein have the
respective meanings specified in the Merger Agreement.
----------------
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO
TRUE NORTH AND CAC HAS BEEN PROVIDED BY TRUE NORTH. ALL INFORMATION CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO BOZELL HAS BEEN PROVIDED BY
BOZELL.
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SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. Reference is made
to, and this summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Proxy
Statement/Prospectus and the Annexes hereto.
----------------
STOCKHOLDERS OF TRUE NORTH AND BOZELL ARE URGED TO READ THIS PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN THEIR ENTIRETY AND SHOULD
CONSIDER CAREFULLY THE INFORMATION SET FORTH HEREIN UNDER "RISK FACTORS."
----------------
RISK FACTORS
In considering whether to approve the various matters pertaining to the
Merger, the stockholders of True North and Bozell should consider that: (i) the
Exchange Ratio is expressed in the Merger Agreement as a fixed ratio and will
not be adjusted in the event of any increase or decrease in the price of True
North Common Stock or the price or value of Bozell Common Stock; (ii) there can
be no assurance that cost savings, operating efficiencies and other synergies
currently expected to result from the consummation of the Merger will be
achieved or the extent to which they will be achieved; (iii) True North expects
to take a material one-time pre-tax charge in connection with the Merger; (iv)
certain directors and executive officers of True North and Bozell have
interests in the Merger that are in addition to their interests as stockholders
of True North or Bozell generally; (v) True North has recently entered into
agreements with Publicis Communication ("Publicis") unwinding the parties'
European joint venture; (vi) Publicis, which holds approximately 18.4% of the
outstanding shares of True North Common Stock, has informed True North that it
intends to oppose and vote against the Merger and that it would be prepared to
propose a business combination between Publicis and True North; (vii) the DGCL,
the True North Charter, True North's Bylaws and the True North Rights Agreement
(as hereinafter defined) contain provisions that could discourage or make more
difficult a change of control of True North; and (viii) no prediction can be
made as to the effect, if any, that future sales of True North Common Stock, or
the availability of shares for future sale, will have on the market price of
True North Common Stock.
TRUE NORTH SPECIAL MEETING
Date, Place and Time. The True North Special Meeting will be held on December
30, 1997 at 9:00 a.m., local time, at the Omni Chicago Hotel, Chagall
Ballroom--Third Floor--Salon A, 676 North Michigan Avenue, Chicago, Illinois.
Purposes. At the True North Special Meeting, holders of True North Common
Stock will be asked to consider and act upon proposals to: (i) approve the
Merger Agreement and the Merger, (ii) approve the Share Issuance, (iii) approve
the Charter Amendment, (iv) elect 12 directors and (v) to approve the Stock
Option Plan Amendment. THE PROPOSALS TO APPROVE THE MERGER AGREEMENT AND THE
MERGER, AND THE STOCK OPTION PLAN AMENDMENT, ARE THE ONLY PROPOSALS TO BE
CONSIDERED AT THE TRUE NORTH SPECIAL MEETING WHICH ARE NOT EXPRESS CONDITIONS
TO THE CONSUMMATION OF THE MERGER. See "TRUE NORTH SPECIAL MEETING--Purpose."
For a discussion of the reasons True North stockholders are being asked to
approve the Merger Agreement and the Merger, see "THE MERGER--Accounting
Treatment."
Record Date, Voting Rights. Only holders of record of True North Common Stock
at the close of business on November 18, 1997 (the "True North Record Date")
are entitled to receive notice of and to vote at the True North Special
Meeting. At the close of business on the True North Record Date, there were
25,271,533 shares of True North Common Stock outstanding, each of which
entitles the registered holder thereof to one vote on each matter to be voted
upon at the True North Special Meeting. True North stockholders do not have the
right to cumulate votes in the election of directors. See "TRUE NORTH SPECIAL
MEETING--Record Date; Voting Rights."
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Quorum. The holders of a majority of shares of True North Common Stock
outstanding and entitled to vote must be present in person or represented by
proxy at the True North Special Meeting in order for a quorum to be present. In
the event that a quorum is not present at the True North Special Meeting, it is
expected that such meeting will be adjourned or postponed to allow for the
solicitation of additional proxies. See "TRUE NORTH SPECIAL MEETING--Quorum."
Required Vote. Approval of each of the Merger Agreement and the Merger, and
the Charter Amendment, will require the affirmative vote of a majority of the
outstanding shares of True North Common Stock entitled to vote thereon.
Approval of each of the Share Issuance and the Stock Option Plan Amendment will
require the affirmative vote of a majority of the votes cast on such proposal,
provided that the total number of votes cast on the applicable proposal
represents more than 50% of the outstanding shares of True North Common Stock
entitled to vote thereon at the True North Special Meeting. Directors are
elected by a plurality of the votes cast. THE PROPOSALS TO APPROVE THE MERGER
AGREEMENT AND THE MERGER, AND THE STOCK OPTION PLAN AMENDMENT, ARE THE ONLY
PROPOSALS TO BE CONSIDERED AT THE TRUE NORTH SPECIAL MEETING WHICH ARE NOT
EXPRESS CONDITIONS TO THE CONSUMMATION OF THE MERGER. See "TRUE NORTH SPECIAL
MEETING--Required Vote." For a discussion of the reasons True North
stockholders are being asked to approve the Merger Agreement and the Merger,
see "THE MERGER--Accounting Treatment."
True North Stockholders Agreements. The holders of 185,967 shares of True
North Common Stock outstanding at the close of business on the True North
Record Date (approximately 0.74% of the shares of True North Common Stock then
outstanding) have signed stockholders agreements (the "True North Stockholders
Agreements") obligating them (without receipt of monetary consideration) to
vote in favor of all matters to be presented by the True North Board at the
True North Special Meeting. See "STOCKHOLDERS AGREEMENTS."
Share Ownership of Management. At the close of business on the True North
Record Date, directors and executive officers of True North and their
affiliates were the beneficial owners of an aggregate of 719,390 shares of True
North Common Stock (approximately 2.9% of the shares of True North Common Stock
then outstanding). Such shares include 185,967 shares of True North Common
Stock subject to the True North Stockholders Agreements. See "TRUE NORTH
SPECIAL MEETING--Share Ownership of Management."
BOZELL SPECIAL MEETING
Date, Place and Time. The Bozell Special Meeting will be held in the Second
Floor Staircase Room at Bozell's offices at 40 West 23rd Street, New York, New
York on Tuesday, December 30, 1997, at 10:00 a.m., New York time.
Purpose. To consider and vote upon a proposal to approve and adopt the Merger
Agreement. See "BOZELL SPECIAL MEETING--Purpose."
Record Date; Voting Rights. Only holders of record of Bozell Common Stock at
the close of business on November 20, 1997 (the "Bozell Record Date") are
entitled to receive notice of and to vote at the Bozell Special Meeting. At the
close of business on the Bozell Record Date, there were 8,266,959 shares of
Bozell Class A Common Stock outstanding, each of which entitles the registered
holder thereof to 1.1 votes on each matter to be voted upon at the Bozell
Special Meeting, and there were 28,256,848 shares of Bozell Class B Common
Stock outstanding, each of which entitles the registered holder thereof to one
vote on each matter to be voted upon at the Bozell Special Meeting. Bozell
Class A Common Stock may only be owned by or transferred to employees of Bozell
or by a trust described in Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or any successor provision. Currently, all of the
Bozell Class A Common Stock is owned by the Bozell, Inc. Stock Bonus Plan (the
"Bozell Stock Bonus Plan") and the Bozell, Jacobs, Kenyon & Eckhardt, Inc.
Profit Sharing and Savings Plan (the "Bozell Profit Sharing Plan") and will be
voted by Valentine J.
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Zammit, Joseph Caggiano, David Harkin and Henry Borst, the Trustees of such
plans. The Trustees will mail this Joint Proxy Statement/Prospectus and a
voting instruction card to each participant in such plans. If a participant
returns the voting instruction card, the shares allocated to such participant's
account in a plan will be voted as instructed by the participant. Shares
allocated to the accounts of plan participants who do not provide any voting
instructions to the Trustees will be voted in the same proportions as the total
numbers of shares for which plan participants provided voting instructions. The
Bozell Class A Common Stock and the Bozell Class B Common Stock will vote
together as a single class at the Bozell Special Meeting. See "BOZELL SPECIAL
MEETING--Record Date; Voting Rights."
Quorum. The holders of a majority of the shares of Bozell Common Stock
outstanding and entitled to vote must be present in person or represented by
proxy at the Bozell Special Meeting in order for a quorum to be present. See
"BOZELL SPECIAL MEETING--Quorum."
Required Vote. Assuming the presence of a quorum at the Bozell Special
Meeting, approval and adoption of the Merger Agreement will require the
affirmative vote of a majority of the voting power of the shares of Bozell
Common Stock outstanding on the Bozell Record Date. See "BOZELL SPECIAL
MEETING--Required Vote."
Bozell Stockholders Agreements. The holders of 13,122,434 shares of Bozell
Class B Common Stock outstanding at the close of business on the Bozell Record
Date (approximately 35.1% of the voting power of the shares of Bozell Common
Stock then outstanding) have signed stockholders agreements (the "Bozell
Stockholders Agreements" and, together with the True North Stockholders
Agreements, the "Stockholders Agreements") obligating them (without receipt of
monetary consideration) to vote in favor of the Merger and adoption of the
Merger Agreement. See "STOCKHOLDERS AGREEMENTS."
Share Ownership of Management. At the close of business on the Bozell Record
Date, directors and executive officers of Bozell and their affiliates were the
owners of an aggregate of 8,057,912 shares of Bozell Class B Common Stock
(approximately 21.6% of the voting power of Bozell Common Stock then
outstanding). Such shares include 13,122,434 shares of Bozell Class B Common
Stock subject to the Bozell Stockholders Agreements. See "BOZELL SPECIAL
MEETING--Share Ownership of Management."
PARTIES TO THE MERGER AGREEMENT
True North. True North is a communications company which is the holding
company for Foote, Cone & Belding, a global advertising agency network ("FCB"),
and certain additional marketing services agencies or companies. True North's
other operating units are TN Technologies Holdings, Inc. and True North
Associated Communications Companies. TN Technologies Holdings, Inc. is a
digital interactive marketing holding company for Modem Media Advertising
Limited Partnership, RGA Interactive and Cf2GS. True North Associated
Communications Companies are stand-alone companies specializing in marketing
services. These companies include Wahlstrom, a yellow pages and directory
advertising agency network with six offices; Tierney & Partners, the largest
advertising agency in Philadelphia; Borders, Perrin & Norrander, an advertising
agency in the Pacific Northwest; and Market Growth Resources, a sales promotion
agency with a niche in retail-specific programs. True North is a Delaware
corporation. Its principal offices are located at 101 East Erie Street,
Chicago, Illinois 60611, and its telephone number is (312) 425-6500. For
further information concerning True North, see "--True North Selected
Historical Financial Data," "PARTIES TO THE MERGER AGREEMENT--True North,"
"BUSINESS OF TRUE NORTH," "AVAILABLE INFORMATION" and "INCORPORATION OF
DOCUMENTS BY REFERENCE."
Bozell. Bozell and its subsidiaries are engaged primarily in offering full-
service advertising and public relations services throughout the world.
Bozell's services are delivered through eight divisions and over thirty
operating units, which include Bozell Worldwide, Bozell Wellness Worldwide,
Temerlin McClain, Poppe Tyson, Bozell Sawyer Miller Group, BJK&E Media Group,
McCracken Brooks and BJK&E Diversified Services. Bozell
5
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is a Delaware corporation. Its principal executive offices are located at 40
West 23rd Street, New York, New York, 10010, and its telephone number is (212)
727-5000. For further information concerning Bozell, see "--Bozell Selected
Historical Financial Data," "PARTIES TO THE MERGER AGREEMENT--Bozell,"
"INFORMATION REGARDING BOZELL" and "BOZELL CONSOLIDATED FINANCIAL STATEMENTS."
CAC. CAC was incorporated in Delaware as a domestic corporation on May 29,
1997 solely for the purpose of consummating the Merger and the other
transactions contemplated by the Merger Agreement. CAC has minimal assets and
no business and has carried on no activities which are not directly related to
its formation and its execution of the Merger Agreement. Its principal
executive offices are located at 101 East Erie Street, Chicago, Illinois 60611,
and its telephone number is (312) 425-6500. For further information concerning
CAC, see "PARTIES TO THE MERGER AGREEMENT--CAC."
THE MERGER
Recommendation of the True North Board. The True North Board has determined
that the Merger Agreement and the Merger, the Share Issuance and the Charter
Amendment are advisable and fair to and in the best interests of the
stockholders of True North and has approved the Merger Agreement and the
Merger, the Share Issuance and the Charter Amendment. THE TRUE NORTH BOARD
RECOMMENDS, WITH ONE DIRECTOR DISSENTING, THAT THE STOCKHOLDERS OF TRUE NORTH
VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE MERGER, THE SHARE ISSUANCE AND
THE CHARTER AMENDMENT AT THE TRUE NORTH SPECIAL MEETING. THE TRUE NORTH BOARD
HAS ALSO APPROVED AND RECOMMENDS, WITH ONE DIRECTOR DISSENTING, A VOTE FOR EACH
PERSON NOMINATED BY THE TRUE NORTH BOARD TO SERVE AS A MEMBER OF THE TRUE NORTH
BOARD IN CONNECTION WITH THE ELECTION OF DIRECTORS AND FOR THE STOCK OPTION
PLAN AMENDMENT. For a discussion of the reasons why one director of True North,
the Publicis Designee (as hereinafter defined), voted against the Merger, see
"THE MERGER--Background of the Merger." For a discussion of the interests that
certain directors and executive officers of True North have with respect to the
Merger in addition to their interests as stockholders of True North generally,
see "THE MERGER--Interests of Certain Persons in the Merger." See "THE MERGER--
True North's Reasons for the Merger; Recommendation of its Board of Directors."
Opinion of True North's Financial Advisor. Morgan Stanley & Co. Incorporated
("Morgan Stanley") has acted as financial advisor to True North in connection
with the Merger and has delivered its written opinion dated as of July 30, 1997
to the True North Board to the effect that, as of such date and based upon and
subject to the various considerations set forth therein, the Exchange Ratio was
fair from a financial point of view to True North. The full text of the Morgan
Stanley written opinion, which sets forth a description of the assumptions
made, procedures followed, matters considered and limitations on the scope of
review by Morgan Stanley in rendering such opinion, is attached hereto as Annex
II and should be read carefully in its entirety. See "THE MERGER--Opinion of
True North's Financial Advisor."
Opposition of Publicis Offer. Publicis, which holds approximately 18.4% of
the outstanding shares of True North Common Stock, has informed True North by
letter dated November 10, 1997 that it intends to oppose and vote against the
Merger (the Publicis Designee on the True North Board having previously voted
against the Merger and related matters). In addition, Publicis indicated in its
letter that it would be prepared to propose a business combination between
Publicis and True North in which each share of True North Common Stock would be
valued at $28.00 in an unspecified combination of cash and stock. By letter
dated November 17, 1997, True North responded to the Publicis letter and
declined to meet with Publicis to discuss the transaction Publicis was prepared
to propose. See "THE MERGER--Background of the Merger-Publicis Offer." True
North cannot currently predict what effect such opposition may have on the
prospect of obtaining stockholder approval of the Merger and related matters.
6
<PAGE>
Recommendation of the Bozell Board. The Bozell Board has unanimously
determined that the Merger is fair, equitable and in the best interests of
Bozell and its stockholders and has unanimously approved the Merger Agreement.
THE BOZELL BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF BOZELL VOTE IN
FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE BOZELL SPECIAL
MEETING. For a discussion of the interests that certain directors and executive
officers of Bozell have with respect to the Merger in addition to their
interests as stockholders of Bozell generally, see "THE MERGER--Interests of
Certain Persons in the Merger." See "THE MERGER--Bozell's Reasons for the
Merger; Recommendation of its Board of Directors."
Opinion of Bozell's Financial Advisor. Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") has acted as financial advisor to Bozell in
connection with the Merger and has delivered to the Bozell Board its written
opinion dated July 30, 1997 (the "Merrill Lynch Opinion") that, as of such date
and based upon and subject to the assumptions, limitations and other matters
set forth therein, the Exchange Ratio was fair from a financial point of view
to the holders of shares of Bozell Common Stock. The Merrill Lynch Opinion,
which sets forth the assumptions made, matters considered and limitations on
the review undertaken by Merrill Lynch, is attached hereto as Annex III and
should be read carefully in its entirety. See "THE MERGER--Opinion of Bozell's
Financial Advisor."
Determination of Exchange Ratio. The Exchange Ratio was negotiated by Bruce
Mason, Chairman and Chief Executive Officer of True North, in consultation with
True North's financial and legal advisors and Charles D. Peebler, Jr.,
President and Chief Executive Officer of Bozell, in consultation with Bozell's
financial and legal advisors. In negotiating the Exchange Ratio, Mr. Mason and
Mr. Peebler were acting under authority of their respective Boards of
Directors. During the several weeks prior to the determination of the Exchange
Ratio, True North and Bozell exchanged financial and other information and
engaged in extensive discussions with respect to an appropriate exchange ratio.
The determination was based in large part upon the respective historical and
projected financial performances of True North and Bozell. See "THE MERGER--
Background of the Merger." Based on the number of shares of True North Common
Stock outstanding on the True North Record Date and assuming the issuance of
approximately 18,627,141 shares of True North Common Stock in the Share
Issuance as of the Effective Time, upon consummation of the Merger there will
be approximately 43,898,674 shares of True North Common Stock outstanding at
the Effective Time.
Interests of Certain Persons in the Merger. In considering the
recommendations of the True North Board and the Bozell Board with respect to
the Merger, stockholders of True North and Bozell should be aware that certain
directors and executive officers of True North and Bozell have interests in the
Merger that are in addition to their interests as stockholders of True North or
Bozell generally. The True North Board and the Bozell Board were aware of such
interests and considered them, among other matters, in approving the Merger.
The Merger Agreement provides that five current directors of Bozell,
including Charles D. Peebler, Jr., President and Chief Executive Officer of
Bozell, Leo-Arthur Kelmenson, Chairman of Bozell, David A. Bell, Chairman of
Bozell Worldwide, and two additional non-employee directors of Bozell selected
by the Bozell Board, are to become directors of True North at the Effective
Time. The Bozell Board has selected W. Grant Gregory and Donald M. Elliman,
Jr., currently directors of Bozell, as its additional designees. The Merger
Agreement also provides that Bruce Mason, Chairman and Chief Executive Officer
of True North, J. Brendan Ryan, Chairman/Chief Executive Officer of FCB, and
four additional non-employee directors of True North other than the Publicis
Designee selected by the True North Board are to be True North's designees on
the True North Board as of the Effective Time. The True North Board has
selected Richard S. Braddock, Stephen T. Vehslage, Richard P. Mayer and Michael
E. Murphy, currently directors of True North, as its additional designees. In
addition, True North has executed employment agreements with Messrs. Peebler,
Mason and Braddock. Under these employment agreements (collectively, the
"Employment Agreements"), which take effect at the Effective Time of the
Merger, Messrs. Mason, Peebler and Braddock would serve as Chief Executive
Officer, President and non-executive Chairman, respectively, of True North.
These Employment Agreements were determined by
7
<PAGE>
the Compensation Committee of the True North Board (the "True North
Compensation Committee"), after receiving the advice of independent employment
compensation consultants, to be fair and reasonable and consistent with past
practice. Other interests include, among other things, a registration rights
agreement (the "Registration Rights Agreement") which True North has executed
with The Northwestern Mutual Life Insurance Company ("NML"), a holder of Bozell
Common Stock and of which J. Thomas Christofferson, a Bozell director, is the
Manager of Investments, and which takes effect as of the Effective Time in
substitution for a registration rights agreement dated as of February 1, 1988,
as amended, between Bozell, NML and certain other persons, provisions regarding
the receipt of salary and bonus payments as severance under an existing
employment agreement, the substitution of True North Common Stock for Bozell
Common Stock subject to outstanding options pursuant to any of Bozell's stock
option plans in effect on the date of the Merger Agreement ("Bozell Stock
Plans"), the acceleration of the exercisability of certain outstanding options
to purchase Bozell Common Stock and the payment of financial advisory fees to a
company of which Mr. Gregory, a director of Bozell, is Chairman and has an
interest. See "THE MERGER--Interests of Certain Persons in the Merger."
In addition to the foregoing, the Merger Agreement provides that officers and
directors of Bozell will be exculpated, indemnified and held harmless by the
Surviving Corporation (as hereinafter defined) to the same extent such persons
were as of the date of the Merger Agreement exculpated and indemnified by
Bozell for all acts or omissions occurring at or prior to the Effective Time,
and the Surviving Corporation will provide a director and officer insurance and
indemnification policy covering directors and officers of Bozell for periods
prior to the Effective Time. See "THE MERGER AGREEMENT--Indemnification;
Directors and Officers Insurance."
Certain Federal Income Tax Consequences. The Merger is intended to qualify as
a reorganization under Section 368(a) of the Code. Bozell has received an
opinion from White & Case, special counsel to Bozell, and True North has
received an opinion from Sidley & Austin, special counsel to True North, that,
assuming the Merger occurs in accordance with the Merger Agreement, and
conditioned on the accuracy of certain representations made by True North,
Bozell and others, for federal income tax purposes, no gain or loss will be
recognized by Bozell or CAC as a result of the Merger and Bozell stockholders
will recognize no gain or loss upon the conversion of their Bozell Common Stock
into shares of True North Common Stock pursuant to the Merger Agreement, except
with respect to cash received in lieu of any fractional shares of True North
Common Stock. In addition to the opinion filed as an exhibit to the
Registration Statement, as a condition of Bozell's and True North's respective
obligations to effect the Merger, similar opinions are required to be given by
White & Case to Bozell and by Sidley & Austin to True North, respectively. See
"THE MERGER AGREEMENT--Conditions Precedent to the Merger." The opinions do not
address the tax consequences to stockholders of Bozell of a conversion of
shares of Bozell Common Stock received upon the exercise of Bozell Warrants
prior to the Effective Time in contemplation of the Merger. To the extent True
North Common Stock is substituted for any outstanding Bozell Warrants pursuant
to the Merger, such event will be a taxable transaction for federal income tax
purposes. The holder of a Bozell Stock Option (as hereinafter defined) which is
converted into an option with respect to True North Common Stock will not
recognize gain or loss solely as a result of such conversion except with
respect to cash received in lieu of each fractional share. EACH BOZELL
STOCKHOLDER, WARRANT HOLDER AND OPTION HOLDER IS URGED TO CONSULT SUCH
STOCKHOLDER'S, WARRANT HOLDER'S OR OPTION HOLDER'S OWN TAX ADVISOR TO DETERMINE
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER, WARRANT HOLDER
OR OPTION HOLDER. See "THE MERGER--Certain Federal Income Tax Consequences."
Accounting Treatment. The Merger is expected to be accounted for as a pooling
of interests in accordance with generally accepted accounting principles
("GAAP"). It is a condition to the consummation of the Merger that True North
and Bozell receive an opinion of Arthur Andersen LLP that the Merger will
qualify for pooling of interests accounting treatment. See "THE MERGER--
Accounting Treatment" and "THE MERGER AGREEMENT--Conditions Precedent to the
Merger."
8
<PAGE>
Governmental and Regulatory Approvals. The consummation of the Merger is
conditioned upon the expiration or termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). Under the HSR Act and the regulations promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the applicable waiting period has expired or been terminated.
Report forms relating to the Merger have been filed on behalf of True North and
Bozell under the HSR Act with the FTC and the Antitrust Division. The
applicable waiting period has been terminated. See "THE MERGER--Governmental
and Regulatory Approvals" and "THE MERGER AGREEMENT--Conditions Precedent to
the Merger."
Percentage Ownership Interest of Bozell Stockholders After the Merger. Based
on the number of shares of True North Common Stock outstanding on the True
North Record Date and assuming the issuance of approximately 18,627,141 shares
of True North Common Stock in the Share Issuance as of the Effective Time, upon
consummation of the Merger there will be approximately 43,898,674 shares of
True North Common Stock outstanding at the Effective Time, of which the
stockholders of Bozell will own approximately 42.4% (approximately 40.8% on a
fully diluted basis).
THE MERGER AGREEMENT
Conversion of Shares in the Merger. At the Effective Time of the Merger, CAC
will be merged with and into Bozell, with Bozell continuing as the surviving
corporation (the "Surviving Corporation") and a wholly-owned subsidiary of True
North. As a result of the Merger, the separate corporate existence of CAC will
cease, and pursuant to Section 259 of the DGCL, the Surviving Corporation will
possess the assets and liabilities of CAC and Bozell by operation of law at the
Effective Time. Subject to the terms and conditions of the Merger Agreement,
and without any further action on the part of any stockholder of Bozell or CAC,
each share of Bozell Common Stock outstanding immediately prior to the
Effective Time of the Merger (other than shares owned directly or indirectly by
True North or Bozell, which will be cancelled) will be converted into 0.51 of a
share of True North Common Stock, including the corresponding percentage of a
True North Right. Cash will be paid in lieu of any fractional share of True
North Common Stock. Notwithstanding the foregoing, holders of Bozell Common
Stock have the right to an appraisal of the fair value of their stock in lieu
of conversion thereof into True North Common Stock in the Merger upon full
compliance with Section 262 of the DGCL. See "THE MERGER AGREEMENT--Conversion
of Shares in the Merger," "--No Fractional Shares," and "APPRAISAL RIGHTS."
The Merger will become effective on the date of filing of a Certificate of
Merger with the Secretary of State of the State of Delaware, which is
anticipated to occur promptly after the approval of the Merger Agreement by the
stockholders of True North and of Bozell and following the satisfaction or
waiver of the conditions to the obligations of each of the parties to the
Merger Agreement. See "THE MERGER AGREEMENT--Conditions Precedent to the
Merger."
Exchange Agent. First Chicago Trust Company of New York has been selected to
act as Exchange Agent under the Merger Agreement. Within three business days
after the Effective Time, True North will deposit with the Exchange Agent, in
trust for the holders of certificates which immediately prior to the Effective
Time represented shares of Bozell Common Stock converted in the Merger ("Bozell
Certificates"), (i) certificates representing the shares of True North Common
Stock ("True North Certificates") issuable pursuant to the Merger in accordance
with the Merger Agreement or issuable in exchange for Bozell Warrants
outstanding immediately prior to the Effective Time and (ii) cash required to
make payments in lieu of any fractional shares. The Exchange Agent will deliver
the True North Certificates and cash contemplated to be issued with respect to
Bozell Common Stock converted in the Merger and in exchange for outstanding
Warrants. See "THE MERGER AGREEMENT--Exchange Agent; Procedure for Exchange of
Certificates and Delivery of Cash."
9
<PAGE>
Procedures for Exchange of Certificates and Delivery of Cash. Within three
business days after the Effective Time, the Exchange Agent will mail to each
record holder of a Bozell Certificate or outstanding Warrants (collectively,
"Certificates") a letter of transmittal. Upon surrender for cancellation to the
Exchange Agent of a Certificate, together with such letter of transmittal duly
executed, the holder of such Certificate will be entitled to receive in
exchange therefor: (i) a True North Certificate representing the number of
whole shares of True North Common Stock into which the shares of Bozell Common
Stock or Warrants represented by the surrendered Certificates shall have been
converted at the Effective Time and (ii) cash in lieu of any fractional share
of True North Common Stock, together with dividends paid after the Effective
Date. See "THE MERGER AGREEMENT--Exchange Agent; Procedure for Exchange of
Certificates and Delivery of Cash."
HOLDERS OF BOZELL COMMON STOCK OR WARRANTS SHOULD NOT FORWARD THEIR
CERTIFICATES WITH THE ENCLOSED PROXY CARD, NOR SHOULD THEY RETURN THEIR
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A TRANSMITTAL
LETTER.
Stock Options. Each option to purchase Bozell Common Stock which is
outstanding immediately prior to the Effective Time pursuant to any of the
Bozell Stock Plans, whether or not then exercisable (collectively, "Bozell
Stock Options"), will be assumed by True North and become and represent an
option to purchase the number of shares of True North Common Stock (a
"Substitute Option"), decreased to the nearest full share, determined by
multiplying the number of shares of Bozell Common Stock then subject to such
Bozell Stock Option by the Exchange Ratio, at an exercise price per share of
True North Common Stock (rounded up to the nearest tenth of a cent) equal to
the exercise price per share of Bozell Common Stock in effect at such time
divided by the Exchange Ratio. Each Substitute Option will be otherwise
exercisable upon the same terms and conditions as were applicable under the
related Bozell Stock Option immediately prior to the Effective Time. To the
extent any applicable Bozell Stock Plans or the option agreements respecting
the Bozell Stock Options contain any contrary provision, Bozell has agreed to
use its best efforts to cause such provisions to be waived. See "THE MERGER
AGREEMENT--Stock Options."
Warrants. Each Warrant outstanding as of the Effective Time, if any, will be
converted into that number of shares of True North Common Stock and such other
property as would have been received by the holder if such Warrant had been
exercised immediately prior to the Effective Time and the Bozell Common Stock
that would have been received upon such exercise had been converted pursuant to
the Merger Agreement. See "THE MERGER AGREEMENT--Warrants."
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of Bozell or True North: (i) by
mutual written consent of True North and Bozell; (ii) by either True North or
Bozell if the other has failed to comply in any material respect with any of
its covenants or agreements contained in the Merger Agreement required to be
complied with prior to the date of such termination or breaches (or if CAC
breaches if Bozell is the terminating party) any representation or warranty
that is not qualified as to materiality which has the effect of making such
representation or warranty not true and correct in all material respects or
breaches (or if CAC breaches if Bozell is the terminating party) any
representation or warranty that is so qualified which has the effect of making
such representation or warranty not true and correct (in each case after a ten
business day cure period following written notice of such breach); (iii) by
either True North or Bozell if (A) the Merger has not been effected on or prior
to the close of business on December 31, 1997, subject to certain limitations,
or (B) any court or other governmental entity having jurisdiction has
permanently enjoined, restrained or otherwise prohibited the transactions
contemplated by the Merger Agreement by final and nonappealable order or other
action; (iv) by either True North or Bozell if the stockholders of Bozell have
failed to approve the Merger Agreement or the stockholders of True North have
failed to approve the Charter Amendment and the Share Issuance and the Election
of Directors; (v) by either True North or Bozell if the Bozell Board reasonably
determines that a Company Takeover Proposal (as hereinafter defined)
constitutes a Superior Company Takeover Proposal (as hereinafter defined),
subject to certain limitations; (vi) by either True North or
10
<PAGE>
Bozell if the True North Board reasonably determines that a Parent Takeover
Proposal (as hereinafter defined) constitutes a Superior Parent Takeover
Proposal (as hereinafter defined), subject to certain limitations; or (vii) by
either True North or Bozell if the Bozell Board has not recommended, or has
resolved not to recommend, or has modified or withdrawn its recommendation of,
the Merger or its determination that the Merger is fair to and in the best
interest of Bozell or its stockholders, or resolved to do so. See "THE MERGER
AGREEMENT--Termination."
Fees and Expenses. The Merger Agreement provides for the payment of certain
fees following a termination of the Merger Agreement under certain
circumstances. Subject to the preceding sentence, the Merger Agreement also
provides that True North and Bozell will each pay their own respective costs
and expenses incidental to the preparation of the Merger Agreement, the
performance of and compliance with all agreements and conditions contained in
the Merger Agreement and the consummation of the transactions contemplated
thereby except that all printing expenses and SEC filing expenses shall be
divided equally between True North and Bozell. See "THE MERGER AGREEMENT--Fees
and Expenses."
Waiver. At any time prior to the Effective Time, the Merger Agreement permits
the parties thereto to: (i) extend the time for the performance of any of the
obligations or other acts of the other parties thereto; (ii) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto; and (iii) waive compliance with any of the
agreements or conditions contained therein which may legally be waived; in each
case pursuant to a written instrument.
COMPARATIVE RIGHTS OF STOCKHOLDERS; DESCRIPTION OF TRUE NORTH COMMON STOCK
The rights of stockholders of Bozell currently are governed by the DGCL and
Bozell's Restated Certificate of Incorporation, as amended (the "Bozell
Charter"), and Bylaws. Upon consummation of the Merger, stockholders of Bozell
will become stockholders of True North, and their rights as stockholders of
True North will be governed by the DGCL, and the True North Charter and Bylaws.
See "COMPARATIVE RIGHTS OF STOCKHOLDERS" for a discussion of the material
differences between the rights of holders of Bozell Common Stock and the rights
of holders of True North Common Stock. See "DESCRIPTION OF TRUE NORTH COMMON
STOCK" for a description of True North Common Stock.
APPRAISAL RIGHTS
Holders of Bozell Common Stock have the right to appraisal of the fair value
of their shares upon full compliance with Section 262 of the DGCL. A copy of
this Section of the DGCL is attached hereto as Annex V. Holders of True North
Common Stock do not have appraisal rights with respect to the Merger, the Share
Issuance, the Charter Amendment or any other matter to be presented at the True
North Special Meeting. See "APPRAISAL RIGHTS."
11
<PAGE>
TRUE NORTH SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data (amounts in
thousands except per share data) for True North for each of the five years in
the period ended December 31, 1996 and for the nine-month periods ended
September 30, 1996 and 1997. Such data have been derived from, and should be
read in conjunction with, the audited Consolidated Financial Statements and
other financial information contained in True North's Annual Report on Form 10-
K for the year ended December 31, 1996, as amended and the unaudited
consolidated interim financial statements contained in True North's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1997, including the
notes thereto, incorporated by reference herein. See "AVAILABLE INFORMATION"
and "INCORPORATION OF DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $353,340 $372,666 $403,690 $439,053 $493,050 $350,166 $ 444,551
Net income.............. 21,728 25,714 30,277 19,653 27,834 11,360 14,223
Net income per share.... 1.00 1.15 1.34 .87 1.20 .49 .58
Dividends per share..... .60 .60 .60 .60 .60 .45 .45
Working capital
(deficit).............. 5,310 13,745 (16,809) (46,503) (48,945) (43,241) (46,988)
Total assets............ 589,359 637,887 673,744 766,102 932,660 870,661 1,066,970
Long-term debt (includes
current portion)....... 35,652 36,255 10,885 5,601 31,783 29,462 67,409
Total liabilities....... 406,032 437,857 465,987 544,008 691,319 638,754 791,815
Stockholders' equity.... 183,327 200,030 207,757 222,094 241,341 231,907 275,155
Book value per share.... 7.95 8.62 9.10 9.51 10.20 9.73 10.92
</TABLE>
12
<PAGE>
BOZELL SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data (amounts in
thousands except per share data) for Bozell for each of the five years in the
period ended March 31, 1997 and for the six-month periods ended September 30,
1996 and 1997. Such data have been derived from, and should be read in
conjunction with, the audited Consolidated Financial Statements, the unaudited
interim financial statements of Bozell for the six months ended September 30,
1996 and 1997, including the notes thereto, and other financial information of
Bozell contained elsewhere herein. See "BOZELL CONSOLIDATED FINANCIAL
STATEMENTS."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $232,111 $271,440 $336,887 $407,990 $494,988 $224,183 $265,581
Net income (loss)....... 513 (3,847) 6,477 9,402 14,164 4,668 8,400
Net income (loss) per
share.................. .01 (.11) .17 .24 .37 .12 .22
Dividends per share..... .00 .00 .00 .00 .00 .00 00
Working capital
(deficit).............. (25,936) (36,028) (32,678) (41,244) (74,438) (48,210) (86,925)
Total assets............ 297,297 391,784 486,480 506,617 611,091 555,402 626,887
Long-term debt (includes
current portion)....... 50,808 40,373 52,190 43,338 23,304 40,883 19,780
Total liabilities....... 262,041 360,255 446,629 456,036 546,162 503,211 558,101
Stockholders' equity.... 35,256 31,529 39,851 50,581 64,929 52,191 68,786
Book value per share.... 1.05 .90 1.12 1.42 1.84 1.50 1.97
</TABLE>
13
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table (amounts in thousands except per share data) sets forth
certain Selected Unaudited Pro Forma Combined Financial Data giving effect to
the Merger using the pooling-of-interests method of accounting. For a
description of the pooling-of-interests method of accounting with respect to
the Merger and the related effects on the historical financial statements of
True North, see "THE MERGER--Accounting Treatment."
The historical financial statements of True North are incorporated by
reference into this Proxy Statement/Prospectus. The historical financial
statements of Bozell are included elsewhere in this Proxy Statement/Prospectus.
This information should be read in conjunction with such financial statements
and in conjunction with the Unaudited Pro Forma Combined Financial Information,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF DOCUMENTS BY REFERENCE," "BOZELL
CONSOLIDATED FINANCIAL STATEMENTS" and "UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION."
The accounting policies of True North and Bozell differ in certain respects.
As required in a pooling-of-interests business combination, the financial data
included in the Selected Unaudited Pro Forma Combined Financial Data reflects
certain adjustments to the financial statements of both companies to achieve
conformity. True North's fiscal year ends on December 31; Bozell's fiscal year
ends on March 31. True North's annual financial reporting period ending
December 31 will be adopted by the combined entity. For purposes of the pro
forma data included in this Proxy Statement/Prospectus, the year-ends of the
two companies have not been conformed, as permitted under Regulation S-X
promulgated by the SEC ("Regulation S-X"). For purposes of presenting unaudited
pro forma combined financial data, revenues of $115,874 and $147,454 and net
income of $5,499 and $6,110, representing Bozell's results of operations for
the period from January 1 through March 31, 1996 and 1997, respectively, are
included in the unaudited pro forma combined results of operations for the
twelve months ended December 31, 1995 and 1996, respectively, and for the nine
months ended September 30, 1996 and 1997, respectively. See "UNAUDITED PRO
FORMA COMBINED FINANCIAL INFORMATION."
In addition, True North expects to record an estimated pre-tax charge of $80
to $120 million following consummation of the Merger to cover the direct costs
of the Merger, the cost of integrating certain aspects of the businesses of
True North and Bozell, the cost of asset rationalizations and employee
terminations to eliminate duplicative functions and excess capacity and other
unusual items. See "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION." The
amounts of such Merger-related costs included or disclosed in the Selected
Unaudited Pro Forma Combined Financial Data may change as more information
becomes available.
True North expects to achieve operating cost savings post-Merger primarily
through reductions in staff and the consolidation of certain corporate
administrative and operations functions in both companies. The operating cost
savings are expected to be achieved in various amounts at various times during
the years subsequent to the consummation of the Merger and not ratably over or
at the beginning or end of such periods. No adjustment has been reflected in
the Unaudited Pro Forma Combined Statements of Operations for the anticipated
cost savings.
14
<PAGE>
The Selected Unaudited Pro Forma Combined Financial Data included herein are
not necessarily indicative of the results of future operations of the combined
entity or the actual results that would have been achieved had the Merger been
consummated prior to the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 740,577 $ 847,043 $ 988,038 $ 690,223 $ 857,586
Net income.............. 36,754 29,055 38,518 21,527 28,733
Net income per share.... .87 .69 .90 .50 .66
Dividends per share..... .33 .33 .33 .25 .26
Working capital
(deficit).............. (49,487) (87,747) (123,383) (91,451) (188,913)
Total assets............ 1,160,224 1,272,719 1,543,751 1,426,063 1,715,857
Long-term debt (includes
current portion)....... 63,075 48,939 55,087 70,345 87,189
Total liabilities....... 912,616 1,000,044 1,237,481 1,141,965 1,439,916
Stockholders' equity.... 247,608 272,675 306,270 284,098 275,941
Book value per share.... 6.05 6.57 7.35 6.84 6.42
</TABLE>
15
<PAGE>
COMPARATIVE PER SHARE DATA OF TRUE NORTH AND BOZELL
The following table presents selected comparative per share data for True
North and Bozell on a historical and unaudited pro forma combined and pro forma
equivalent basis giving effect to the Merger using the pooling-of-interests
method of accounting. For a description of the pooling-of-interests method of
accounting with respect to the Merger and the related effects on the historical
financial statements of True North, see "THE MERGER--Accounting Treatment." The
information is derived from the historical financial statements of True North
and Bozell and the Unaudited Pro Forma Combined Financial Information. The
financial statements of True North are incorporated by reference into this
Proxy Statement/Prospectus. The financial statements of Bozell and the
Unaudited Pro Forma Combined Financial Information appears elsewhere herein.
This information should be read in conjunction with such historical and pro
forma financial statements and the related notes thereto. See "AVAILABLE
INFORMATION," "INCORPORATION OF DOCUMENTS BY REFERENCE," "BOZELL CONSOLIDATED
FINANCIAL STATEMENTS" and "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
TRUE NORTH BOZELL
COMMON STOCK COMMON STOCK
---------------------- ------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED(1) HISTORICAL EQUIVALENT(2)
---------- ----------- ---------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Book Value Per Common Share:
At December 31, 1996........ $10.20 $7.35 $1.84 $3.75
At September 30, 1997
(unaudited)................ $10.92 $6.42 $1.97 $3.27
Net Income from Continuing
Operations Per Common Share:
Year ended: December 31,
1994--True North;
March 31, 1995--Bozell..... $ 1.34 $ .87 $ .17 $ .44
Year ended: December 31,
1995--True North;
March 31, 1996--Bozell..... $ .87 $ .69 $ .24 $ .35
Year ended: December 31,
1996--True North;
March 31, 1997--Bozell..... $ 1.20 $ .90 $ .37 $ .46
Nine months ended September
30, 1997 (unaudited)....... $ .58 $ .66 $ .38 $ .34
Cash Dividends Declared Per
Common Share:
Year ended: December 31,
1994--True North;
March 31, 1995--Bozell..... $ .60 $ .33 $ .00 $ .17
Year ended: December 31,
1995--True North;
March 31, 1996--Bozell..... $ .60 $ .33 $ .00 $ .17
Year ended: December 31,
1996--True North;
March 31, 1997--Bozell..... $ .60 $ .33 $ .00 $ .17
Nine months ended September
30, 1997 (unaudited)....... $ .45 $ .26 $ .00 $ .13
</TABLE>
NOTES TO COMPARATIVE PER SHARE DATA
1. The Pro Forma Combined Book Value per Common Share, Net Income From
Continuing Operations per Common Share, and Cash Dividends Declared per
Common Share represent the pro forma combined common stockholders' equity,
Net Income From Continuing Operations, and Cash Dividends Declared for True
North and Bozell divided by total pro forma common shares of the combined
entity, assuming an Exchange Ratio of 0.51.
2. The Pro Forma equivalent Book Value per Common Share, Net Income From
Continuing Operations per Common Share, and Cash Dividends Declared Per
Common Shares of Bozell are computed by multiplying the Pro Forma Combined
per share amounts discussed in Note 1 above, by the Exchange Ratio of 0.51.
16
<PAGE>
MARKET PRICES AND DIVIDENDS PAID
True North Common Stock trades on the NYSE under the symbol "TNO." There is
no established public trading market for Bozell Common Stock. The following
table sets forth, for the periods indicated, the range of the high and low
sales prices of True North Common Stock as reported on the NYSE Composite
Transactions Tape and the dividends paid per share of True North Common Stock.
At the close of business on the True North Record Date there were 3,210 holders
of record of the outstanding shares of True North Common Stock. At the close of
business on the Bozell Record Date there were 207 holders of record of the
outstanding shares of Bozell Common Stock.
<TABLE>
<CAPTION>
TRUE NORTH COMMON STOCK
---------------------------
HIGH LOW DIVIDEND
--------- -------- --------
<S> <C> <C> <C>
1995
Quarter ended March 31, 1995..................... $21 13/16 $ 15 3/4 $.15
Quarter ended June 30, 1995...................... 20 1/4 17 5/8 .15
Quarter ended September 30, 1995................. 21 1/2 19 .15
Quarter ended December 31, 1995.................. 20 5/8 18 .15
1996
Quarter ended March 31, 1996..................... $25 $ 16 3/8 $.15
Quarter ended June 30, 1996...................... 27 22 1/4 .15
Quarter ended September 30, 1996................. 23 3/4 16 3/4 .15
Quarter ended December 31, 1996.................. 24 19 1/2 .15
1997
Quarter ended March 31, 1997..................... $22 3/8 $18 $.15
Quarter ended June 30, 1997...................... 24 3/4 17 .15
Quarter ended September 30, 1997................. 26 3/4 22 1/4 .15
Quarter ended December 31, 1997 (through November
25, 1997) ...................................... 26 13/16 22 9/16 .15
</TABLE>
There is no established public trading market for Bozell Common Stock. Set
forth below are: (i) the last reported per share sale price of True North
Common Stock, as reported on the NYSE Composite Transactions Tape, on July 30,
1997, the last trading day prior to the public announcement of the execution of
the Merger Agreement, and (ii) the equivalent pro forma sale price of Bozell
Common Stock obtained by multiplying the last reported per share sale price of
True North Common Stock by the Exchange Ratio:
<TABLE>
<S> <C>
True North Common Stock............................ $23 1/16
Bozell Equivalent.................................. $ 11.76
</TABLE>
On November 25, 1997, the last trading day prior to the date of this Proxy
Statement/Prospectus, the last reported sale price of True North Common Stock,
as reported on the NYSE Composite Transactions Tape, was $26 3/4 per share.
Stockholders are urged to obtain current market quotations for True North
Common Stock. No assurance can be given as to the future prices of True North
Common Stock.
17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, stockholders of each of True North and Bozell should
consider the following factors before voting on matters pertaining to the
Merger.
FIXED EXCHANGE RATIO
The Exchange Ratio establishing the percentage of a share of True North
Common Stock into which each share of Bozell Common Stock will be converted is
expressed in the Merger Agreement as a fixed ratio. Accordingly, the Exchange
Ratio will not be adjusted in the event of any increase or decrease in the
price of True North Common Stock or the price or value of Bozell Common Stock.
The price of True North Common Stock at the Effective Time may vary from its
price at the date of this Proxy Statement/Prospectus and at the date of the
Special Meetings. Such variations may be the result of changes in the
business, operations or prospects of True North or Bozell, market assessments
of the likelihood that the Merger will be consummated and the timing thereof,
regulatory considerations, general market and economic conditions and other
factors. Because the Effective Time may occur at a date later than the Special
Meetings, there can be no assurance that the price of True North Common Stock
on the date of the Special Meetings will be indicative of its price at the
Effective Time. The Effective Time will occur as soon as practicable following
the Special Meetings and the satisfaction or waiver of the other conditions
set forth in the Merger Agreement. Stockholders of True North and Bozell are
urged to obtain current market quotations for True North Common Stock. See
"THE MERGER AGREEMENT--Conditions Precedent to the Merger."
UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS AND ACHIEVING COST SAVINGS
In determining that the Merger is advisable and in the best interests of its
stockholders, each of the True North Board and the Bozell Board considered
certain cost savings, operating efficiencies and other synergies expected to
result from the consummation thereof. The integration of departments, systems
and procedures present significant management challenges. There can be no
assurance that such actions will be successfully accomplished, or accomplished
as expeditiously as currently expected. Moreover, although the primary purpose
of such actions will be to realize direct cost savings and other operating
efficiencies, there can be no assurance of the extent to which such cost
savings and efficiencies will be achieved.
UNCERTAINTY AS TO AMOUNT OF ONE-TIME MERGER-RELATED CHARGE
True North expects to record an estimated pre-tax charge of $80 million to
$120 million following consummation of the Merger to cover the direct costs of
the Merger, the cost of integrating certain aspects of the businesses of True
North and Bozell, the cost of asset rationalizations and employee terminations
to eliminate duplicative functions and excess capacity, and other unusual
items. See "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of True North and Bozell have
interests in the Merger that are in addition to their interests as
stockholders of True North or Bozell generally. Such interests include the
following: (i) the Merger Agreement provides that five current directors of
Bozell, including Charles D. Peebler, Jr., President and Chief Executive
Officer of Bozell, Leo-Arthur Kelmenson, Chairman of Bozell, David A. Bell,
Chairman of Bozell Worldwide, and two additional non-employee directors of
Bozell selected by the Bozell Board, are to become directors of the True North
Board as of the Effective Time; (ii) the Merger Agreement provides that Bruce
Mason, Chairman and Chief Executive Officer of True North, J. Brendan Ryan,
Chairman/Chief Executive Officer of FCB, and four additional non-employee
directors of True North (not including the Publicis Designee) selected by the
True North Board are to be True North's designees on the True North Board as
of the Effective Time; (iii) True North has executed Employment Agreements
with each of Messrs. Peebler, Mason and Richard S. Braddock, a non-employee
director of True North, pursuant to which, as
18
<PAGE>
of the Effective Time of the Merger, Messrs. Mason, Peebler and Braddock will
serve as Chief Executive Officer, President and non-executive Chairman,
respectively, of True North, and the Merger Agreement provides that Mr. Bell
will serve as the Chief Executive Officer of Bozell Worldwide after the
Merger; (iv) True North Common Stock will be substituted for Bozell Common
Stock subject to outstanding options under the Bozell Stock Plans as of the
Effective Time of the Merger; (v) the exercisability of certain outstanding
options to purchase Bozell Common Stock will be accelerated as of the
Effective Time of the Merger; (vi) Bozell has paid financial advisory fees to
a company of which W. Grant Gregory, a director of Bozell, is Chairman and has
an interest; and (vii) True North has agreed to cause the Surviving
Corporation to provide certain indemnities and insurance to the officers and
directors of Bozell. See "THE MERGER--Interests of Certain Persons in the
Merger."
PUBLICIS SETTLEMENT
For a number of years, True North and Publicis were involved in
international arbitration proceedings relating to their European joint
venture, Publicis-FCB Europe B.V. ("PBV"). True North contended in these
proceedings, among other things, that Publicis failed to comply with various
agreements in completing certain business acquisitions. In February 1997, True
North and Publicis announced a settlement of their disputes and on May 19,
1997, True North and Publicis entered into definitive agreements relating to
such settlement. The intent of these agreements was to establish a new legal
and business relationship between the parties such that all disputes between
the parties would be resolved and each of True North and Publicis would be
free to create its own separate independent agency network. Pursuant to the
settlement agreements, Publicis transferred its ownership of certain agencies
in France, the United Kingdom, Portugal and Greece to True North. In exchange,
True North transferred its 49% interest in PBV to Publicis for an additional
6.5% equity interest in Publicis (bringing True North's aggregate equity
interest in Publicis to 26.5%). In addition, True North sold to Publicis its
ownership in certain of its non-FCB branded agencies in Germany, Australia and
New Zealand and agreed to assist Publicis in establishing agencies in
Thailand, India and Argentina. The terms of the settlement agreements were
designed to minimize the impact to each party on operating earnings, and True
North believes that the impact of these transactions has not been material to
the results of operations or financial condition of True North.
The settlement agreements between True North and Publicis also address
several other issues, including but not limited to: the provision to True
North of a means of selling its equity interest in Publicis either in a public
offering or based upon appraised market values and other specified formulas;
the use and ownership of each agency's brand names; the servicing of clients
in markets where one party, but not the other, maintains an office; and the
right of each party to have a representative on the board of directors of the
other under certain circumstances. Although difficult to predict with
certainty, True North does not anticipate that its settlement agreements with
Publicis will have a material impact on its client base or the pursuit of its
strategic business initiatives, and True North has not formulated any
definitive plans with respect to its continuing ownership interest in
Publicis.
OPPOSITION OF PUBLICIS
Publicis, which holds approximately 18.4% of the outstanding shares of True
North Common Stock, has informed True North by letter dated November 10, 1997
that it intends to oppose and vote against the Merger (the Publicis Designee
on the True North Board having previously voted against the Merger and related
matters). In addition, Publicis indicated in its letter that it would be
prepared to propose a business combination between Publicis and True North in
which each share of True North Common Stock would be valued at $28.00 in an
unspecified combination of cash and stock. By letter dated November 17, 1997,
True North responded to the Publicis letter and declined to meet with Publicis
to discuss the transaction Publicis was prepared to propose. For the text of
these two letters, see "THE MERGER--Background of the Merger." True North
cannot currently predict what effect such opposition may have on the prospect
of obtaining stockholder approval of the Merger and related matters.
19
<PAGE>
ANTI-TAKEOVER PROVISIONS
The DGCL, the True North Charter, True North's Bylaws and the True North
Rights Agreement contain provisions that could discourage or make more
difficult a change of control of True North. For instance, Section 203 of the
DGCL prohibits generally a public Delaware corporation, including True North,
from engaging in a Business Combination with an Interested Stockholder (each
as defined in the DGCL) for a period of three years after the date of the
transaction in which an Interested Stockholder became such, unless: (i) the
board of directors of such corporation approved, prior to the date such
Interested Stockholder became such, either such Business Combination or such
transaction; (ii) upon consummation of such transaction, such Interested
Stockholder owns at least 85% of the voting shares of such corporation
(excluding specified shares); or (iii) such Business Combination is approved
by the board of directors of such corporation and authorized by the
affirmative vote (at an annual or special meeting and not by written consent)
of at least 66 2/3% of the outstanding voting shares of such corporation
(excluding shares held by such Interested Stockholder). The True North Bylaws
provide that nominations for the election of directors may be made only by the
True North Board or by a committee appointed by the True North Board or by any
stockholder entitled to vote at the applicable meeting pursuant to notice
timely delivered to True North. The True North Rights Agreement contains
provisions that could discourage or make more difficult a change of control of
True North. See "DESCRIPTION OF TRUE NORTH COMMON STOCK--Anti-Takeover
Provisions."
FUTURE SALES AND PRICE OF TRUE NORTH COMMON STOCK
No prediction can be made as to the effect, if any, that future sales of
True North Common Stock, or the availability of shares for future sale, will
have on the market price of the True North Common Stock prevailing from time
to time. Sales of substantial amounts of True North Common Stock (including
shares issued upon the exercise of stock options), or the perception that such
sales may occur, could adversely affect prevailing market prices for True
North Common Stock. There is no established public trading market for Bozell
Common Stock. Pursuant to the Merger, Bozell stockholders will receive True
North Common Stock, which may be freely tradeable. Sales of large volumes of
True North Common Stock may have the effect of depressing the market price for
True North Common Stock. See "THE MERGER--Resales of True North Common Stock."
20
<PAGE>
TRUE NORTH SPECIAL MEETING
DATE, PLACE AND TIME
The True North Special Meeting will be held on December 30, 1997 at 9:00
a.m., local time, at the Omni Chicago Hotel, Chagall Ballroom--Third Floor--
Salon A, 676 North Michigan Avenue, Chicago, Illinois.
PURPOSES
At the True North Special Meeting, holders of True North Common Stock will
be asked to consider and act upon proposals to: (i) approve the Merger
Agreement and the Merger, (ii) approve the Share Issuance, (iii) approve the
Charter Amendment, (iv) elect 12 directors (contingent upon consummation of
the Merger) and (v) approve the Stock Option Plan Amendment. THE PROPOSALS TO
APPROVE THE MERGER AGREEMENT AND THE MERGER, AND THE STOCK OPTION PLAN
AMENDMENT, ARE THE ONLY PROPOSALS TO BE CONSIDERED AT THE TRUE NORTH SPECIAL
MEETING WHICH ARE NOT EXPRESS CONDITIONS TO THE CONSUMMATION OF THE MERGER.
The True North Board has determined that the Merger Agreement and the
Merger, the Share Issuance and the Charter Amendment are advisable and fair to
and in the best interests of the stockholders of True North and has approved
the Merger Agreement and the Merger, the Share Issuance and the Charter
Amendment. THE TRUE NORTH BOARD RECOMMENDS, WITH ONE DIRECTOR DISSENTING, THAT
THE STOCKHOLDERS OF TRUE NORTH VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE
MERGER, THE SHARE ISSUANCE AND THE CHARTER AMENDMENT AT THE TRUE NORTH SPECIAL
MEETING. THE TRUE NORTH BOARD HAS ALSO APPROVED AND RECOMMENDS, WITH ONE
DIRECTOR DISSENTING, A VOTE FOR EACH PERSON NOMINATED BY THE TRUE NORTH BOARD
TO SERVE AS A MEMBER OF THE TRUE NORTH BOARD IN CONNECTION WITH THE ELECTION
OF DIRECTORS AND FOR THE STOCK OPTION PLAN AMENDMENT. See "THE MERGER--True
North's Reasons for the Merger; Recommendation of its Board of Directors,"
"ELECTION OF DIRECTORS OF TRUE NORTH," "PROPOSAL TO APPROVE TRUE NORTH CHARTER
AMENDMENT" and "PROPOSAL TO APPROVE TRUE NORTH STOCK OPTION PLAN, AS AMENDED
AND RESTATED." For a discussion of the reasons why one director of True North,
the Publicis Designee, voted against the Merger, see "THE MERGER--Background
of the Merger."
RECORD DATE; VOTING RIGHTS
Only holders of record of True North Common Stock at the close of business
on the True North Record Date are entitled to receive notice of and to vote at
the True North Special Meeting. At the close of business on the True North
Record Date, there were 25,271,533 shares of True North Common Stock
outstanding, each of which entitles the registered holder thereof to one vote
on each matter to be voted upon at the True North Special Meeting. True North
stockholders do not have the right to cumulate votes in the election of
directors.
QUORUM
The holders of a majority of shares of True North Common Stock outstanding
and entitled to vote must be present in person or represented by proxy at the
True North Special Meeting in order for a quorum to be present.
Shares of True North Common Stock represented by proxies which are marked
"abstain" as to one or more particular matters will be counted as shares
present for purposes of determining the presence of a quorum on all matters,
as will shares that are represented by proxies that are executed by any
broker, fiduciary or other nominee on behalf of the beneficial owner(s)
thereof regardless of whether authority to vote is withheld by such broker,
fiduciary or nominee on one or more matters.
In the event that a quorum is not present at the True North Special Meeting,
it is expected that such meeting will be adjourned or postponed to allow for
the solicitation of additional proxies.
21
<PAGE>
PROXIES
All shares of True North Common Stock represented by properly executed
proxies in the enclosed form which are received by True North prior to or at
the True North Special Meeting and not revoked will be voted at the True North
Special Meeting in accordance with the instructions indicated in such proxies.
If no instructions are indicated, such shares will be voted FOR the Merger
Agreement and the Merger, the Share Issuance, the Charter Amendment, each
person nominated by the True North Board to serve as a member of the True
North Board in connection with the Election of Directors and the Stock Option
Plan Amendment. In addition, the persons designated in such proxy will have
discretion to vote upon any procedural matter relating to the True North
Special Meeting, including the right to vote for any adjournment thereof
proposed by the True North Board to solicit additional proxies.
A True North stockholder who has given a proxy may revoke it at any time
prior to its exercise by filing a written notice of such revocation with the
Secretary of True North at or prior to the True North Special Meeting, by
delivering to True North a duly executed later dated proxy, or by attending
the True North Special Meeting and voting in person (although attendance at
the True North Special Meeting will not in and of itself constitute a
revocation of a proxy). All written notices of revocation and other
communications with respect to revocation of proxies in connection with the
True North Special Meeting should be addressed to True North Communications
Inc., 101 East Erie Street, Chicago, Illinois 60611, Attention: Dale F.
Perona, Secretary.
SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the True North Board. All
expenses incurred in connection with the solicitation of proxies by and on
behalf of the True North Board will be borne by True North, except that all
printing expenses and SEC filing fees will be divided equally between True
North and Bozell. In addition to the use of the mails, proxies may be
solicited personally or by telephone, facsimile transmission or otherwise by
directors, officers and employees of True North who will not be additionally
compensated for such solicitation, but may be reimbursed for their out-of-
pocket expenses incurred in connection therewith. True North has retained D.F.
King & Co. Inc. to aid in the solicitation of proxies from its stockholders.
The fees of such firm are estimated to be $35,000, plus reimbursement of out-
of-pocket expenses. True North will also arrange with brokerage houses and
other custodians, nominees and fiduciaries for forwarding solicitation
materials to the beneficial owners of shares of True North Common Stock held
of record by such persons. True North will reimburse such persons for their
reasonable out-of-pocket expenses incurred in connection therewith.
Participants in the True North Communications Inc. Stock Purchase Plan who
have True North Common Stock in their plan accounts will receive a form to be
used to instruct the trustee overseeing such plan how to vote such True North
Common Stock. Such plan provides that its trustee will vote such shares as
instructed, and will vote all shares of True North Common Stock held in
participants' accounts for which it does not receive timely voting
instructions, and all shares of True North Common Stock then allocated to the
Suspense Account (as defined in such Plan), in the same proportion as the
trustee votes shares of True North Common Stock for which timely voting
instructions are received, to the extent permitted by law.
REQUIRED VOTE
Approval of each of the Merger Agreement and the Merger, and the Charter
Amendment, will require the affirmative vote of a majority of the outstanding
shares of True North Common Stock entitled to vote thereon. Approval of each
of the Share Issuance and the Stock Option Plan Amendment will require the
affirmative vote of a majority of the votes cast on such proposal, provided
that the total number of votes cast on the applicable proposal represents more
than 50% of the outstanding shares of True North Common Stock entitled to vote
thereon at the True North Special Meeting. Directors are elected by a
plurality of the votes cast. THE PROPOSALS TO APPROVE THE MERGER AGREEMENT AND
THE MERGER, AND THE STOCK OPTION PLAN AMENDMENT, ARE THE ONLY PROPOSALS TO BE
CONSIDERED AT THE TRUE NORTH SPECIAL MEETING WHICH ARE NOT EXPRESS CONDITIONS
TO THE
22
<PAGE>
CONSUMMATION OF THE MERGER. In a Memorandum of Agreement dated as of February
19, 1997, which was later confirmed in a Pooling Agreement dated as of May 19,
1997, Publicis and its controlling shareholder, Publicis S.A., agreed to
furnish to, and to cause the Publicis Designee to furnish to, True North an
agreement under applicable SEC accounting releases with respect to pooling of
interests accounting treatment; provided that Publicis and Publicis S.A. may
withdraw such agreement if, among other things, not later than 90 days after
Publicis and Publicis S.A. have furnished such agreement, True North shall not
have called a meeting of the stockholders of True North to vote on the
contemplated transaction or, not later than a further 60 days, a majority vote
of the outstanding shares of True North Common Stock in favor of the
contemplated transaction is not obtained at such meeting (or at an adjournment
thereof within such period). Stockholders of True North are being asked to
approve the Merger Agreement and the Merger to assure that Publicis and
Publicis S.A. do not withdraw such agreement. See "THE MERGER--Accounting
Treatment."
An abstention with respect to the Merger Agreement and the Merger, the Share
Issuance, the Charter Amendment or the Stock Option Plan Amendment will have
the effect of a vote cast against the applicable proposal. Any votes that are
not cast by a broker holding shares as a nominee because such broker lacks
discretionary authority to vote such shares, with respect to the proposals to
approve the Merger Agreement and the Merger, and the Charter Amendment, will
have the effect of votes cast against the applicable proposal and, with
respect to the proposals to approve the Share Issuance and the Stock Option
Plan Amendment, will not be counted as votes cast on the applicable proposal.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on the True North Record Date, directors and
executive officers of True North and their affiliates were the beneficial
owners of an aggregate of 719,390 (approximately 2.9% of the shares of True
North Common Stock then outstanding). True North expects that substantially
all of such shares which are outstanding as of the True North Record Date will
be voted in favor of the Merger Agreement and the Merger, the Share Issuance,
the Charter Amendment and for each person nominated by the True North Board to
serve as a member of the True North Board (including shares that are subject
to the True North Stockholders Agreements). See "STOCKHOLDERS AGREEMENTS."
BOZELL SPECIAL MEETING
DATE, PLACE AND TIME
The Bozell Special Meeting will be held in the Second Floor Staircase Room
at Bozell's offices at 40 West 23rd Street, New York, New York on Tuesday,
December 30, 1997, at 10:00 a.m., New York time.
PURPOSE
At the Bozell Special Meeting, the stockholders of Bozell will consider and
vote on a proposal to approve and adopt the Merger Agreement.
The Bozell Board has unanimously determined that the Merger is in the best
interests of Bozell and its stockholders and has approved the Merger
Agreement. THE BOZELL BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
BOZELL VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE
BOZELL SPECIAL MEETING. See "THE MERGER--Bozell's Reasons for the Merger;
Recommendation of its Board of Directors."
The Bylaws of Bozell provide that only such business as is specified in the
notice of a special meeting may come before the meeting.
RECORD DATE; VOTING RIGHTS
Only holders of record of Bozell Class A Common Stock and Bozell Class B
Common Stock at the close of business on the Bozell Record Date are entitled
to receive notice of and to vote at the Bozell Special Meeting.
23
<PAGE>
At the close of business on the Bozell Record Date, there were 8,266,959
shares of Bozell Class A Common Stock outstanding and entitled to vote and
28,256,848 shares of Bozell Class B Common Stock outstanding and entitled to
vote.
Each share of Bozell Class A Common Stock, which may only be owned by or
transferred to employees of Bozell or by a trust described in Section 401(a)
of the Code or any successor provision, entitles the holder thereof to 1.1
votes per share. Currently, all of the Bozell Class A Common Stock is owned by
the Bozell Stock Bonus Plan and the Bozell Profit Sharing Plan and will be
voted by Valentine J. Zammit, Joseph Caggiano, David Harkin and Henry Borst,
the Trustees of such plans. The Trustees will mail this Joint Proxy
Statement/Prospectus and a voting instruction card to each participant in such
plans. If a participant returns the voting instruction card, the shares
allocated to such participant's account in a plan will be voted as instructed
by the participant. Shares allocated to the accounts of plan participants who
do not provide any voting instructions to the Trustees will be voted in the
same proportions as the total numbers of shares for which plan participants
provided voting instructions. For example, if the plan participants who
returned voting instruction cards in the aggregate instructed the Trustees to
vote 75% of the shares in their accounts in favor and 25% against a particular
item, the Trustees would also vote the shares allocated to participants who
did not return instruction cards 75% in favor and 25% against such item. Each
share of Bozell Class B Common Stock entitles the holder thereof to one vote
per share. The Bozell Class A Common Stock and the Bozell Class B Common Stock
will vote together as a single class at the Bozell Special Meeting.
QUORUM
The holders of a majority of the shares of Bozell Common Stock outstanding
and entitled to vote must be present in person or represented by proxy at the
Bozell Special Meeting in order for a quorum to be present.
Shares of Bozell Common Stock represented by proxies that are marked
"abstain" will be counted as shares present for purposes of determining the
presence of a quorum.
In the event that a quorum is not present at the Bozell Special Meeting, it
is expected that the meeting will be adjourned or postponed to solicit
additional proxies.
PROXIES
All shares of Bozell Common Stock represented by properly executed proxies
that are received in time for the Bozell Special Meeting and have not been
revoked will be voted in accordance with the instructions indicated in such
proxies. If no instructions are indicated, such shares will be voted in favor
of approval and adoption of the Merger Agreement. In addition, the persons
designated in such proxy will have discretion to vote on matters incident to
the conduct of the Bozell Special Meeting. If Bozell proposes to adjourn the
Bozell Special Meeting, the persons named in the enclosed proxy card will vote
all shares for which they have voting authority in favor of such adjournment.
Any proxy in the enclosed form may be revoked by the stockholder executing it
at any time prior to its exercise by giving written notice thereof to Bozell,
Jacobs, Kenyon & Eckhardt, Inc., 40 West 23rd Street, New York, New York
10010, Attention: Valentine J. Zammit, Chief Financial Officer of Bozell, by
signing and returning a later-dated proxy or by voting in person at the Bozell
Special Meeting. Attendance at the Bozell Special Meeting will not in and of
itself constitute the revocation of a proxy.
SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Bozell Board. Pursuant
to the Merger Agreement, the entire cost of proxy solicitation for the Bozell
Special Meeting, including the reasonable expenses of brokers, fiduciaries and
other nominees in forwarding solicitation material to beneficial owners, will
be borne by Bozell, except that Bozell and True North will share equally all
printing expenses and SEC filing fees. In addition to solicitation by mail,
officers and regular employees of Bozell may solicit proxies personally or by
telephone, facsimile transmission or otherwise. Such officers and regular
employees will not be additionally compensated for such solicitation, but may
be reimbursed for out-of-pocket expenses incurred in connection therewith. If
undertaken, the expense of such solicitation would be nominal.
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REQUIRED VOTE
Assuming the presence of a quorum at the Bozell Special Meeting, approval
and adoption of the Merger Agreement will require the affirmative vote of a
majority of the voting power of the outstanding shares of Bozell Common Stock.
An abstention with respect to the Merger Agreement will have the effect of a
vote cast against the Merger Agreement. Any votes that are not cast by a
broker holding shares as a nominee because such broker lacks discretionary
authority to vote such shares will have the effect of votes cast against the
Merger Agreement.
APPRAISAL RIGHTS
Holders of Bozell Common Stock have the right to an appraisal of the fair
value of their stock in lieu of conversion thereof into True North Common
Stock in the Merger upon full compliance with Section 262 of the DGCL. A copy
of this Section of the DGCL is attached hereto as Annex V. A vote in favor of
approval and adoption of the Merger Agreement precludes the exercise of
appraisal rights; an abstention, a failure to vote or a vote against the
Merger Agreement neither waives the right to dissent nor constitutes notice of
intent to exercise appraisal rights. See "APPRAISAL RIGHTS."
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on the Bozell Record Date, directors and executive
officers of Bozell and their affiliates were the beneficial owners of an
aggregate of 8,057,912 shares of Bozell Class B Common Stock (approximately
21.6% of the voting power of Bozell Common Stock then outstanding and eligible
to vote), excluding 8,266,959 shares of Bozell Class A Common Stock
(approximately 24.4% of the voting power of Bozell Common Stock then
outstanding and eligible to vote) held by the Bozell Stock Bonus Plan and the
Bozell Profit Sharing Plan, of which Valentine J. Zammit, a Bozell officer and
director, is a co-trustee with shared power to vote such shares. Such shares
include 13,122,434 shares of Bozell Class B Common Stock subject to the Bozell
Stockholders Agreements. Bozell expects that all of such shares will be voted
in favor of approval and adoption of the Merger Agreement without regard to
whether such shares are subject to the Bozell Stockholders Agreements. See
"STOCKHOLDERS AGREEMENTS."
PARTIES TO THE MERGER AGREEMENT
TRUE NORTH
True North is a communications company which is the holding company for FCB
and certain additional marketing services agencies or companies. True North's
other operating units are TN Technologies Holdings, Inc. and True North
Associated Communications Companies. TN Technologies Holdings, Inc. is a
digital interactive marketing holding company for Modem Media Advertising
Limited Partnership, RGA Interactive and Cf2GS. True North Associated
Communications Companies are stand-alone companies specializing in marketing
services. The companies include Wahlstrom, a yellow pages and directory
advertising agency network with six offices; Tierney & Partners, the largest
advertising agency in Philadelphia; Borders, Perrin & Norrander, a creative
advertising agency in the Pacific Northwest; and Market Growth Resources, a
sales promotion agency with a niche in retail-specific programs. True North is
a Delaware corporation. Its principal executive offices are located at 101
East Erie Street, Chicago, Illinois 60611, and its telephone number is (312)
425-6500. For further information concerning True North, see "BUSINESS OF TRUE
NORTH," "AVAILABLE INFORMATION" and "INCORPORATION OF DOCUMENTS BY REFERENCE."
BOZELL
Bozell and its subsidiaries are engaged primarily in offering full-service
advertising and public relations services throughout the world. Bozell's
services are delivered through eight divisions and thirty other operating
units, which include Bozell Worldwide, Bozell Wellness Worldwide, Temerlin
McClain, Poppe Tyson, Bozell
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Sawyer Miller Group, BJK&E Media Group, McCracken Brooks and BJK&E Diversified
Services. Bozell is a Delaware corporation. Its principal executive offices
are located at 40 West 23rd Street, New York, New York 10010, and its
telephone number is (212) 727-5000. For further information concerning Bozell,
see "INFORMATION REGARDING BOZELL" and "BOZELL CONSOLIDATED FINANCIAL
STATEMENTS."
CAC
CAC was incorporated in Delaware on May 29, 1997 solely for the purpose of
consummating the Merger and other transactions contemplated by the Merger
Agreement. CAC has minimal assets and no business and has carried on no
activities which are not directly related to its formation and its execution
of the Merger Agreement. Its principal executive offices are located at 101
East Erie Street, Chicago, Illinois 60611, and its telephone number is (312)
425-6500.
THE MERGER
The description of the Merger and the Merger Agreement contained in this
Proxy Statement/Prospectus does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a conformed copy of which
is attached hereto as Annex I and incorporated herein by reference.
GENERAL
At the Effective Time of the Merger, CAC will be merged with and into
Bozell, with Bozell continuing as the Surviving Corporation and a wholly-owned
subsidiary of True North. As a result of the Merger, the separate corporate
existence of CAC will cease, and pursuant to Section 259 of the DGCL, the
Surviving Corporation will possess the assets and liabilities of CAC and
Bozell by operation of law at the Effective Time.
Subject to the terms and conditions of the Merger Agreement, each share of
Bozell Common Stock outstanding immediately prior to the Effective Time (other
than shares owned directly or indirectly by True North or Bozell, which will
be cancelled) will be converted into 0.51 of a share of True North Common
Stock, including the corresponding percentage of a True North Right. Cash will
be paid in lieu of any fractional share of True North Common Stock.
Notwithstanding the foregoing, holders of Bozell Common Stock have the right
to an appraisal of the fair value of their stock in lieu of conversion thereof
into True North Common Stock in the Merger upon full compliance with Section
262 of the DGCL. A vote in favor of the Merger Agreement precludes the
exercise of the right of appraisal; an abstention, a failure to vote or a vote
against the Merger Agreement neither waives the right of appraisal nor
constitutes notice of intent to exercise such right. See "THE MERGER
AGREEMENT--Conversion of Shares in the Merger," "--No Fractional Shares," "--
Conditions Precedent to the Merger" and "APPRAISAL RIGHTS."
The Merger will become effective on the date of filing of a Certificate of
Merger with the Secretary of State of the State of Delaware, which is
anticipated to occur promptly after the approval of the Merger Agreement by
the stockholders of True North and of Bozell and following the satisfaction or
waiver of the conditions to the obligations of each of the parties to the
Merger Agreement. See "THE MERGER AGREEMENT--Conditions Precedent to the
Merger."
BACKGROUND OF THE MERGER
In December 1994, True North announced its new corporate name, "True North
Communications Inc.," to replace its former name of "Foote, Cone & Belding
Communications, Inc.," and the implementation of a new holding company
structure designed to provide broad resources to multiple agency brands,
including its flagship FCB agency. These changes reflected, among other
things, an important strategic goal of True North to add a second global
agency brand network to complement FCB.
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In February 1995, True North and Bozell entered into significant discussions
regarding a possible acquisition of Bozell by True North. (Prior to that time,
True North and Bozell had conducted preliminary discussions that had not
become significant.) True North and Bozell entered into a confidentiality
agreement dated April 11, 1995, and True North engaged Morgan Stanley as its
financial advisor in connection with the possible transaction. During this
period, Bozell retained Gregory & Hoenemeyer, Inc. ("Gregory & Hoenemeyer") to
act as its financial advisor, and in July 1995, Bozell additionally retained
Merrill Lynch to act as its financial advisor. Each of True North and Bozell
arranged for the other to receive access to financial and other information
regarding its business. During the spring and summer of 1995, numerous
meetings and discussions occurred between senior officers of each of True
North and Bozell relating to possible terms of a prospective transaction and
related issues.
On August 15, 1995, the Bozell Board met and reviewed the True North
proposal regarding the potential combination. At this meeting the Bozell Board
authorized further negotiations on the proposed terms.
On August 16, 1995, the True North Board held a meeting at which True North
management and Morgan Stanley presented a detailed review, on a preliminary
basis, of a possible acquisition of Bozell. The members of the True North
Board discussed the possible transaction at some length and determined that
negotiations with Bozell should continue. The True North Board was not asked
to, and did not, take any action on the matter at that time.
Thereafter, in late 1995, all discussions and negotiations between True
North and Bozell relating to a possible merger or acquisition transaction
ended. True North and Bozell were unable to reach agreement regarding
essential terms, including price and various operational issues.
During the period from the spring of 1995 and continuing through the summer
of 1996, True North approached, or was approached by, various other parties to
discuss with varying degrees of seriousness potential significant acquisitions
or combinations. Some of these expressions of interest resulted in meetings
between senior officers of True North and other parties and their respective
financial advisors. In connection with these discussions, True North entered
into confidentiality agreements with certain of these other parties, and
proprietary information was supplied and/or obtained by True North pursuant to
such confidentiality agreements. True North's management generally kept the
True North Board apprised of these developments. However, none of these
potential transactions progressed to the stage of serious Board consideration.
Publicis was among the parties which during this period expressed interest to
True North in entering into merger discussions.
On February 20, 1997, Charles D. Peebler, Jr., President and Chief Executive
Officer of Bozell, attended a meeting at which both he and William A.
Schreyer, then a member of the True North Board, were present. During a
subsequent telephone conversation between Mr. Schreyer and Mr. Peebler on
February 21, 1997, Mr. Peebler inquired whether True North might be interested
in discussing the possibility of merging with Bozell. Mr. Schreyer believed
that there might be interest in such discussions and referred Mr. Peebler to
Louis E. Scott. Mr. Scott was at that time a member of the True North Board.
On February 21, 1997, Mr. Peebler spoke with Mr. Scott by telephone and
expressed Bozell's interest in pursuing merger negotiations with True North.
Mr. Scott indicated that he would discuss Mr. Peebler's interest with other
members of the True North Board in connection with a regularly scheduled True
North Board meeting which was to take place in San Francisco the following
week. On March 4, 1997, the Special Committee of the True North Board charged
with, among other things, considering mergers and acquisitions (the "True
North Special Committee") met in San Francisco. The topic of pursuing a merger
with Bozell and other potential merger candidates was discussed. The True
North Special Committee authorized management to enter into discussions with
Bozell and other potential merger candidates.
On March 6, 1997, Mr. Peebler telephoned Bruce Mason, Chairman and Chief
Executive Officer of True North, to discuss the possibility of True North and
Bozell engaging in discussions about a possible combination between the two
companies. Mr. Peebler and Mr. Mason agreed that they should arrange a meeting
on this matter, and a meeting between Mr. Mason and Mr. Peebler was held on
March 18, 1997 in Chicago. At the
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meeting, Mr. Mason and Mr. Peebler agreed that they would contact their
various outside financial and legal advisors and begin more serious
discussions with respect to exploring a potential merger between True North
and Bozell.
On March 10, 1997 Bozell entered into a Confidentiality Agreement with
Omnicom Group, Inc. ("Omnicom") and thereafter provided financial and
operating information to Omnicom.
On March 21, 1997, Mr. Mason and Theodore J. Theophilos, Executive Vice
President and General Counsel of True North, met with True North's financial
advisor, Morgan Stanley, to discuss resuming merger negotiations with Bozell
and another potential merger candidate.
During the week of March 24, 1997, Morgan Stanley had several telephone
conversations with Bozell's financial advisors, Merrill Lynch and Gregory &
Hoenemeyer. The financial advisors discussed the types of information which
both would need to receive to further analyze a potential transaction. Some
preliminary information was exchanged that week. During the week of March 31,
1997, the terms of reciprocal confidentiality agreements between Bozell and
True North were negotiated; such agreements were executed on or about April
10, 1997. Such agreements provided, among other things, that each of True
North and Bozell would supply the other with certain non-public information on
a confidential basis. Such agreements also contained a "standstill"
undertaking which prohibited each of True North and Bozell from taking certain
actions, including the acquisition of any voting securities of the other, the
commencement of any proxy solicitation with respect to the voting of the
voting securities of the other or participation in a proposal for any
extraordinary transaction with the other or its securities or assets.
On April 8, 1997, Richard S. Braddock, another member of the True North
Board, had a telephone conversation and a meeting with the chief executive
officer of another potential merger candidate to discuss the possibility of a
merger with True North. Shortly after this initial meeting, the other merger
candidate concluded that it was unable to entertain merger discussions with
True North at that time.
On April 16, 1997, Mr. Theophilos, Dale F. Perona, Senior Vice President and
Secretary of True North, and True North's financial, legal and accounting
advisors met with Valentine J. Zammit, Vice Chairman and Chief Financial
Officer of Bozell, other members of Mr. Zammit's staff, W. Grant Gregory, of
Gregory & Hoenemeyer and a director of Bozell, representatives of Merrill
Lynch and Bozell's legal and accounting advisors in New York. The purpose of
the meeting was to discuss various business and legal issues relating to the
possible business transaction. At this meeting, it was confirmed that the
transaction should take the form of a tax-free stock-for-stock merger with a
fixed exchange ratio to be accounted for as a pooling of interests. The
parties also agreed to exchange additional financial and other information
regarding the respective businesses in order to facilitate the prompt
negotiation of an appropriate exchange ratio for the Merger.
On April 18, 1997, Morgan Stanley met with members of True North's Finance
Department to discuss and review information which Bozell would provide to
True North, and on April 22, 1997, Morgan Stanley met with Mr. Mason to review
financial information and to prepare a summary term sheet for the proposed
transaction. On April 23, 1997, Morgan Stanley conducted a conference call
with Merrill Lynch and Gregory & Hoenemeyer and presented to Merrill Lynch
True North's proposed term sheet for the proposed merger.
On May 1, 1997, a meeting occurred between various senior officers of Bozell
and True North and their respective financial advisors in Chicago to further
review information presented by True North preliminary to Bozell responding to
True North's term sheet. On May 5, 1997, Bozell responded to True North's term
sheet and provided a counterproposal.
On May 7, 1997, Mr. Mason, accompanied by senior officers of True North and
representatives of Morgan Stanley, met with Mr. Peebler, accompanied by senior
officers of Bozell and representatives of Merrill Lynch, at Mr. Peebler's
residence in New York. During the course of the meeting, the parties
negotiated various terms of the proposed term sheets in an attempt to reach
preliminary agreement concerning certain of such terms.
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On May 9, 1997, the True North Special Committee held a meeting at which
True North's management reviewed with the Committee the status of the
discussions with Bozell to date and presented a comprehensive briefing on a
potential transaction with Bozell, including a preliminary range of potential
price terms. Promptly after this meeting, in a series of telephone calls, Mr.
Mason and Mr. Peebler, in consultation with various members of their
respective Boards, came to tentative agreement upon the exchange ratio for the
transaction.
Also on May 9, 1997, True North and Morgan Stanley entered into a formal
engagement letter pursuant to which Morgan Stanley agreed to provide financial
advisory services to True North in connection with the possible transaction
with Bozell.
On May 16, 1997, outside legal counsel for True North circulated an initial
draft of an Agreement and Plan of Merger providing for the stock-for-stock
merger of a wholly-owned subsidiary of True North into Bozell. Between May 19
and 21, True North conducted legal due diligence at the offices of Bozell in
Omaha, Nebraska. On May 20, 1997, the True North Special Committee met in
Chicago to discuss the status of the negotiations with Bozell. The members
discussed further details about the management structure of the potential
combined company and operational issues. The True North Special Committee
concluded that there were still significant issues to be addressed before
action of the full True North Board would be sought. On May 22 and 23, 1997,
officers of Bozell and their financial and accounting advisors met in Chicago
with officers of True North and their financial and accounting advisors to
conduct further negotiations and due diligence in connection with the
transaction. The participants discussed issues including taxes, the status of
implementation of the Publicis settlement, potential conditions to the mailing
of a proxy statement/prospectus relating to the potential transaction,
corporate goverance structure and employment agreements. On May 23, 1997,
outside legal counsel for True North circulated a revised draft Merger
Agreement, together with an initial draft of a form of stockholders agreement.
On May 26 and 27, 1997, members of True North's Finance Department and its
accounting advisors conducted further financial due diligence in Omaha,
Nebraska with respect to Bozell. On May 27, 1997, representatives of True
North's Finance Department and Morgan Stanley traveled to New York to conduct
further due diligence in connection with the proposed transaction.
In the evening of May 27, 1997, Mr. Peebler, accompanied by other senior
officers of Bozell and its financial advisors, met in Chicago with Mr. Mason
and other senior officers of True North and its legal and financial advisors
to conduct further negotiations. On May 28, 1997, Mr. Mason met with Mr.
Peebler and other senior officers of Bozell in New York to conduct further
negotiations in connection with the proposed transaction. Simultaneously, on
May 28, 1997, senior officers of Bozell met with senior officers of True North
in Chicago to conduct further negotiations regarding the proposed transaction.
In the evening of May 28, 1997, a telephone conversation was conducted
involving Mr. Peebler in New York City and various senior officers of Bozell
and True North in Chicago. A revised draft of the Merger Agreement was
circulated on May 29, 1997.
On May 29, 1997, the chief executive officer of a publicly held marketing
services holding company (the "Other Interested Party") sent an unsolicited
letter to Mr. Braddock expressing interest in seeking to negotiate the
acquisition of True North in a stock-for-stock transaction at a specified
preliminary purchase price. Mr. Braddock, who was traveling in Asia, informed
True North's management about the letter.
On two occasions during May 1997, Bozell received indications of interest
from Omnicom to pursue a merger transaction with Bozell. In the third week of
May a term sheet was sent by Omnicom to Bozell outlining the terms of a
potential merger transaction. Merrill Lynch, at the request of Bozell,
participated in the discussions with Omnicom. The Bozell Board carefully
considered the terms provided by Omnicom and on May 30, 1997, the Bozell Board
unanimously rejected Omnicom's expression of interest due to its financial
inadequacy as well as operational considerations. Bozell then issued a press
release announcing the Bozell Board's decision.
On June 12, 1997, Mr. Mason met with a senior executive officer of a large
global advertising agency to discuss whether there would be any interest in
exploring a potential combination. At the conclusion of this
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meeting, it was determined that this other agency was not prepared to enter
into meaningful discussions with True North at that time.
On June 17, 1997, revised drafts of the Merger Agreement and form of
stockholders agreement were circulated.
On June 20, 1997, the True North Board met to discuss preliminarily two
possible alternate business combinations, the first, the potential merger with
Bozell, and the second, the unsolicited indication of interest from the Other
Interested Party seeking an acquisition of True North. Prior to this meeting,
the True North Board had received extensive briefing materials relating to the
possible merger with Bozell. At the meeting, True North's legal counsel made a
presentation to the True North Board concerning its fiduciary duties to True
North stockholders in connection with consideration of any business
combination. True North's management then presented an overview of the
advertising industry, its major participants and the trend toward
consolidation and agency ownership by "multibrand" holding companies. True
North's management also presented information on Bozell, including information
on Bozell's financial condition and performance, growth prospects, clients and
potential client conflicts with True North (including a potential conflict
relating to respective significant automobile industry clients); summarized
the potential strategic benefits of and potential operating efficiencies that
might result from a merger with Bozell; and briefed the True North Board on
the interest of certain other companies in acquiring Bozell. Representatives
of Morgan Stanley, also present at the meeting, discussed the major elements
of the proposed Bozell merger as negotiated to date and the course of such
negotiations; the then-current business and stock market environment and the
then-current merger and acquisition environment for advertising firms; and
Morgan Stanley's preliminary valuation analysis (with a final analysis pending
completion of a comprehensive due diligence review).
The True North Board then discussed various issues relating to the potential
merger with Bozell, including potential restructuring charges and accounting
issues, issues relating to the proposed governance structure of the combined
entity and certain issues relating to potential conflicts between clients of
Bozell and True North. The True North Board also discussed the expression of
interest from the Other Interested Party to acquire True North and authorized
True North's management to enter into preliminary discussions with the Other
Interested Party relating to such interest. Nonetheless, the True North Board
felt that the preliminary purchase price indicated by the Other Interested
Party was not sufficiently attractive to break off True North's discussions
relating to the potential Bozell merger.
On June 23, 1997, the chief executive officer of the Other Interested Party
sent another letter proposing a format for conducting discussions with senior
officers of True North. After receiving this letter, Mr. Braddock contacted
the Other Interested Party to set up a meeting.
On June 26, 1997, Mr. Mason and Mr. Braddock met with the chief executive
officer and the chief financial officer of the Other Interested Party to
discuss such company's expression of interest in acquiring True North. On June
30, 1997, members of the True North Board were updated on the status of these
discussions by conference telephone call. On July 1, 1997, True North received
a letter from the chief executive officer of the Other Interested Party
expressing a range for a tentative purchase price that exceeded its initial
stated preliminary purchase price, but was subject to further due diligence.
On July 2, 1997, True North and the Other Interested Party entered into a
confidentiality agreement, and True North provided certain proprietary
information to the Other Interested Party.
On July 3 and 4, 1997, financial and legal advisors to the Other Interested
Party conducted due diligence with respect to True North in Chicago at the
offices of True North and its outside legal counsel. During the week of July
7, 1997, additional meetings and telephone conversations occurred between True
North and the Other Interested Party. On July 7, 1997, a meeting was held
addressing financial due diligence issues relating to True North, and on July
10, 1997, a meeting was held addressing due diligence with respect to the
Other Interested Party.
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Separately, during the week of July 7, 1997, Mr. Theophilos of True North
and Mr. Gregory had a series of telephone conversations to discuss a revised
proposed management structure for a combined True North and Bozell. Other
representatives of each of True North and Bozell, including Mr. Mason and Mr.
Peebler, the respective chief executive officers, and the True North
Compensation Committee, were kept apprised of these negotiations. In the last
of these telephonic negotiations, Messrs. Theophilos and Gregory tentatively
reached agreement in principle with respect to management structure.
On July 11, 1997, Messrs. Mason and Peebler met in Chicago and, subject to
the approval of their respective Boards, resolved all the remaining
outstanding issues including management structure and corporate governance.
On July 13, 1997, True North received a letter from the chief executive
officer of the Other Interested Party indicating a reduction in the purchase
price (back to the initial stated preliminary purchase price) that the Other
Interested Party might be willing to offer for True North in a stock-for-stock
transaction. This reduction in price was explained as being due primarily to
inadequate synergies expected to result from the transaction. Also on July 13,
1997, Mr. Mason and certain other officers of True North and the chief
executive officer, the chief financial officer and certain other officers of
the Other Interested Party participated in a lengthy telephone conference call
to discuss the revised offer.
On July 14, 1997, the True North Board met again and was updated on the two
possible strategic business combinations then under consideration. True
North's management made a presentation on the Other Interested Party. Although
the Other Interested Party was viewed as having strong financial performance,
its final tentative offering price for True North was viewed as not overly
attractive in comparison with the market price of True North Common Stock
which might be achieved if a transaction with Bozell were announced and well-
received by investors. (Subsequent to the announcement of the definitive
agreement with Bozell, True North Common Stock has, in fact, traded for brief
periods above the final tentative offering price from the Other Interested
Party, and the last reported sale price of True North Common Stock on November
25, 1997, the last trading day prior to the date of this Proxy
Statement/Prospectus, was above such final tentative offering price.) True
North's management also briefed the True North Board on the status of
negotiations with Bozell, including a revised proposed management structure in
which Mr. Braddock would become non-executive Chairman, Mr. Mason would become
Chief Executive Officer and Mr. Peebler would become President with
responsibility for the True North Diversified Companies (as hereinafter
defined). See "--Interests of Certain Persons in the Merger."
The True North Board discussed the current international operations of True
North, as recently enhanced by True North's acquisition of the Wilkens
agencies in Europe and restructured in the settlement with Publicis, and the
strategic goal of adding a second significant global agency brand network.
(For a discussion of the restructuring of the European operations of True
North formerly co-owned with Publicis, see "RISK FACTORS--Publicis
Settlement," "Publicis Relationship" in True North's Annual Report on Form 10-
K for the year ended December 31, 1996, as amended, and True North's Current
Reports on Form 8-K dated May 19, 1997 and June 25, 1997.) The True North
Board analyzed the extent of Bozell's reliance on its largest client and the
need for additional due diligence on this aspect of the proposed merger and on
a potential conflict between this client and an existing client of True North.
Representatives of Morgan Stanley, also present at the meeting, reported on
the financial aspects of the proposed merger and indicated that, subject to
satisfactory completion of due diligence with respect to Bozell's largest
client and a review of definitive agreements, it would be prepared to issue a
fairness opinion on such merger. After discussion, the True North Board
decided not to pursue a possible transaction involving the acquisition of True
North by the Other Interested Party based on a number of concerns, principally
price, structure, timing and the possibility that Bozell may be unwilling to
continue negotiations if True North were to pursue a possible transaction with
another company at that time. The True North Board also determined to move
forward with additional negotiations and due diligence relating to the
proposed Bozell merger.
On July 15, 1997, a revised draft of the Merger Agreement was circulated.
Between July 17 and July 25, 1997, counsel for True North conducted
supplementary legal due diligence with respect to Bozell, and during this
period representatives of each of True North and Bozell and their respective
advisors completed the negotiation of the Merger Agreement, and certain other
transaction documents
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such as the Stockholders Agreements and schedules to the Merger Agreement.
Financial due diligence was also completed during this period including
updating financial information which had been previously furnished. On July
28, 1997, representatives of True North met with NML and, among other things,
agreed to provide it registration rights with respect to shares of True North
Common Stock that it would receive in the proposed merger in lieu of
registration rights it then had with respect to Bozell Common Stock.
Also during this period, Messrs. Theophilos and Gregory continued to
negotiate specific issues with respect to management structure and had counsel
for True North prepare initial drafts of the Employment Agreements. Then, with
the assistance of counsel and at the direction of the True North Compensation
Committee, Mr. Theophilos began negotiating the Employment Agreements with Mr.
Mason (and his counsel), Mr. Peebler (and his counsel) and Mr. Braddock.
On July 18, 1997, Mr. Mason and the True North Board received a letter from
the Other Interested Party further elaborating on various financial issues
relating to synergies that caused the reduction in the price for its tentative
offer to purchase True North. The letter also noted concerns about the
financial aspects of a prospective unwinding of True North's investment in
Publicis.
On July 29, 1997, representatives of True North met with senior executives
of Bozell's largest client, an automobile manufacturer, to discuss its views
on a merger involving True North and Bozell and potential client conflicts.
Also on July 29, 1997, the True North Compensation Committee met to review
proposed compensation arrangements under the Employment Agreements
contemplated by the proposed post-merger management structure.
On July 30, 1997, the True North Board met for several hours to again
evaluate the proposed merger with Bozell. True North's legal counsel again
briefed the directors on their fiduciary duties to True North stockholders in
connection with consideration of a business combination. The True North Board
reviewed an unsolicited letter which had been received on July 28, 1997 from a
publicly held marketing services holding company other than the Other
Interested Party and, because the letter was very vague and expressed no
indication of favorable terms for a possible acquisition of True North,
determined not to pursue it. True North's management advised the True North
Board about its meeting the previous day with executives of Bozell's largest
client and indicated its belief that Bozell's client relationship with such
client would likely continue should True North's proposed acquisition of
Bozell occur, subject to True North withdrawing from its relationship with a
significant True North client in the automobile industry upon completion of
the advertising campaign currently under development. True North's management
then presented detailed reports on the results of due diligence performed as
to Bozell and on certain financial information relating to True North and
Bozell. The Board reviewed a draft written opinion from Morgan Stanley that,
as of that date, based upon the procedures and subject to specified
assumptions set forth therein, the Exchange Ratio was fair to True North from
a financial point of view. See "--Opinion of True North's Financial Advisor."
Representatives of Morgan Stanley present at the meeting presented a financial
analysis of the proposed transaction, including the possibility of a
restructuring charge, and described the basis for its opinion and the
procedures performed in reaching such opinion.
The True North Board, with the assistance of legal counsel for True North,
reviewed the material terms of the proposed business combination, including
the more important provisions of the proposed Merger Agreement (copies of
which had been supplied to them prior to the meeting) and the proposed
governance structure for the combined entity. The True North Board then met in
executive session to discuss the proposed Employment Agreements between True
North and each of Messrs. Braddock, Mason and Peebler. After careful
consideration of all matters, including True North's due diligence
investigation of Bozell, the material terms of the Merger Agreement, the
Stockholders Agreements and Employment Agreements and Morgan Stanley's
fairness opinion, the True North Board (with one director, the Publicis
Designee, dissenting) approved the Merger Agreement and the Merger, the Bozell
Stockholders Agreements, the Employment Agreements, the Registration Rights
Agreement, the Share Issuance and the Charter Amendment, subject to True
North's management negotiating certain additional terms of certain of the
Employment Agreements. See "--True North's Reasons for the Merger;
Recommendation of its Board of Directors." The True North Board also approved
(with the Publicis Designee dissenting) the nomination of each person named
under "ELECTION OF DIRECTORS OF TRUE NORTH" to
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serve as a member of the True North Board effective as of the Effective Date.
In casting his dissenting vote with respect to the foregoing actions, the
Publicis Designee stated that his opposition was based on the following
factors: (i) concern over the management structure of the merged entities and
(ii) that, notwithstanding the fairness of the Merger to True North from a
financial point of view (as addressed in the written opinion of Morgan
Stanley), he believed that True North would be paying too much for Bozell.
Early in the morning on July 31, 1997, after successfully completing
negotiation of the Employment Agreements as directed by the True North Board,
the Merger Agreement, the True North Stockholders Agreements, the Bozell
Stockholders Agreements, the Employment Agreements and the Registration Rights
Agreement were executed and delivered. Later that day, a press release was
issued by True North announcing the transaction.
Publicis Offer. On November 10, 1997, each member of the True North Board
received an unsolicited letter from Maurice Levy, President of Publicis S.A.,
the controlling shareholder of Publicis. The complete text of the letter is
set forth below. The Publicis letter states that Publicis intends to oppose
and vote against the Merger because, in Mr. Levy's view, the Merger would not
be strategically advantegeous to True North and the price to be paid for
Bozell is excessive. Mr. Levy further stated his belief that a combination
between Publicis and True North would provide strategic benefits to True North
by expanding its presence globally. Mr. Levy indicated that Publicis was
prepared to propose a business combination between Publicis and True North in
which each outstanding share of True North would be valued at $28.00 in an
unspecified combination of cash and stock of an unspecified issuer. No further
details of the proposed business combination are contained in the letter.
Publicis requested that the True North Board meet with its representatives to
discuss further details of its proposal.
On November 12, 1997 the True North Board met and discussed the November 10,
1997 letter. Also present at the meeting were True North's legal counsel,
Sidley & Austin, and True North's financial advisors, Morgan Stanley. Sidley &
Austin discussed with the members of the True North Board their fiduciary
duties and reviewed the relevant provisions of the Merger Agreement. The True
North Board was advised that the directors were not obligated by their
fiduciary duties imposed under applicable laws to meet with Publicis. Sidley &
Austin also reviewed with the True North Board the terms of the Merger
Agreement providing in effect that True North is prohibited contractually from
directly or indirectly engaging in discussions or negotiations relating to a
potential takeover proposal unless the True North Board determines in its good
faith judgment that such takeover proposal is bona fide and may ultimately
result in an offer more favorable to the stockholders of True North than the
Merger and in which the sole consideration to be received by True North's
stockholders would be common stock of a widely held public company. Morgan
Stanley then reviewed with the True North Board the financial terms of the
Merger in light of most recent available financial information.
The True North Board, after discussing the issues at length, reaffirmed its
view that the Merger with Bozell presents the best strategic course of action
for True North and its stockholders and concluded that Mr. Levy's letter did
not constitute a Superior Parent Takeover Proposal within the meaning of the
Merger Agreement (see "THE MERGER AGREEMENT--No Solicitation"). The True North
Board took into consideration the fact that the recently dissolved European
joint venture between True North and Publicis had led to many contentious
disputes and an arbitration proceeding between the parties. The True North
Board believed that it would be unrealistic to ignore the long-standing
difficulties between True North and Publicis which (if they were to persist)
could adversely affect the ultimate value of the entities proposed to be
combined and that any such combination could cause significant fallout of key
clients and key employees. Finally, the True North Board noted that the
indicated value to True North stockholders of Publicis' cash and stock offer
did not appear to be materially superior to the proposal that True North had
received from the Other Interested Party in July 1997, which it had rejected.
Accordingly, the True North Board unanimously (with the Publicis Designee
recusing himself and one director absent due to illness) determined not to
enter into discussions with Publicis on the matters addressed in Mr. Levy's
letter. Publicis was notified of this determination by letter dated November
17, 1997 from Mr. Mason and Mr. Braddock and Mr. Levy.
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In keeping with its standard practice, Morgan Stanley has not formally
updated its fairness opinion in connection with consideration of the Publicis
proposal. However, Morgan Stanley has remained closely involved with both True
North and the Merger and, at the November 12, 1997 meeting of the True North
Board, Morgan Stanley confirmed that it would have no basis for modifying or
withdrawing the opinion which it previously rendered. Whether or not the
investment bankers' fairness opinions would be updated as a closing or other
condition to consummation of the Merger was specifically discussed as part of
the Merger Agreement negotiations, and the parties agreed that there would be
no such requirement.
Since receiving the November 10, 1997 letter, True North has not received any
further correspondence from and has not had any conversations with Publicis
with respect to the terms of its offer. On November 26, 1997, an article was
published in The Wall Street Journal in which it is reported that S.C. Johnson,
True North's largest client, sent a letter to Mr. Levy stating that "[i]f
Publicis takes over FCB, we will immediately begin to look for a new agency."
The possibility that key clients of True North might question a potential
business combination between True North and Publicis was one of the concerns
expressed by the True North Board at its November 12, 1997 meeting.
The text of Mr. Levy's letter to each member of the True North Board is as
follows:
Board of Directors November 10, 1997
True North Communications
101 East Erie Street
Chicago, IL 60611
USA
Members of the Board:
Publicis was disappointed in August when we learned of True North's
agreement to merge with Bozell. Publicis believes that True North's
transaction with Bozell is contrary to the best interests of True
North's stockholders, of which Publicis is by far the largest with
18.5% of True North's common stock. The acquisition does not solve True
North's fundamental strategic weakness, which has been its failure to
establish a global presence. Bozell is primarily U.S.-based business
with a weak international presence, and Publicis believes that its
acquisition by True North will compound, rather than solve, True
North's strategic weaknesses. As global marketers have increasingly
demanded worldwide coverage, True North has continued to focus on its
U.S. business and as a result, we believe that True North now finds
itself at a significant competitive disadvantage. In short, True
North's proposed acquisition of Bozell does nothing to solve these
problems, and we believe (based on the limited information that has
been made available to date) that the price to be paid for Bozell
significantly exceeds the value of Bozell's business. For these
reasons, Publicis intends to oppose and vote against the merger of
Bozell and True North.
As many of you know, Publicis has for some time believed that a
combination of Publicis Communication's business with those of True
North would create a powerful global presence with tremendous
opportunities for growth. In November 1995, I made a presentation to
the Board of True North in which the significant benefits of combining
our two networks were clearly outlined. We at Publicis continue to
believe that a merger between Publicis Communication and True North is
in the best interests of both True North's and Publicis' stockholders
and their respective clients and employees.
Merging our two companies' networks would create a combined entity
with a very strong and creative presence in most of the world's
significant markets, enabling us to deliver a complete range of
services to global clients. Combining Publicis Communication and True
North solves True North's fundamental strategic weakness by adding a
strong international network which is a market leader in Europe.
Although our two companies have had disagreements in the past, the
mutual interests of our respective stockholders require us to put those
differences aside and to work together to maximize the values that can
be achieved by combining True North's and Publicis Communication's
business.
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After considering our options and reviewing the information that is
available to us, we have concluded that the strategic advantages of a
Publicis Communication/True North combination are too compelling for
Publicis to ignore. Accordingly, I am writing to inform you that
Publicis is prepared to propose a business combination between Publicis
Communication and True North in which each outstanding share of True
North would be valued at US$28. Publicis is prepared to discuss with
True North and its representatives the details of our proposal,
including the cash and stock components of our US$28 valuation. We are
ready to meet with the Board and its advisors to present our plans and
to discuss transaction structures which maximize value for both True
North's and Publicis' stockholders.
As I have repeatedly indicated to this Board and to senior management
of True North, a combination of Publicis Communication and True North
would be a strategically perfect fit. The two companies would represent
a worldwide structure, better able to serve current clients and ideally
positioned to offer the full range of services that today's global
marketers expect. Publicis is prepared to discuss with you as soon as
possible business combination transactions which would, we believe,
create significantly greater short- and long-term value for True
North's stockholders than your current merger with Bozell. We are
prepared to leave our past disagreements behind us in order to pursue
this opportunity, and we urge you to do the same for the benefit of the
stockholders of both of our companies.
We hope that you will view our proposal as we do--a unique
opportunity for the stockholders of True North to maximize the value of
their shares. The strategic benefits of the combination are undeniable
and, we believe, far superior to the Bozell transaction which ignores
the strategic imperatives of our respective businesses. We would be
willing to meet with you and your advisors at your earliest convenience
to discuss our proposal and to answer any questions you may have. Our
preferred course would be to negotiate a transaction that can be
presented to our respective stockholders and clients as the amicable
and joint efforts of Publicis, True North and each of the companies'
Boards of Directors and senior management.
I hope that each of you will give our proposal serious consideration,
and look forward to your reply. We stand ready to meet with the Board
to present our plans.
Very truly yours,
Maurice Levy
Mr. Levy's letter was publicly disclosed in a press release issued by
Publicis on November 17, 1997 and by an amendment to the Schedule 13D filed by
Publicis with the Commission on November 18, 1997 with respect to Publicis'
investment in True North.
True North responded to Mr. Levy's letter with a letter which read as
follows:
November 17, 1997
Mr. Maurice Levy
Publicis
133 Champs-Elysees
75008 Paris
France
Dear Maurice:
The Board of Directors of True North considered your unsolicited
letter dated November 10, 1997 at our regularly scheduled board meeting
held on November 12. Your letter was discussed at length and the Board
had the benefit of counsel from its legal and financial advisors--
Sidley & Austin and Morgan Stanley. We have been asked by the Board to
respond to your letter.
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The Board unanimously (with Ali Wambold, your Publicis designee,
recusing himself and Mike Murphy absent due to illness) resolved to
decline your invitation to meet to discuss the transaction which you
are prepared to propose. Among other things:
. The Board reaffirmed its desire to pursue the pending merger
transaction with BJK&E (Bozell) because we feel it is in the best
interests of our shareholders.
. As best as the Board can understand the financial terms of your
letter, they are not materially different from other strategic
alternatives which the Board has explicitly considered and turned
down in the past.
. The Board believes it is unrealistic to ignore a decade of
difficulties between our two companies, which (if they were to
persist) would directly and adversely affect the value of any
combination you propose, and further believes any such combination
could cause significant fallout of key clients and key employees.
. The Board concluded after being advised by counsel that your letter
does not provide a basis which would allow us, in keeping with our
contractual obligations to Bozell, to engage in discussions.
. The Board has been advised that your letter stating that you are
prepared to make a proposal would require significant discussion and
time to define and execute, thereby significantly jeopardizing our
timetable for other considerations.
The Board remains committed to the Bozell deal and must point out
that our progress in moving toward closing it is being delayed by lack
of responsiveness from Publicis in providing the information it is
contractually required to provide for our SEC filing. While Publicis is
obviously free to vote in any manner it chooses, we urge that it
carefully, fully and promptly comply with its obligations under the May
19, 1997 Agreement wherein it promised to take reasonably requested
action in support of a True North acquisition. We believe that, when
Publicis reviews the information contained in the proxy statement, it
will ultimately conclude that the True North/Bozell transaction will
benefit the existing stockholders.
Very truly yours,
Bruce Mason
Rick Braddock
True North's response was disclosed in a press release issued by True North
on November 17, 1997 and by the filing by True North of a Form 8-K on November
18, 1997.
The phrase "significantly jeopardizing our timetable for other
considerations" contained in the final bullet point in True North's letter set
forth above addresses the fact that the Merger Agreement may be terminated by
either True North or Bozell if the Merger has not been effected on or prior to
December 31, 1997 and the concern of the True North Board that, if discussions
with Publicis were commenced so near to such date, the Merger Agreement with
Bozell might become subject to termination before a possible transaction with
Publicis could be negotiated or completed. See "THE MERGER AGREEMENT--
Termination."
TRUE NORTH'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS
The True North Board, with one director dissenting, has determined that the
Merger Agreement and the Merger, the Share Issuance and the Charter Amendment
are advisable and fair to and in the best interests of the stockholders of
True North and has approved the Merger Agreement, the Share Issuance and the
Charter Amendment. The True North Board recommends that the stockholders of
True North vote in favor of the Merger Agreement and the Merger, the Share
Issuance and the Charter Amendment at the True North Special Meeting. The True
North Board has also approved and recommends, with one director dissenting, a
vote for each person nominated by the True North Board to serve as a member of
the True North Board in connection with the
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Election of Directors. For a discussion of the reasons why one director of True
North, the Publicis Designee, voted against the Merger, see "THE MERGER--
Background of the Merger."
The True North Board believes that the Merger represents an opportunity to
achieve a long-stated objective of True North of acquiring a second global
agency brand network to complement its FCB brand and to better compete for
worldwide accounts of global advertising clients. The True North Board further
believes that Bozell's strong financial results, respected and capable
management, and compatible approach to client service and stockholder value
make it a particularly appealing acquisition candidate. The Merger would also
strengthen True North's position in interactive digital technology by adding
Bozell's Poppe Tyson, Inc., an interactive marketing communications firm, to
True North's TN Technologies unit specializing in interactive communications
which includes Modem Media and R/GA Interactive. As part of the Merger, True
North would also acquire another respected U.S. agency, Temerlin McClain, and
the U.S. public relations firm Bozell Sawyer Miller Group. The Merger would
also better establish True North in the important and growing areas of
integrated marketing services, healthcare advertising and sales promotion
operations and would give True North significantly increased market presence in
the important area of media buying.
The True North Board believes that the Merger should produce improved
stockholder value by better leveraging True North's existing corporate
structure and spreading it over a larger base. This structure is designed to
free local agency management from administration of media buying and back
office support functions and give them leading edge technology so they can
devote their full energy and creativity to growing clients' businesses.
Leveraging this structure is expected to reduce costs and increase
profitability of the combined enterprise. The True North Board believes that
the Merger would result in a more diversified communications holding company
that would own two major, globally recognized agency brand networks each having
a strong market position. In brief, the True North Board believes that the
Merger would create not only a combined entity bigger and stronger than either
True North or Bozell on a stand-alone basis, but also an enterprise positioned
to compete more effectively for multi-national advertising clients on both a
strategic and financial basis.
It is anticipated, based upon Bozell's anticipated net income for 1998, that
the Merger will be accretive to True North's results of operations for 1998 and
subsequent years.
For the foregoing reasons, the True North Board believes that the terms and
conditions of the Merger Agreement are in the best interests of True North and
its stockholders. In reaching its conclusion, the True North Board considered,
among other things: (i) the judgment, advice and analyses of its management;
(ii) the judgment and advice of, and the analyses prepared by, Morgan Stanley;
(iii) the financial condition, results of operations and cash flows of True
North and Bozell, both on an historical and a prospective basis; (iv) the
results of due diligence investigations, including a report on a meeting with a
major client of Bozell, and the expected loss of a significant automobile
industry client of True North as a result of a client conflict; (v) the rapid
consolidation and increasing worldwide competition in the advertising services
industry and the need to anticipate and best position True North in light of
industry trends; (vi) the expectation that the Merger will provide revenue
growth opportunities based on the combined company's leadership in many of its
markets, its productivity and its brand names; (vii) the synergies, cost
reductions and operating efficiencies that should become available to the
combined enterprise as a result of the Merger, as well as the many management
challenges associated with successfully integrating two sizeable businesses;
(viii) the express terms and conditions of the Merger Agreement and the course
of negotiations thereof, including provisions permitting termination (subject
to the payment of a break-up fee) in certain circumstances if True North
receives a Superior Parent Takeover Proposal, which were viewed as providing an
equitable basis for the Merger from the standpoint of True North, and the
determination that such terms and conditions were consistent with True North's
long-term strategy of enhancing stockholder value with external expansion
through selective acquisitions; (ix) the express terms and conditions of the
Employment Agreements, which, together with the Merger Agreement, including the
proposed Board of Directors and management structure, were deemed to provide
benefits to the combined enterprise commensurate with the costs thereto, and
the recommendation of the True North Compensation Committee with respect to the
Employment Agreements; (x) the express terms and conditions of the Stockholders
Agreements, as well as the potential impact of these agreements on potential
transactions with any other interested parties; (xi) the tax effects
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of the Merger on True North; (xii) the significant worldwide enhancement of the
market position of the combined enterprise; (xiii) the ability to consummate
the Merger as a pooling of interests under GAAP; (xiv) the opportunity for
subsequent business combinations, as well as the effect thereon of potential
client conflicts; (xv) the personal familiarity of the members of the True
North Board with Bozell and with the advertising industry; and (xvi) the active
and direct involvement of the True North Board and the True North Special
Committee in this transaction, including the consideration of these factors and
alternative transactions at more than seven meetings since March 1997 and the
direct participation in negotiations by an outside True North director.
The foregoing discussion of the information and factors considered and given
weight by the True North Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the True North Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the True North
Board may have given different weights to different factors.
THE TRUE NORTH BOARD RECOMMENDS, WITH ONE DIRECTOR DISSENTING, THAT THE HOLDERS
OF TRUE NORTH COMMON STOCK VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE
MERGER, THE SHARE ISSUANCE AND THE CHARTER AMENDMENT AND FOR THE ELECTION OF
DIRECTORS AS DESCRIBED HEREIN.
For a discussion of the reasons why one director of True North, the Publicis
Designee, voted against the Merger, see "THE MERGER--Background of the Merger."
OPINION OF TRUE NORTH'S FINANCIAL ADVISOR
In May 1997, True North retained Morgan Stanley to act as its financial
advisor in connection with the potential combination with Bozell. At the July
30, 1997 meeting of the True North Board, Morgan Stanley rendered to the True
North Board an oral opinion that, as of such date and based upon and subject to
the various considerations set forth in its opinion, the Exchange Ratio was
fair from a financial point of view to True North. Morgan Stanley subsequently
confirmed its oral opinion by delivery to True North on August 1, 1997 of its
written opinion dated as of July 30, 1997.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED JULY 30, 1997,
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED, AND LIMITATIONS ON THE SCOPE OF REVIEW BY MORGAN STANLEY IN
RENDERING ITS OPINION, IS ATTACHED AS ANNEX II TO THIS PROXY
STATEMENT/PROSPECTUS. MORGAN STANLEY'S OPINION IS DIRECTED TO THE TRUE NORTH
BOARD AND THE FAIRNESS OF THE EXCHANGE RATIO TO TRUE NORTH FROM A FINANCIAL
POINT OF VIEW AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES
IT CONSTITUTE A RECOMMENDATION AS TO HOW THE STOCKHOLDERS OF TRUE NORTH SHOULD
VOTE AT THE TRUE NORTH SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. HOLDERS OF TRUE NORTH
COMMON STOCK ARE URGED TO, AND SHOULD, READ MORGAN STANLEY'S OPINION CAREFULLY
AND IN ITS ENTIRETY.
In rendering its opinion, Morgan Stanley, among other things: (i) reviewed
certain publicly available financial statements and other information of Bozell
and True North, respectively; (ii) reviewed certain internal financial
statements and other financial and operating data concerning Bozell and True
North prepared by the managements of Bozell and True North, respectively; (iii)
analyzed certain financial projections for Bozell and True North prepared by
the managements of Bozell and True North, respectively; (iv) discussed the past
and current operations and financial condition and the prospects of Bozell and
True North with senior executives of Bozell and True North, respectively; (v)
reviewed the pro forma impact of the Merger on True North's earnings per share
and consolidated capitalization; (vi) reviewed the reported prices and trading
activity for the True North Common Stock; (vii) compared the financial
performance of Bozell and True North and the prices and trading activity of
True North Common Stock with that of certain other comparable publicly-traded
companies and their securities; (viii) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions; (ix)
discussed with senior executives of Bozell and True North their views of the
strategic rationale
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for the Merger and their estimates of the synergies and the cost savings and
other benefits expected to be derived from the Merger; (x) participated in
discussions and negotiations among representatives of Bozell and True North and
their financial and legal advisors; (xi) reviewed the Merger Agreement and
certain related documents; (xii) considered the due diligence report by
management of True North in connection with its meeting with Bozell's largest
client account; and (xiii) performed such other analyses and considered such
other factors as it deemed appropriate.
In rendering its July 30, 1997 opinion, Morgan Stanley assumed and relied
upon without independent verification the accuracy and completeness of the
information supplied or otherwise made available to Morgan Stanley by True
North and Bozell for the purposes of its opinion. With respect to the financial
projections, including synergies and other benefits expected to be derived from
the Merger, Morgan Stanley assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performances of True North and Bozell, respectively. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities of True North and Bozell, nor was Morgan Stanley furnished with any
such appraisals. In addition, Morgan Stanley assumed the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement.
Morgan Stanley's opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to it as of,
July 30, 1997.
The following is a brief summary of certain analyses performed by Morgan
Stanley in connection with the rendering of its July 30, 1997 opinion.
True North Common Stock Performance. Morgan Stanley's analysis of the True
North Common Stock performance consisted of an historical analysis of closing
prices and trading volumes from January 1, 1995 to July 29, 1997. During this
period, based on closing prices on the NYSE, the True North Common Stock
achieved a high of $27.00 per share and a low of $15.75 per share. The True
North Common Stock closed at a price of $22.56 per share on July 29, 1997.
Comparable Company Analysis. Comparable company analysis examines a company's
trading performance relative to a group of publicly traded peers. Morgan
Stanley performed a comparable public company trading analysis pursuant to
which it compared certain publicly available financial and operating data,
projections of future financial performance and market statistics (based upon
closing stock prices on July 29, 1997) of Grey Advertising, Interpublic Group,
Omnicom and WPP Group PLC (collectively, the "Selected Comparable Companies").
Historical financial information used in connection with the ratios provided
below with respect to the Selected Comparable Companies was as of the date of
the most recent financial statements publicly available for each company.
Morgan Stanley compared (i) the closing stock prices as a multiple of estimated
1997 and 1998 earnings per share ("EPS") and (ii) the aggregate value
(consisting of market capitalization plus total debt less cash and marketable
securities) as a multiple of estimated 1997 earnings before interest, taxes,
depreciation and amortization ("EBITDA") (provided by analyst research, Value
Line, Morgan Stanley research and management of True North) and earnings before
interest and taxes ("EBIT") (provided by analyst research, Value Line, Morgan
Stanley research and management of True North). EPS estimates for the Selected
Comparable Companies were estimates provided by Institutional Brokers Estimates
System ("IBES") and First Call Research Network.
For the Selected Comparable Companies, such analysis indicated: (i) median
price to estimated 1997 EPS multiple of 22.7x, (ii) median price to estimated
1998 EPS multiple of 19.9x, (iii) median aggregate value to estimated 1997
EBITDA multiple of 10.0x and (iv) median aggregate value to estimated 1997 EBIT
multiple of 12.5x. Using the financial information and forecasts provided by
management of Bozell and True North, Morgan Stanley derived an implied equity
value range of Bozell upon application of the financial multiples from the
Selected Comparable Companies. This analysis indicated that the implied equity
value of Bozell ranged from $420 to $520 million.
No company utilized as a comparison in the comparable companies analysis is
identical to Bozell. In evaluating the Selected Comparable Companies, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of
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which are beyond the control of Bozell, such as the impact of competition on
Bozell and the industry generally, industry growth and the absence of any
adverse material change in the financial condition and prospects of Bozell or
the industry or in the financial markets in general.
Comparable Transaction Analysis. Using publicly available information, Morgan
Stanley performed an analysis of selected transactions (collectively, the
"Bozell Comparable Transactions") from 1986 to 1997 and for each transaction
calculated the aggregate value as a multiple of last twelve months' revenues,
EBITDA and EBIT. Such analysis indicated that the aggregate value as a multiple
of last twelve months' revenues, EBITDA and EBIT, respectively, ranged from (i)
0.9x to 1.1x, (ii) 8.0x to 10.0x and (iii) 11.0x to 13.0x. Using the financial
information and forecasts provided by management of True North and Bozell,
Morgan Stanley derived an implied equity value range for Bozell upon
application of the financial multiples from the Bozell Comparable Transactions.
This analysis indicated that the implied equity value of Bozell ranged from
$470 to $570 million.
No transaction utilized as a comparison in the comparable transaction is
identical to the Merger. In evaluating the precedent transactions, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Bozell, such as the impact of
competition on Bozell and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of Bozell or the industry or in the financial markets in general. Mathematical
analysis (such as determining the average of median) is not in itself a
meaningful method of using comparable transaction data.
Discounted Cash Flow Analysis. Morgan Stanley conducted a discounted cash
flow analysis of Bozell for the fiscal years ended 1997 through 2006 to
estimate the present value of the stand-alone unlevered free cash flows that
Bozell is expected to generate if Bozell performs in accordance with scenarios
based upon certain financial forecasts. The discounted cash flow analysis for
Bozell was based upon certain discussions with management of Bozell as well as
upon certain financial forecasts prepared by management of Bozell. Unlevered
free cash flows of Bozell were calculated as net income plus depreciation and
amortization plus deferred tax plus minority interest plus other noncash
expenses plus after-tax net interest expense less investment in working capital
less capital expenditures less other noncash income. Morgan Stanley calculated
terminal values for Bozell by applying a range of EBITDA multiples of 6.0x to
7.0x, EBIT multiples of 7.0x to 9.0x and perpetual growth rates to the free
cash flow in fiscal year 2006 of 1.0% to 3.0% representing estimated long-term
growth rates of free cash flow. The unlevered free cash flow streams and
terminal values were then discounted to the present using a range of discount
rates from 11.0% to 12.0%. The discount rate ranges were selected based upon a
weighted average cost of capital analysis of Bozell. Using the financial
information and forecasts for Bozell provided by management of Bozell, Morgan
Stanley derived an implied equity value range for Bozell. This analysis, which
does not consider any benefits derived from combining True North and Bozell,
indicated that the implied equity value of Bozell ranged from $465 to $515
million.
Pro Forma Analysis of the Merger. Morgan Stanley analyzed certain pro forma
effects of the Merger based upon the Exchange Ratio, including the impact of
the Merger on the EPS of True North in fiscal years 1997 through 1999. Such
analysis was based on earnings estimates and base synergies projections
provided by the managements of Bozell and True North for the fiscal years ended
1997 though 1999. Morgan Stanley observed that, if the Merger were treated as a
pooling-of-interests for accounting purposes and if Bozell and True North
estimated synergies were realized, the issuance of the True North Common Stock
in the Merger would have an accretive effect on pro forma earnings per share to
True North of approximately 6.2% in fiscal year 1998 and 10.6% in fiscal year
1999.
Summary Contribution Analysis. Morgan Stanley analyzed and compared the
respective historical and projected contribution of gross income and net income
for Bozell and True North in 1996, 1997 and 1998. The analysis indicated that
True North would contribute 49.8%, 53.9% and 55.0%, in 1996, 1997 and 1998,
respectively, to combined gross income and 60.5%, 58.1% and 56.2%, in 1996,
1997 and 1998, respectively, to combined net income.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at this opinion, Morgan Stanley considered the results of all of its
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analyses as a whole and did not attribute any particular weight to any
particular analysis or factor considered by it. Furthermore, selecting any
portions of Morgan Stanley's analyses, without consideration of all analyses,
would create an incomplete view of the process underlying its opinion. In
addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting for
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Bozell.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of True North or Bozell.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as part of Morgan
Stanley's analysis of the fairness of the Exchange Ratio from financial point
of view to True North and were provided to the True North Board in connection
with the delivery of the Morgan Stanley written opinion. The analyses do not
purport to be appraisals or to reflect the prices at which True North Common
Stock might actually be sold. In addition, as described above, the Morgan
Stanley opinion and presentation to the True North Board were among the many
factors taken into consideration by the True North Board in making its
determination to approve the Merger.
True North retained Morgan Stanley based upon its experience and expertise.
Morgan Stanley is an internationally recognized investment banking and
financial advisory firm. Morgan Stanley, as part of its investment banking
business, is continuously engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated underwriting,
competitive bidding, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Morgan
Stanley is a full-service provider of securities trading and brokerage
activities, as well as investment banking and financial advisory services. In
the ordinary course of its trading and brokerage activities, Morgan Stanley or
its affiliates may at any time hold long or short positions, and may trade or
otherwise effect transactions, for its own account or the account of customers,
in securities of True North. In the past, Morgan Stanley and its affiliates
have provided financial advisory services to True North and have received
customary fees for the rendering of these services.
Financial Advisor Fees. Pursuant to a letter agreement dated as of May 9,
1997, True North has agreed to pay Morgan Stanley (i) an advisory fee estimated
to be between $150,000 and $250,000 in the event the Merger is not consummated;
(ii) an exposure fee of $1,000,000 payable under certain circumstances and
(iii) a transaction fee, upon consummation of the Merger, currently estimated
at $3.5 million (against which any fees mentioned in clauses (i) and (ii) of
this sentence would be credited). In addition to the foregoing compensation,
True North has agreed to reimburse Morgan Stanley for its expenses, including
reasonable fees and expenses of its counsel, and to indemnify Morgan Stanley
for liabilities and expenses arising out of the engagement and the transactions
in connection therewith, including liabilities under federal securities laws.
BOZELL'S REASONS FOR THE MERGER; RECOMMENDATION OF ITS BOARD OF DIRECTORS
The Bozell Board met on May 16, 1997 to receive a report on the possible
transaction with True North from management of Bozell, Bozell's financial
advisors, Merrill Lynch and Gregory & Hoenemeyer, and legal advisors. At three
subsequent meetings of the Board held on May 30, 1997, June 25, 1997, and
July 30, 1997, the Bozell Board met with its financial advisors and legal
advisors to review the business, financial condition and prospects of Bozell,
the terms and conditions of True North's proposal with respect to the possible
transaction with Bozell (the "Proposal") and various matters related thereto,
including reports by Merrill Lynch on the financial condition and performance,
strategic alternatives and potential value of Bozell. Based on the proposed
terms of the draft Merger Agreement presented to the Bozell Board on July 30,
1997 and after receiving advice from management of Bozell, its financial
advisors and its legal advisors, the Bozell Board unanimously determined that
the Proposal and Merger Agreement are fair to, and in the best interest of, the
stockholders of Bozell. The Bozell Board then recommended that stockholders of
Bozell approve the Merger Agreement and the Merger. The Bozell Board recommends
that stockholders vote "FOR" approval and adoption of the Merger Agreement.
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In reaching its determination and recommendations described in the preceding
paragraph, the Bozell Board considered a number of factors, including the
following: (i) the terms and conditions of the Proposal and the Merger
Agreement and the course of negotiations thereof; (ii) the directors' knowledge
of Bozell's business, considering its operating, financial, strategic and
marketplace strength and the opportunity a merger with True North would create
to leverage its strengths to enhance stockholder value; (iii) the Bozell
Board's belief, based on the indications of interest from other companies with
which Bozell had discussions during the past two years concerning possible
business combinations, together with its view that a merger with Bozell would
be particularly attractive to True North and that a proposal that could provide
greater value to holders of Bozell Common Stock than the Merger would not be
forthcoming; (iv) the presentations of Bozell's financial advisor, Merrill
Lynch, at the Bozell Board meetings held on May 16, 1997 and July 30, 1997 and
the Merrill Lynch Opinion that, as of the date of the Merrill Lynch Opinion and
based upon and subject to the assumptions, limitations and other matters set
forth therein, the Exchange Ratio was fair from a financial point of view to
the holders of shares of Bozell Common Stock; (v) that the Merger Agreement
permitted Bozell to terminate the Merger Agreement (subject to the payment of a
break-up fee) if the Board reasonably determined that a proposal or offer by a
third party constitutes a Superior Company Takeover Proposal; and (vi) the
Bozell Board's determination that, pursuant to the Merger Agreement, there was
a substantial likelihood that the transaction will be completed.
The Bozell Board did not assign relative weights to the foregoing factors or
determine that any factor was of particular importance. Rather, the Board
viewed its position and recommendations as being based on the totality of the
information presented and considered by it.
THE BOZELL BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF BOZELL VOTE IN
FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE BOZELL SPECIAL
MEETING.
OPINION OF BOZELL'S FINANCIAL ADVISOR
Bozell retained Merrill Lynch to act as its financial advisor in connection
with the Merger. On May 16, 1997, Merrill Lynch presented to the Bozell Board
certain financial analyses related to the Merger (the "May 16, 1997
Presentation"). On July 30, 1997, Merrill Lynch presented to the Bozell Board
updated financial analyses related to the Merger (the "July 30, 1997
Presentation") and delivered to the Bozell Board the Merrill Lynch Opinion
that, as of such date and based upon and subject to the assumptions,
limitations and other matters set forth therein, the Exchange Ratio was fair
from a financial point of view to the holders of shares of Bozell Common Stock.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS ANNEX III TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF
THE MERRILL LYNCH OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE
MERRILL LYNCH OPINION WAS PROVIDED TO THE BOZELL BOARD FOR ITS USE AND BENEFIT
AND DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY BOZELL TO ENGAGE
IN THE MERGER, IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW
OF THE EXCHANGE RATIO TO THE HOLDERS OF SHARES OF BOZELL COMMON STOCK AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY BOZELL STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE ON THE MERGER.
No limitations were imposed by the Bozell Board upon Merrill Lynch with
respect to investigations made or procedures followed by Merrill Lynch in
rendering the Merrill Lynch Opinion, except that Merrill Lynch was not
authorized by Bozell or the Bozell Board to solicit, nor did Merrill Lynch
solicit, third-party indications of interest for the acquisition of all or any
part of Bozell. The Exchange Ratio was determined through negotiations between
Bozell and True North and was approved by the Bozell Board. Merrill Lynch
provided advice to the Bozell Board during the course of such negotiations, but
did not make a recommendation with respect to the Exchange Ratio. The Merrill
Lynch Opinion is based upon financial, economic, market and other conditions as
they existed and could be evaluated as of the date of the Merrill Lynch
Opinion.
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The summary set forth below does not purport to be a complete description of
the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Bozell Board. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to partial analysis or summary description. In
arriving at its opinion, Merrill Lynch did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its
opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Bozell or True North. Any estimates contained in the analyses performed by
Merrill Lynch are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, estimates of the value of businesses or securities
do not purport to be appraisals or to reflect the prices at which such
businesses or securities might actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. In addition, as
described above, the Merrill Lynch Opinion and Merrill Lynch's presentations to
the Bozell Board were among several factors taken into consideration by the
Bozell Board in making its determination to approve the Merger Agreement.
Consequently, the Merrill Lynch analyses described below should not be viewed
as determinative of the decision of the Bozell Board with respect to the
fairness of the Exchange Ratio.
In arriving at its opinion, Merrill Lynch, among other things, (i) reviewed
certain publicly available business and financial information relating to True
North that it deemed to be relevant; (ii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets, liabilities and prospects of Bozell and True North, as well as the
amount and timing of the cost savings and related expenses and synergies
expected to result from the Merger (the "Expected Synergies"), furnished to it
by Bozell and True North, respectively; (iii) reviewed certain information,
including financial forecasts, relating to Publicis Europe, B.V., Publicis and
Publicis S.A., furnished to it by Bozell and True North; (iv) conducted
discussions with members of senior management and representatives of Bozell and
True North concerning the matters described in clauses (i), (ii) and (iii)
above, as well as their respective businesses and prospects before and after
giving effect to the Merger and the Expected Synergies; (v) reviewed the market
prices and valuation multiples for the shares of True North Common Stock and
compared them with those of certain publicly traded companies that it deemed to
be relevant; (vi) reviewed the results of operations of Bozell and True North
and compared them with those of certain publicly traded companies that it
deemed to be relevant; (vii) compared the proposed financial terms of the
Merger with the financial terms of certain other transactions that it deemed to
be relevant; (viii) participated in certain discussions and negotiations among
representatives of Bozell and True North and their financial and legal
advisors; (ix) reviewed the potential pro forma impact of the Merger; (x)
reviewed a draft dated July 29, 1997 of the Merger Agreement; and (xi) reviewed
such other financial studies and analyses and took into account such other
matters as it deemed necessary, including its assessment of general economic,
market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied upon the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for
independently verifying such information or undertake an independent evaluation
or appraisal of any of the assets or liabilities of Bozell or True North and
was not furnished with any such evaluation or appraisal. In addition, Merrill
Lynch did not assume any obligation to conduct, nor did it conduct, any
physical inspection of the properties or facilities of Bozell or True North.
With respect to the financial forecast information and the Expected Synergies
furnished to or discussed with Merrill Lynch by Bozell or True North, Merrill
Lynch assumed that they were reasonably prepared and reflected the best
currently available estimates and judgment of Bozell's or True North's
management as to the expected future financial performance of Bozell or True
North, as the case may be, and the Expected Synergies. Merrill Lynch further
assumed that the Merger would be accounted for as a pooling of
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interests under GAAP and that it would qualify as a tax-free reorganization for
U.S. federal income tax purposes. Merrill Lynch also assumed that the final
form of the Merger Agreement would be substantially similar to the last draft
reviewed by it. The Merrill Lynch Opinion is necessarily based upon market,
economic, financial and other considerations as they existed and could be
evaluated on, and on the information made available to Merrill Lynch as of, the
date of such opinion. Merrill Lynch did not express any opinion in the Merrill
Lynch Opinion as to the prices at which the shares of True North Common Stock
would trade following the announcement of the Merger or will trade following
consummation of the Merger.
The following is a summary of the analyses performed by Merrill Lynch in
connection with the preparation of the Merrill Lynch Opinion, the May 16, 1997
Presentation and the July 30, 1997 Presentation.
Comparable Company Analysis. Merrill Lynch performed a comparable public
company analysis in which it compared certain publicly available historical
financial and operating data, estimates of future financial performance and
market statistics of publicly traded companies that Merrill Lynch deemed to be
reasonably similar to True North and Bozell. The comparable companies were
Omnicom, The Interpublic Group of Companies, Inc., WPP Group plc and Cordiant
plc (the "Peer Group Companies"). Historical financial information used in
connection with the multiples provided below with respect to the Peer Group
Companies was as of the date of the most recent financial statements publicly
available for each company.
In connection with the May 16, 1997 Presentation, Merrill Lynch compared the
market value (based on closing stock prices on May 15, 1997) of True North and
each of the Peer Group Companies as a multiple of (i) estimated 1997 EBITDA,
adjusted to reflect estimated pre-tax equity income, and (ii) estimated 1997
net earnings. The following multiples resulted from such calculation: (i) for
estimated 1997 EBITDA, 5.2x for True North and a range of 6.8x to 8.8x for the
Peer Group Companies and (ii) for estimated 1997 net earnings, 13.6x for True
North (based on estimated 1997 EPS of $1.40) and a range of 16.7x to 21.0x for
the Peer Group Companies. Based on the comparable public companies analysis
performed in connection with the May 16, 1997 Presentation, Merrill Lynch
derived a range of implied equity values per share of $18.25 to $21.00 for True
North Common Stock and $8.25 to $9.50 for Bozell Common Stock.
In connection with the July 30, 1997 Presentation, Merrill Lynch compared the
market value (based on closing stock prices on July 29, 1997) of True North and
each of the Peer Group Companies as a multiple of (i) estimated 1997 EBITDA,
adjusted to reflect estimated pre-tax equity income, and (ii) estimated 1997
net earnings. The following multiples resulted from such calculation: (i) for
estimated 1997 EBITDA, 7.1x for True North and a range of 7.1x to 11.1x for the
Peer Group Companies and (ii) for estimated 1997 net earnings, 16.1x for True
North (based on estimated 1997 EPS of $1.40) and a range of 15.9x to 24.5x for
the Peer Group Companies.
No company utilized in the comparable public companies analysis was identical
to True North or Bozell. Accordingly, an analysis of the results of such a
comparison is not purely mathematical but instead it involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
Comparable Transactions Analysis. In connection with the May 16, 1997
Presentation, Merrill Lynch performed an analysis of selected private market
transactions from 1987 to 1997 using publicly available information. Such
analysis indicated that the aggregate transaction values as a multiple of last
twelve months ("LTM") revenues ranged from 0.54x to 0.94x. Merrill Lynch
calculated that the aggregate transaction value of the Merger (based on a price
per share of True North Common Stock of $19.00 and March 31, 1997 Bozell
revenues) represented a multiple of LTM revenues of 0.79x. Based on the
comparable transactions analysis, Merrill Lynch derived a range of implied
prices per share of Bozell Common Stock of $9.25 to $12.00 utilizing multiples
of Bozell's LTM March 31, 1997 revenues of 0.70x to 0.90x.
No transaction utilized as a comparison in the comparable transactions
analysis is identical to the Merger. In evaluating the precedent transactions,
Merrill Lynch made judgments and assumptions with regard to industry
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performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Bozell, such as the
impact of competition on Bozell and the industry generally, industry growth and
the absence of any adverse material change in the financial condition and
prospects of Bozell or the industry or the financial markets in general.
Discounted Cash Flow Analysis. In connection with the May 16, 1997
Presentation, Merrill Lynch performed a discounted cash flow analysis of Bozell
on a stand alone basis and based upon estimates of projected financial
performance prepared by the management of Bozell (the "Bozell Management
Case"). In connection with the May 16, 1997 Presentation, Merrill Lynch also
performed a discounted cash flow analysis of True North, on a stand alone
basis, based upon estimates of projected financial performance prepared by the
management of True North (the "True North Management Case").
Based on the Bozell Management Case, Merrill Lynch calculated the sum of the
net present values of (i) Bozell's projected unlevered free cash flows for the
period from 1997 to 2001 and (ii) a terminal value based on multiples of
Bozell's 2001 after-tax EBIT ranging from 12.0x to 14.0x. Merrill Lynch used a
range of discount rates of 12.0% to 14.0%, based upon a weighted average cost
of capital analysis. The discounted cash flow analysis yielded a range of
implied equity value per share of $12.50 to $15.00 for Bozell.
Based on the True North Management Case, Merrill Lynch calculated the sum of
the net present values of (i) True North's projected unlevered free cash flows
for the period from 1997 to 2001 and (ii) a terminal value based on multiples
of True North's 2001 after-tax EBIT ranging from 13.0x to 15.0x. Merrill Lynch
used a range of discount rates of 12.0% to 14.0%, based upon a weighted average
cost of capital analysis. The discounted cash flow analysis yielded a range of
implied equity value per share of $20.50 to $27.00 for True North.
True North Common Stock Performance. In connection with the May 16, 1997
Presentation, Merrill Lynch compared the closing stock price of True North
Common Stock to the S&P 500 index for the period from May 11, 1993 through May
15, 1997.
In connection with the July 30, 1997 Presentation, Merrill Lynch reviewed the
closing prices and trading volumes, over the period from January 1, 1997
through July 25, 1997, of True North Common Stock. Merrill Lynch noted that the
closing price per share of True North Common Stock rose from $19.000 on May 15,
1997 to $22.563 on July 29, 1997, an increase of 18.8%. Merrill Lynch also
compared the percentage change in the closing trading price of the True North
Common Stock to the percentage change in the closing trading prices of common
stock of the Peer Group Companies for the period from May 15, 1997 through July
25, 1997.
Pro Forma Analysis of the Merger. In connection with the July 30, 1997
Presentation, Merrill Lynch analyzed certain pro forma effects of the Merger
based upon the Exchange Ratio, including the impact of the Merger on the EPS of
True North and Bozell in 1997 and 1998. Such analysis was based on estimated
earnings and synergies provided by the managements of Bozell and True North for
1997 and 1998. Merrill Lynch observed that, (i) assuming 1997 EPS of $1.40 for
True North, 1997 earnings of $26.2 million for Bozell and $10.0 million of 1997
pretax synergies, the Merger would have an accretive effect on pro forma 1997
estimated EPS to True North of approximately 7.4% and to Bozell of
approximately 11.5% and (ii) assuming 1998 EPS of $1.71 for True North, 1998
earnings of $32.5 million for Bozell and $10.0 million of 1998 pretax
synergies, the Merger would have an accretive effect on pro forma 1998
projected EPS to True North of approximately 6.3% and to Bozell of
approximately 9.1%.
Contribution Analysis. In connection with the May 16, 1997 Presentation,
Merrill Lynch analyzed and compared the respective historical and projected
contribution of net income and after-tax cash flow (defined as net income plus
depreciation, amortization and minority interest, less equity income and
dividends from affiliates) for Bozell and True North in 1995, 1996, 1997 and
1998, based on calendarized historical and projected financial information for
Bozell and True North. With respect to 1997 and 1998, such analysis was based
on estimates prepared by Bozell management with respect to Bozell and on
estimates prepared by True North with respect to True North. The analysis
indicated, among other things, that (i) Bozell would have
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contributed 29.9% of 1995 net income and 42.7% of 1995 after-tax cash flow,
42.9% of 1996 net income and 48.4% of 1996 after-tax cash flow, 43.6% of
estimated 1997 net income and 44.9% of estimated 1997 after-tax cash flow and
43.8% of projected 1998 net income and 46.3% of projected 1998 after-tax cash
flow, and (ii) True North would have contributed 70.1% of 1995 net income and
57.3% of 1995 after-tax cash flow, 57.1% of 1996 net income and 51.6% of 1996
after-tax cash flow, 56.4% of estimated 1997 net income and 55.1% of estimated
1997 after-tax cash flow and 56.2% of projected 1998 net income and 53.7% of
projected 1998 after-tax cash flow. After taking into account $10.0 million of
pretax synergies in 1995, 1996 and 1997 and $12.5 million of pretax synergies
in 1998, the analysis indicated, among other things, that (i) Bozell would have
contributed 26.2% of 1995 net income and 39.2% of 1995 after-tax cash flow,
38.1% of 1996 net income and 47.7% of 1996 after-tax cash flow, 40.0% of
estimated 1997 net income and 42.6% of estimated 1997 after-tax cash flow and
40.8% of projected 1998 net income and 44.3% of projected 1998 after-tax cash
flow and (ii) True North would have contributed 61.3% of 1995 net income (with
an additional 12.6% attributable to synergies) and 52.6% of 1995 after-tax cash
flow (with an additional 8.2% attributable to synergies), 50.7% of 1996 net
income (with an additional 11.2% attributable to synergies) and 44.7% of 1996
after-tax cash flow (with an additional 7.6% attributable to synergies), 51.7%
of estimated 1997 net income (with an additional 8.4% attributable to
synergies) and 52.3% of estimated 1997 after-tax cash flow (with an additional
5.1% attributable to synergies) and 52.3% of projected 1998 net income (with an
additional 6.9% attributable to synergies) and 51.3% of projected 1998 after-
tax cash flow (with an additional 4.4% attributable to synergies).
Pursuant to a letter agreement dated May 7, 1997, Bozell agreed to pay
Merrill Lynch (1) $100,000 on the date of such letter agreement and (2) an
amount equal to 1.00% of the aggregate purchase price (less any fees previously
paid pursuant to clause (1) above) paid in the Merger upon the closing of the
Merger. Bozell also agreed to reimburse Merrill Lynch for all reasonable out-
of-pocket expenses, including the reasonable fees and expenses of its legal
counsel, and to indemnify Merrill Lynch and certain related persons and
entities for certain liabilities, including liabilities under securities laws,
related to or arising out of its engagement.
Bozell retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking
and advisory firm. Merrill Lynch, as part of its investment banking business,
is continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In the ordinary
course of its business, Merrill Lynch and its affiliates may actively trade the
securities of True North for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the True North Board and the Bozell
Board with respect to the Merger, stockholders of True North and Bozell should
be aware that certain directors and members of management of True North and
Bozell have interests in the Merger that are in addition to their interests as
stockholders of True North or Bozell generally. The True North Board and the
Bozell Board were aware of such interests and considered them, among other
matters, in approving the Merger.
Interests of Bozell Officers and Directors. The Merger Agreement provides
that five current directors of Bozell, Charles D. Peebler, Jr., President and
Chief Executive Officer of Bozell, Leo-Arthur Kelmenson, Chairman of Bozell,
David A. Bell, Chairman of Bozell Worldwide, and two additional non-employee
directors of Bozell selected by the Bozell Board are to become directors of the
True North Board as of the Effective Time. Pursuant to this provision, the
Bozell Board has selected Donald M. Elliman, Jr., and W. Grant Gregory,
currently directors of Bozell, as its additional designees. Upon the election
of such individuals, the True North Board will consist of 12 directors, five of
whom were directors of Bozell as of the date of the Merger Agreement. See "THE
MERGER AGREEMENT--Management and Operation of True North."
Simultaneously with the execution of the Merger Agreement, Mr. Peebler
entered into an Employment Agreement (the "Peebler Employment Agreement") with
True North effective as of the Effective Time. The
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Peebler Employment Agreement provides that Mr. Peebler will serve as Chairman
and Chief Executive Officer of the "True North Diversified Companies,"
comprising each of True North's current direct subsidiaries, other than the FCB
Advertising Entities (as defined in the Peebler Employment Agreement) and
Bozell Worldwide, and in such capacity will report directly to the True North
Board. The Peebler Employment Agreement also provides that Mr. Peebler will
serve as President of True North. The term of the Peebler Employment Agreement
is four years from the Effective Time unless terminated earlier for death, by
True North for disability or with or without cause (as defined in the Peebler
Employment Agreement) or by Mr. Peebler with or without good reason (as defined
in the Peebler Employment Agreement). The Peebler Employment Agreement provides
for an initial base salary of $600,000 per year and incentive compensation in
accordance with an incentive compensation system recommended by the
Compensation Committee of the True North Board, provided that the aggregate
amount of Mr. Peebler's base salary and incentive compensation for each
calendar year shall be not less than the greater of $1,350,000 and the
aggregate amount of salary and bonus paid during such calendar year to the
Chief Executive Officer of True North. Under the Peebler Employment Agreement,
Mr. Peebler will also be entitled to receive stock options in accordance with
the True North Stock Option Plan and True North's Performance Program at least
equivalent to options received by the Chief Executive Officer of True North,
and upon the termination or expiration of Mr. Peebler's term of employment,
such stock options shall be fully exercisable until the end of their full term.
True North has also agreed to continue to provide $2,000,000 of split-dollar
life insurance to Mr. Peebler during the term of his employment and the term of
any consultancy, as described below. Mr. Peebler will also be entitled to
participate in True North's compensation, employee benefit, pension, profit
sharing, health, disability, insurance and other plans and policies maintained
by, or offered to senior executive officers or employees of, Bozell, and True
North will provide Mr. Peebler with an automobile and a full-time driver. The
Peebler Employment Agreement also provides that True North will indemnify Mr.
Peebler. In the event of the termination of Mr. Peebler's employment by True
North without cause or by Mr. Peebler for good reason, True North would pay Mr.
Peebler his unpaid base salary and expenses as well as incentive compensation
until the date of the notice of termination and would pay Mr. Peebler a lump
sum payment, within 30 days of the date of the notice of termination (or in the
case of incentive compensation, within 30 days of the date of determination of
the amount thereof), in an amount equal to three times the sum of his annual
base salary and incentive compensation in effect immediately preceding his
notice of termination or, if higher, for the immediately preceding calendar
year. Mr. Peebler and his wife would also be entitled to continuation of their
medical benefits until their respective deaths. The Peebler Employment
Agreement also provides that in the event Mr. Peebler's employment is
terminated by death or disability, True North would pay Mr. Peebler or his
representative or legatee a lump-sum payment, within 30 days after such
termination (or in the case of incentive compensation, within 30 days after
determination thereof), in an amount equal the sum of his unpaid base salary
and expenses, as well as incentive compensation through the date of such
termination, the compensation and benefits he would have been entitled to for
his otherwise remaining 4-year term of employment, and an amount equal to 60%
of his base salary and incentive compensation in effect immediately preceding
such termination (or, if higher, for the immediately preceding calendar year)
for a 5-year period, reduced by the amount of compensation and benefits paid
with respect to his otherwise remaining 4-year term of employment. In the event
of such death or disability, or if the Peebler Employment Agreement expires
after its 4-year term, Mr. Peebler and his wife would be entitled to
continuation of their medical benefits until their respective deaths. The
Peebler Employment Agreement also provides that Mr. Peebler may, at any time
after February 28, 1999 and before June 30, 1999, elect to terminate his
employment and, if he so chooses, become a consultant of True North for a five-
year period. If Mr. Peebler so elects, he would be entitled to the compensation
and benefits to which he would otherwise have been entitled for his otherwise
remaining term of employment and, for the balance of such five-year period, he
would be entitled to cash compensation equal to 60% of his base salary and
incentive compensation in effect immediately preceding his notice of
termination or, if higher, for the immediately preceding calendar year. Mr.
Peebler and his wife would also be entitled to continuation of their medical
benefits until their respective deaths. The Peebler Employment Agreement also
provides that Mr. Peebler shall not compete with True North during the term of
his employment, for the unexpired employment term that otherwise would have
been remaining but for termination thereof by True North for cause or by Mr.
Peebler for other than good reason or during the period after February 28, 1999
and before June 30, 1999 and for the term of any consultancy, except that Mr.
Peebler may compete with True North by giving True North 60 days' notice prior
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to commencing such competitive activity and by releasing True North from all
further obligations under the Peebler Employment Agreement other than pursuant
to retirement plans. The Peebler Employment Agreement also provides that Mr.
Peebler will not personally use or disclose certain confidential information of
True North and its affiliates, and prohibits the parties from making or
allowing statements which would disparage the other.
The True North Compensation Committee, after receiving the advice of
independent employment compensation consultants, determined the Peebler
Employment Agreement to be fair and reasonable and consistent with past
practice.
Pursuant to an employment agreement dated as of March 30, 1992 between Bozell
and Leo-Arthur Kelmenson (the "Kelmenson Employment Agreement"), Mr. Kelmenson
is employed by Bozell as the Chairman of the Board of Directors of Bozell,
Chairman of the International Division of Bozell and Chairman of Bozell Mexico.
Simultaneous with the execution of the Merger Agreement, Bozell and Mr.
Kelmenson amended the Kelmenson Employment Agreement effective as of the
Effective Time to extend the term of Mr. Kelmenson's full-time employment from
March 31, 1998 to March 31, 2001 and to provide that the term of Mr.
Kelmenson's consulting period shall commence on April 1, 2001 and end on March
31, 2005. Among other things, the Kelmenson Employment Agreement provides that
if Bozell fails to elect Mr. Kelmenson as Chairman of the Board of Directors of
Bozell, a member of the Board of Directors of Bozell and Chairman of the
International Division of Bozell or to continue Mr. Kelmenson in such
positions, Mr. Kelmenson shall be entitled to terminate his employment with
Bozell and receive his base compensation through the full-time employment term
of the Kelmenson Employment Agreement (at an annual rate of the greater of
$734,492, as adjusted yearly for inflation, and $758,890). In addition, if Mr.
Kelmenson terminates his employment with Bozell due to such an event, he shall
become a consultant to Bozell for four years and be entitled to receive annual
consulting fees equivalent to 125% of the sum of 50% of his base compensation
in effect at the time of termination plus $35,000.
Pursuant to an employment agreement dated September 13, 1985 between Bozell
and David Bell, as amended by the Agreement dated February 8, 1988, by the
Second Amendment dated June 1992 and by the Second Amendment dated May 1996
(the employment agreement as thus amended being hereinafter the "Bell
Employment Agreement"), Mr. Bell is employed by Bozell as Chairman of Bozell
Worldwide. Simultaneous with the execution of the Merger Agreement, Bozell and
Mr. Bell amended the Bell Employment Agreement effective as of the Effective
Time to extend the term of Mr. Bell's full-time employment from March 31, 1998
to March 31, 2001. During the term of the Bell Employment Agreement, Mr. Bell
will receive base compensation at an annual rate of $800,000 (as adjusted for
inflation).
In addition, the Merger Agreement provides that after the Effective Time, Mr.
Bell will serve as the Chief Executive Officer of Bozell Worldwide.
Directors and executive officers of Bozell hold options to purchase Bozell
Common Stock as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
DIRECTOR OR EXECUTIVE OFFICER BOZELL COMMON STOCK EXERCISE PRICE ($)
----------------------------- ------------------- -----------------
<S> <C> <C>
Rolland Anderson.................. 150,000 $1.925
David Bell........................ 200,000 $1.925
Michael Drexler................... 50,000 $1.925
Leo Arthur Kelmenson.............. 500,000 $2.575
Dennis McClain.................... 200,000 $1.925
Charles D. Peebler, Jr............ 300,000 $2.575
Valentine J. Zammit............... 150,000 $1.925
150,000 $2.575
</TABLE>
The options listed above will, if they are outstanding immediately prior to the
Effective Time, be converted into Substitute Options at the Effective Time and
will become exercisable at the Effective Time as a result of the Merger. See
"THE MERGER AGREEMENT--Stock Options."
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<PAGE>
True North has agreed to cause the Surviving Corporation (i) from and after
the Effective Time, to exculpate, indemnify and hold harmless any person who is
at the Effective Time, or was at any time prior thereto, an officer or director
of Bozell and its Subsidiaries to the same extent such persons were as of the
date of the Merger Agreement exculpated and indemnified by Bozell pursuant to
Bozell's Restated Certificate of Incorporation and Bylaws for acts or omissions
occurring at or prior to the Effective Time and (ii) to provide, for an
aggregate period of not less than six years after the Effective Time, Bozell's
directors and officers an insurance and indemnification policy that provides
coverage for events occurring prior to the Effective Time that is no less
favorable than Bozell's policy in effect as of the date of the Merger Agreement
or, if substantially equivalent insurance coverage is unavailable, the best
available coverage. See "THE MERGER AGREEMENT--Indemnification; Directors and
Officers Insurance."
See "THE MERGER AGREEMENT--Employee Benefits" for a description of the
benefits provided by the Merger Agreement for Bozell employees generally.
True North and NML, of which J. Thomas Christofferson, a director of Bozell,
is the Manager of Investments, have entered into a Registration Rights
Agreement providing NML the right, at any time between the Effective Date and
the fifth anniversary thereof, to request that True North effect the
registration on Form S-3 under the Securities Act of all or part of the shares
of True North Common Stock to be received by NML in the Merger. During this
period, True North will also use its reasonable best efforts, upon the request
of NML, to include shares of True North Common Stock to be received by NML in
certain registrations under the Securities Act of securities of True North
(whether for True North's own account or the account of any holder of its
securities). NML's right to request such registrations will be subject to any
preexisting rights of other holders of True North Common Stock with respect to
offering their securities. Subject to certain exceptions, True North has agreed
not to effect any public sale or distribution of True North Common Stock during
the 14 days prior to and the 135 days beginning on the effective date of any
registration statement which includes True North Common Stock of NML. With the
exception of underwriting discounts and commissions and transfer taxes, which
are to be borne by NML, all expenses incident to True North's compliance with a
request for registration under the Registration Rights Agreement will be borne
by True North. The Registration Rights Agreement is intended to substitute for
the current registration rights agreement dated as of February 1, 1988, as
amended, between Bozell, NML and certain other persons, which will be
terminated as of the Effective Time.
In addition, Gregory & Hoenemeyer, of which W. Grant Gregory, a director of
Bozell since 1987, is the Chairman and has an interest, has acted as a
financial advisor to Bozell since 1995 regarding the True North and other
potential transactions. In this capacity, Gregory & Hoenemeyer performed
financial advisory services in connection with the Merger including the review
of strategic alternatives and the development of transaction structure,
principal negotiation of price, structure, timing, key employment contracts and
compensation, Board representation and accounting issues and assistance in
drafting definitive documentation. For these services, Gregory & Hoenemeyer
will receive a fee of $2.8 million at the Effective Time.
Interests of True North Officers and Directors. The Merger Agreement provides
that Bruce Mason, Chairman and Chief Executive Officer of True North, J.
Brendan Ryan, Chairman/Chief Executive Officer of FCB, and four additional non-
employee directors of True North other than the Publicis Designee selected by
the True North Board are to be True North's designees on the True North Board
as of the Effective Time. Pursuant to this provision, the True North Board has
selected Richard S. Braddock, Stephen T. Vehslage, Richard P. Mayer and Michael
E. Murphy as its additional designees. A designee of Publicis (the "Publicis
Designee") is to be the twelfth director only for so long as Publicis is
contractually entitled to cause its designee to serve as a director on the True
North Board. The Publicis Designee is Ali Wambold. See "THE MERGER AGREEMENT--
Management and Operation of True North" and "ELECTION OF DIRECTORS OF TRUE
NORTH."
Simultaneously with the execution of the Merger Agreement, Mr. Mason entered
into an Employment Agreement (the "Mason Employment Agreement") with True North
effective as of the Effective Time. The Mason Employment Agreement provides
that Mr. Mason will serve as Chief Executive Officer of True North full-time
from the Effective Time through February 28, 1999 unless terminated earlier for
death or by True North for disability or with or without cause (as defined in
the Mason Employment Agreement). The Mason
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<PAGE>
Employment Agreement provides for an initial base salary of $600,000 per year
and incentive compensation in accordance with True North's Performance Program,
provided that the aggregate amount of Mr. Mason's base salary and incentive
compensation for each calendar year shall be not less than the greater of
$1,350,000 and the aggregate amount of salary and bonus paid during such
calendar year to the President of True North. Under the Mason Employment
Agreement, Mr. Mason will also be entitled to receive stock options in
accordance with True North's variable incentive stock option program at least
equivalent to options received by the President of True North, and upon the
termination or expiration of Mr. Mason's term of employment, such stock options
shall be fully exercisable until the end of their full term. Mr. Mason will
also be entitled to participate in True North's employee benefit plans
generally available to senior executives of True North, including compensation,
employee benefit, pension, profit sharing, health disability and insurance.
Upon the expiration of Mr. Mason's term of full-time employment, he shall be
employed part-time through August 31, 2001 and receive annual cash compensation
of $1,350,000 and a continuation of benefits and, after August 31, 2001, he
shall participate in True North's Directors Part-Time Employment Agreement with
all age and service requirements deemed to have been satisfied and with the
benefit calculated at 45% of final average annual compensation (as defined in
the Directors Part-Time Employment Agreement). In the event of the termination
of full-time employment by True North without cause, True North would continue
to pay Mr. Mason his current salary as well as incentive compensation until the
date of termination. After such termination, Mr. Mason would become a part-time
employee of True North for two and one half years following such termination
and would be entitled to receive compensation of $1,350,000 per year and a
continuation of benefits. In the event of the termination of full-time
employment by True North with cause, True North would continue to pay Mr. Mason
his current salary as well as incentive compensation until the date of
termination, and would pay Mr. Mason $1,350,000 annual salary plus benefits for
two and one-half years. The Mason Employment Agreement also provides that in
the event Mr. Mason's employment is terminated by death or disability, True
North would continue to pay Mr. Mason or his executor, administrator or legal
representative Mr. Mason's current salary as well as incentive compensation
until the date of termination, and $1,350,000 per year for two and one half
years following such termination. In the case of termination for disability,
Mr. Mason would be entitled to a continuation of benefits for such period. In
the case of termination for either death or disability, Mr. Mason's wife would
be entitled to a continuation of medical insurance coverage for such period. At
the end of such period, the compensation and benefits set forth in the
Directors Part-Time Employment Agreement would become payable upon the terms
set forth therein with all age and service requirements deemed to have been
satisfied and with the benefit calculated at 45% of final average annual
compensation. The Mason Employment Agreement also provides that Mr. Mason shall
not compete with True North during the term of his full-time employment and for
five years thereafter, except that Mr. Mason may compete with True North by
giving True North 60 days' notice prior to commencing such competitive activity
and by releasing True North from all further obligations under the Mason
Employment Agreement other than pursuant to retirement plans. The Mason
Employment Agreement also provides that Mr. Mason will not personally use or
disclose certain confidential information of True North and its affiliates, and
prohibits the parties from making or allowing statements which would disparage
the other. Mr. Mason is also protected by True North's Asset Protection Plan,
which provides for annual payments of base salary plus bonus (the highest bonus
in the last three years) for three years if Mr. Mason's employment is
terminated as a result of a change in control of True North.
Simultaneously with the execution of the Merger Agreement, Mr. Braddock
entered into an Employment Agreement (the "Braddock Employment Agreement") with
True North effective as of the Effective Time, provided that if the Merger is
not consummated prior to December 31, 1997, the Braddock Employment Agreement
will be of no force or effect. The Braddock Employment Agreement provides that
Mr. Braddock will serve as the Non-Executive Chairman of the Board of Directors
of True North. The term of the Braddock Employment Agreement is three years
from the Effective Time unless terminated earlier for death, by True North for
disability or with or without cause (as defined in the Braddock Employment
Agreement) or by Mr. Braddock. The Braddock Employment Agreement provides for
an initial base salary of $400,000 per year and incentive compensation as
determined by the True North Board beginning in fiscal year 1998, provided that
the amount of incentive compensation for fiscal year 1998 shall be not more
than 50% of Mr. Braddock's base salary. Under the Braddock Employment
Agreement, Mr. Braddock was also credited, as compensation for services
provided
50
<PAGE>
to True North in connection with the Merger, with 350 phantom stock units. If
the Merger is consummated on or prior to December 31, 1997 and Mr. Braddock
becomes the Non-Executive Chairman of the Board, fifty of such units will vest
upon consummation of the Merger and 100 units will vest on each of the first
three anniversaries of the date of the Braddock Employment Agreement; provided,
that all units will vest upon a change in control (as defined in the Braddock
Employment Agreement). With respect to vested units, True North shall pay Mr.
Braddock a cash amount (the "Phantom Stock Benefit") on the 30th day following
the earliest (the "Valuation Date") of (i) the fourth anniversary of the
Braddock Employment Agreement, (ii) one year following the termination of Mr.
Braddock's employment for any reason other than for cause (as defined in the
Braddock Employment Agreement), (iii) the termination of Mr. Braddock's
employment for cause and (iv) the effective date of a change in control. The
amount of the Phantom Stock Benefit shall be equal to the product of the number
of units vested on the Valuation Date and 1,000 multiplied by the excess of the
value (as defined in the Braddock Employment Agreement) of a share of True
North Common Stock on the Valuation Date over $23.0625. In accordance with the
Braddock Employment Agreement, True North also granted Mr. Braddock options to
purchase 50,000 shares of True North Common Stock at $23.0625 per share, to
become exercisable if the Merger is consummated on or prior to December 31,
1997 and Mr. Braddock becomes the Non-Executive Chairman of the Board. Such
options expire on the earliest of one year following the termination of Mr.
Braddock's employment with the Company for a reason other than for a cause (as
defined in the agreement relating to such options), the termination of Mr.
Braddock's employment with the Company for cause or July 30, 2001. Mr. Braddock
will also be entitled to participate in True North's employee benefit plans
generally available to its senior executives, including compensation, employee
benefit, pension, profit sharing, health, disability and insurance. In the
event of the termination of Mr. Braddock's employment by True North without
cause or by Mr. Braddock due to the occurrence of certain events (as enumerated
in the Braddock Employment Agreement), True North would continue to pay Mr.
Braddock his salary throughout the term of the Braddock Employment Agreement
and any extension thereof or twelve months, whichever is longer (the "Severance
Period"), as well as incentive compensation until the date of termination and
the Phantom Stock Benefit (when due). Mr. Braddock also would be entitled to
participate in life insurance and medical and dental benefits for as long as
his salary is continued to be paid, and subsequent thereto would be entitled to
compensation and benefits payable under True North's Directors Part-Time
Employment Agreement, with all age and service requirements deemed to have been
satisfied. The Braddock Employment Agreement also provides that in the event
Mr. Braddock's employment is terminated by death or disability, True North
would continue to pay Mr. Braddock or his executor, administrator or other
legal representative Mr. Braddock's current salary as well as incentive
compensation until the date of termination, the Phantom Stock Benefit (when
due) and all vested and unvested amounts in Mr. Braddock's deferred incentive
compensation account. If Mr. Braddock's employment is terminated after a change
in control (as defined in True North's Asset Protection Plan), Mr. Braddock
would be entitled to payments in accordance with the Asset Protection Plan. The
Braddock Employment Agreement also provides that Mr. Braddock will not compete
with True North during the term of his employment, and shall not solicit
business relationships of True North's clients during such term of employment,
during the Severance Period and while he is receiving payments under the
Directors Part-Time Employment Agreement. The Braddock Employment Agreement
also provides that Mr. Braddock will not personally use or disclose certain
confidential information of True North and prohibits the parties from making or
allowing statements which would disparage the other.
The True North Compensation Committee, after receiving the advice of
independent employment compensation consultants, determined the Mason
Employment Agreement and the Braddock Employment Agreement to be fair and
reasonable and consistent with past practice.
Pursuant to an employment agreement dated as of December 31, 1996 between
True North and J. Brendan Ryan (the "Ryan Employment Agreement"), Mr. Ryan is
employed by True North as the Chairman/CEO, Foote, Cone & Belding. Pursuant to
the Ryan Employment Agreement, the term of Mr. Ryan's full-time employment ends
on December 31, 2001. Among other things, True North's Asset Protection Plan,
as modified with respect to Mr. Ryan by the Ryan Employment Agreement, provides
that if Mr. Ryan terminates his employment (a "Qualifying Termination") with
True North due to the occurrence after a change in control (as defined in the
Asset Protection Plan as amended by the Ryan Employment Agreement), without Mr.
Ryan's express written consent, of certain events, including (i) the assignment
to Mr. Ryan of any duties inconsistent in any material
51
<PAGE>
respect with Mr. Ryan's positions, duties, responsibilities or status, (ii) a
change in Mr. Ryan's reporting responsibilities, titles or offices with True
North and (iii) any removal or involuntary termination of Mr. Ryan otherwise
than as expressly permitted by the Asset Protection Plan or any failure to re-
elect or re-appoint Mr. Ryan to any position with True North held by Mr. Ryan
immediately prior to such change in control, Mr. Ryan would be entitled to
receive his base salary (currently $600,000) through the date of termination,
the highest annual bonus paid to Mr. Ryan for the three fiscal years prior to
the fiscal year in which the change in control occurred (pro-rated through the
date of termination) and any compensation previously deferred by Mr. Ryan, plus
a lump-sum cash amount equal to three times Mr. Ryan's annual salary plus the
highest annual bonus awarded to Mr. Ryan over the prior three fiscal years.
Pursuant to the Ryan Employment Agreement, in the event of early termination
(also a "Qualifying Termination") of employment by Mr. Ryan after the
occurrence of certain events, including any of the events specified above, any
material diminution of Mr. Ryan's duties, any material change in the corporate
organization or structure of business of True North or a reduction in Mr.
Ryan's base salary, Mr. Ryan would be entitled to receive his base salary and
incentive compensation (minimum $1,000,000 per year) through the term of the
Ryan Employment Agreement or for twelve months if longer (the "Severance
Period"), in accordance with True North's regular payroll practices. The Ryan
Employment Agreement also provides that each stock option granted to Mr. Ryan
by True North then held by Mr. Ryan would be fully vested and would thereafter
be exercisable in full for up to three years after the date of termination (but
not beyond ten years after the date of grant of such option) and that Mr. Ryan
would be entitled to receive all vested and unvested amounts in his deferred
variable incentive compensation account. During the Severance Period, Mr. Ryan
would be entitled to participate in True North's benefit plans and upon
expiration of the Severance Period, Mr. Ryan would be entitled to compensation
and benefits payable under the Directors Part-Time Employment Agreement with
all age and service requirements deemed to have been satisfied and with the
benefit calculated at 45% of final average annual compensation and assuming 30
years of credited service. In connection with the execution of the Merger
Agreement, Mr. Ryan waived the right to assert that the Merger and the board
governance, management arrangements and corporate structure provided for in the
Merger Agreement would allow him to effect a Qualifying Termination for
purposes of the Ryan Employment Agreement or the Asset Protection Plan. Mr.
Ryan reserved the right to assert that any event occurring subsequent to the
Effective Time of the Merger may allow him to effect a Qualifying Termination,
and True North and Mr. Ryan agreed that if Mr. Ryan terminates his employment
after any of the individuals specified in the provisions of the Merger
Agreement describing the board governance and management structure following
the Effective Time no longer hold the positions specified, such termination
would be due to the occurrence without Mr. Ryan's consent of a material change
in the corporate organization or structure of business of True North.
Pursuant to an employment agreement dated as of January 14, 1997 between True
North and Mitchell T. Engel (the "Engel Employment Agreement"), Mr. Engel is
employed by True North as the President, Associated Communications Companies
and Corporate Operations. Pursuant to the Engel Employment Agreement, the term
of Mr. Engel's full-time employment ends on December 31, 1999. Among other
things, the Engel Employment Agreement provides that if Mr. Engel terminates
his employment (a "Qualifying Termination") with True North due to the
occurrence, without Mr. Engel's express written consent, of certain events,
including (i) the assignment to Mr. Engel of any duties inconsistent in any
material respect with Mr. Engel's positions, duties, responsibilities or status
with True North on January 14, 1997 (or subsequent thereto if such new
position(s), duties, responsibilities or status were agreed to in writing by
Mr. Engel), (ii) an adverse change in Mr. Engel's reporting responsibilities,
titles or offices with True North and (iii) any failure to re-elect or re-
appoint Mr. Engel to any position with True North held by Mr. Engel on January
14, 1997 (or subsequent thereto if held pursuant to the written agreement of
Mr. Engel), Mr. Engel would be entitled to certain compensation and benefits.
Upon implementation of the management structure provided for in the Merger
Agreement, Mr. Engel may have the right to effect a Qualifying Termination. In
such an event, and assuming the termination of Mr. Engel's employment on
December 1, 1997, Mr. Engel would have the right to continue to be paid his
current annual salary of $400,000 (and to participate in True North's benefit
plans) through December 31, 1999, and $229,000 per year for five additional
years pursuant to the Directors Part-Time Employment Agreement, and would be
entitled to a one-time payment of no less than $497,000 and to receive all
vested and unvested amounts in his
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deferred variable incentive compensation account (currently $174,000). In
addition, all stock options granted to Mr. Engel by True North would become
fully vested and exercisable in full for up to three years after the date of
termination (but not beyond ten years after the date of grant of such option).
As of the True North Record Date, Mr. Engel held options granted by True North
to purchase 47,800 shares of True North Common Stock, 26,800 of which were
unexercisable and would not become exercisable prior to December 1, 1997.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax consequences
of the Merger, and is not intended to constitute advice regarding the federal
income tax consequences of the Merger. The discussion does not address all
aspects of federal taxation that might be relevant to particular Bozell
stockholders, Warrant holders or option holders and, among others, it might not
be applicable to stockholders, Warrant holders or option holders who, for
federal income tax purposes, are nonresident alien individuals, foreign
corporations, foreign partnerships, foreign trusts or foreign estates, or who
acquired their Bozell Common Stock or Warrants pursuant to the exercise of
employee stock options or otherwise as compensation. The discussion does not
address the effect of any applicable state, local or foreign tax laws (or any
federal tax laws other than those pertaining to the income tax). EACH BOZELL
STOCKHOLDER, WARRANT HOLDER AND OPTION HOLDER SHOULD CONSULT SUCH
STOCKHOLDER'S, WARRANT HOLDER'S OR OPTION HOLDER'S OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER, WARRANT HOLDER OR OPTION
HOLDER OF THE MERGER.
This discussion is based on the Code, regulations promulgated thereunder and
rulings now in effect, current administrative rulings and practice, and
judicial precedent, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to Bozell
stockholders, Warrant holders and option holders discussed herein. This
discussion is also based on certain assumptions regarding the factual
circumstances that will exist at the Effective Time, including certain
representations made or to be made by Bozell, True North and others. This
discussion assumes that Bozell stockholders hold their Bozell Common Stock as a
capital asset within the meaning of Section 1221 of the Code.
General. Bozell has received an opinion from White & Case, special counsel to
Bozell, and True North has received an opinion from Sidley & Austin, special
counsel to True North, that, assuming the Merger occurs in accordance with the
Merger Agreement, and conditioned on the accuracy of certain representations
made by Bozell, True North and others, for federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and Bozell, CAC and True North will each be a
party to that reorganization within the meaning of Section 368(b) of the
Code;
(ii) no gain or loss will be recognized by True North or Bozell as a
result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of Bozell
upon the conversion of their shares of Bozell Common Stock into shares of
True North Common Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares of True North Common
Stock;
(iv) the aggregate tax basis of the shares of True North Common Stock
received in exchange for shares of Bozell Common Stock pursuant to the
Merger (including a fractional share of True North Common Stock for which
cash is paid) will be the same as the aggregate tax basis of such shares of
Bozell Common Stock;
(v) the holding period for shares of True North Common Stock received in
exchange for shares of Bozell Common Stock pursuant to the Merger will
include the holder's holding period for such shares of Bozell Common Stock,
provided such shares of Bozell Common Stock were held as capital assets by
the holder at the Effective Time; and
(vi) a stockholder of Bozell who receives cash in lieu of a fractional
share of True North Common Stock will recognize gain or loss equal to the
difference, if any, between such stockholder's basis in the fractional
share (determined under clause (iv) above) and the amount of cash received.
In addition to the opinion filed as an exhibit to the Registration Statement,
as a condition of Bozell's and True North's respective obligations to effect
the Merger, similar opinions are required to be given by White &
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Case to Bozell and by Sidley & Austin to True North, respectively. See "THE
MERGER AGREEMENT--Conditions Precedent to the Merger."
Neither Bozell nor True North has requested advice regarding, and the
opinions described above do not address, the tax consequences to stockholders
of Bozell of a conversion in the Merger of Bozell Common Stock received upon
the exercise of Warrants prior to the Effective Time in contemplation of the
Merger. STOCKHOLDERS OF BOZELL WHO EXERCISE BOZELL WARRANTS PRIOR TO THE
EFFECTIVE TIME IN CONTEMPLATION OF THE MERGER SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF A CONVERSION OF THE BOZELL COMMON
STOCK RECEIVED UPON ANY SUCH EXERCISE INTO SHARES OF TRUE NORTH COMMON STOCK
PURSUANT TO THE MERGER.
Neither True North nor Bozell will request any ruling from the Internal
Revenue Service ("IRS") as to the federal income tax consequences of the
Merger. Opinions of counsel are not binding on the IRS or the courts, and the
IRS and the courts are not precluded from taking positions contrary to those
set out in opinions of counsel.
Warrants. The exchange of Bozell Warrants for True North Common Stock
pursuant to the Merger will be a taxable transaction for federal income tax
purposes. In general, and subject to special rules, a holder of Bozell Warrants
will recognize gain or loss based on the difference between the fair market
value of True North Common Stock (including cash received in lieu of a
fractional share of True North Common Stock) received in exchange for such
Warrants and the holder's tax basis in the Bozell Warrants. Holders of Bozell
Warrants should consult their own tax advisors regarding the exchange of Bozell
Warrants for True North Common Stock (and cash in lieu of fractional shares of
True North Common Stock) pursuant to the Merger. In the case of a holder of
Bozell Warrants who acquired Bozell Warrants as compensation, the foregoing
discussion may not apply to such holder and any such holder should consult his
or her own tax advisor in connection with the exchange of Bozell Warrants for
True North Common Stock.
Stock Options. The holder of a Bozell Stock Option which is converted into an
option to purchase True North Common Stock will not recognize gain or loss
solely as a result of such conversion. If such Bozell Stock Option is a
nonqualified stock option, such holder will generally recognize ordinary
compensation income on the date such option is exercised in an amount equal to
the excess of the aggregate fair market value on such date of the shares of
True North Common Stock acquired upon such exercise over the aggregate exercise
price for such shares. If such Bozell Stock Option is an incentive stock
option, such holder will not recognize income (except for purposes of the
alternative minimum tax) upon exercise of such incentive stock option. If the
shares of True North Common Stock acquired by exercise of an incentive stock
option are held for the longer of two years from the date the option was
granted and one year from the date it was exercised, any gain or loss arising
from a subsequent disposition of such shares will be taxed as capital gain or
loss subject to income tax at varying rates, not to exceed 28%, depending upon
how long the shares were held. If such shares are disposed of within the above-
described period, the participant will recognize compensation taxable as
ordinary income in the year of such disposition equal to the excess of the
lesser of (i) the amount realized upon such disposition or (ii) the fair market
value of such shares on the date of exercise over the exercise price.
Appraisal Rights. A stockholder of Bozell who exercises appraisal rights as
described below under "APPRAISAL RIGHTS" should, in general, treat the
difference between the tax basis of the Bozell Common Stock held by such
stockholder with respect to which such rights are exercised and the amount
received through the exercise of such rights as capital gain or loss for
federal income tax purposes although, depending on the stockholder's particular
circumstances, the amount received through the exercise of such rights might be
treated for federal income tax purposes as dividend income.
THE FOREGOING IS A GENERAL DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH STOCKHOLDER'S, WARRANT HOLDER'S OR OPTION HOLDER'S TAX
STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES
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ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH STOCKHOLDER,
WARRANT HOLDER AND OPTION HOLDER, AND, WITHOUT LIMITATION, MAY NOT APPLY TO A
STOCKHOLDER, WARRANT HOLDER OR OPTION HOLDER WHO OR WHICH IS AN INSURANCE
COMPANY, TAX-EXEMPT ORGANIZATION, FINANCIAL INSTITUTION, DEALER IN SECURITIES,
PERSON THAT HOLDS SHARES OF BOZELL COMMON STOCK AS PART OF A POSITION IN A
"STRADDLE" OR AS PART OF A "HEDGING" OR "CONVERSION" TRANSACTION FOR U.S.
FEDERAL INCOME TAX PURPOSES, OR A PERSON WITH A "FUNCTIONAL CURRENCY" (AS
DEFINED IN THE CODE) OTHER THAN THE U.S. DOLLAR. IN VIEW OF THE INDIVIDUAL
NATURE OF INCOME TAX CONSEQUENCES, EACH STOCKHOLDER, WARRANT HOLDER AND OPTION
HOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S, WARRANT HOLDER'S OR OPTION
HOLDER'S OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH STOCKHOLDER, WARRANT HOLDER OR OPTION HOLDER INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests in
accordance with GAAP. It is a condition to the consummation of the Merger that
True North and Bozell receive an opinion of Arthur Andersen LLP that the Merger
will qualify for pooling of interests accounting treatment. Under this
accounting method, the recorded assets and liabilities of True North and Bozell
will be carried forward at their recorded amounts to the combined enterprise,
income of the combined enterprise will include income of True North and Bozell
for the entire fiscal year in which the Merger occurs and the reported income
of True North and Bozell for prior periods will be combined and restated as
income of the combined enterprise. See "THE MERGER AGREEMENT--Conditions
Precedent to the Merger."
Each of True North and Bozell has agreed to use its reasonable best efforts
to enter into a written agreement in a form previously approved by True North
and Bozell with persons who, at the time of the respective Special Meetings,
may be deemed to be affiliates of True North or Bozell, as the case may be,
under applicable SEC accounting releases with respect to pooling of interests
accounting treatment. See "--Resales of True North Common Stock." True North
believes that Publicis and its controlling shareholder, Publicis S.A., may be
deemed to be such affiliates of True North. In a Memorandum of Agreement dated
as of February 19, 1997, which was later confirmed in a Pooling Agreement dated
as of May 19, 1997, Publicis and Publicis S.A. agreed to furnish to, and to
cause the Publicis Designee to furnish to, True North such an agreement;
provided that Publicis and Publicis S.A. may withdraw such agreement, if, among
other things, not later than 90 days after Publicis and Publicis S.A. have
furnished such agreement, True North shall not have called a meeting of the
stockholders of True North to vote on the contemplated transaction or, not
later than a further 60 days, a majority vote of the outstanding shares of True
North Common Stock in favor of the contemplated transaction is not obtained at
such meeting (or at an adjournment thereof within such period). Stockholders of
True North are being asked to approve the Merger Agreement and the Merger to
assure that Publicis and Publicis S.A. do not withdraw such agreement.
GOVERNMENTAL AND REGULATORY APPROVALS
The consummation of the Merger is conditioned upon the expiration or
termination of the applicable waiting period under the HSR Act. Under the HSR
Act and the regulations promulgated thereunder by the FTC, the Merger may not
be consummated until notifications have been given and certain information has
been furnished to the FTC and the Antitrust Division and the applicable waiting
period has expired or been terminated. Report forms relating to the Merger have
been filed on behalf of True North and Bozell under the HSR Act with the FTC
and the Antitrust Division. The applicable waiting period has been terminated.
See "THE MERGER AGREEMENT--Conditions Precedent to the Merger."
PERCENTAGE OWNERSHIP INTEREST OF BOZELL STOCKHOLDERS AFTER THE MERGER
Based on the number of shares of True North Common Stock outstanding on the
True North Record Date and assuming the issuance of approximately 18,627,141
shares of True North Common Stock constituting the
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Share Issuance, upon consummation of the Merger there will be approximately
43,898,674 shares of True North Common Stock outstanding at the Effective Time,
of which the stockholders of Bozell and holders of Warrants will own
approximately 42.4% (approximately 40.8% on a fully diluted basis assuming the
exercise of all currently outstanding options to purchase shares of True North
Common Stock and all currently outstanding options to purchase Bozell Common
Stock which either will be fully exercisable immediately prior to, or will
become (as a result of the Merger) fully exercisable at, the Effective Time).
STOCK EXCHANGE LISTING
It is a condition to the consummation of the Merger that the shares of True
North Common Stock constituting the Share Issuance or issued pursuant to the
exercise of Substitute Options be authorized for listing on the NYSE, upon
official notice of issuance.
RESALES OF TRUE NORTH COMMON STOCK
All shares of True North Common Stock constituting the Share Issuance will be
freely transferable, except that shares received by any person who may be
deemed to be an "affiliate" (as used in paragraphs (c) and (d) of Rule 145
under the Securities Act, including, without limitation, directors and certain
executive officers) of Bozell for purposes of such Rule 145 may not be resold
except in transactions permitted by such Rule 145 or as otherwise permitted
under the Securities Act. See "THE MERGER AGREEMENT--Conditions Precedent to
the Merger."
Bozell has agreed to deliver to True North a list identifying all persons
who, at the time of the Bozell Special Meeting, may be deemed to be
"affiliates" (as used in the preceding paragraph) of Bozell and to use its
reasonable best efforts to cause each person so identified to deliver to True
North, not less than 30 days prior to the Effective Time, a written agreement,
in the form previously approved by True North and Bozell, providing among other
things that such person will not (i) sell, transfer or otherwise dispose of any
shares of True North Common Stock issued to such person in the Merger, unless
(A) such sale, transfer or other disposition is made in conformity with the
volume limitations and other conditions of Rule 145, (B) such sale, transfer or
other disposition has been registered under the Securities Act or (C) in the
opinion of counsel reasonably acceptable to True North, such sale, transfer or
other disposition is otherwise exempt from registration under the Securities
Act, or (ii) sell, transfer or dispose of or reduce such person's risk with
respect to any shares of Bozell Common Stock or any shares of capital stock of
True North that such person may hold during the 30 days prior to the Effective
Time or with respect to True North Common Stock received in the Merger or any
other shares of the capital stock of True North until after such time as
results covering at least 30 days of combined operations of True North and
Bozell have been published by True North (the "Resale Period") except as
permitted by SEC Accounting Series Release No. 135 as amended by Staff
Accounting Bulletin No. 76 issued by the SEC.
True North has delivered to Bozell a list identifying those persons who, at
the time of the True North Special Meeting, may be deemed to be affiliates of
True North under applicable SEC accounting releases with respect to pooling of
interests accounting treatment and to use its reasonable best efforts to enter
into a written agreement, not less than 30 days prior to the Effective Time, in
the form previously approved by True North and Bozell, providing among other
things that each such person will not sell, transfer or otherwise dispose of or
reduce such person's risk with respect to any shares of True North Common Stock
or Bozell Common Stock during the period beginning 30 days prior to the
Effective Time and continuing for the duration of the Resale Period, except as
permitted by SEC Accounting Series Release No. 135 as amended by Staff
Accounting Bulletin No. 76.
THE MERGER AGREEMENT
CONVERSION OF SHARES IN THE MERGER
At the Effective Time, by virtue of the Merger and without any further action
on the part of any stockholder of Bozell or CAC:
(i) all shares of Bozell Common Stock held in the treasury of Bozell and
any shares of Bozell Common Stock owned by True North or any wholly-owned
subsidiary of True North will be cancelled and no capital stock of True
North or other consideration will be delivered in exchange therefor;
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(ii) each issued and outstanding share of common stock of CAC will be
converted into one share of Common Stock, par value $.01 per share, of the
Surviving Corporation; and
(iii) each share of Bozell Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled
as described in subparagraph (i) above) will be converted into 0.51 of a
share of True North Common Stock, including the corresponding percentage of
a True North Right, provided that cash will be paid in lieu of any
fractional share of True North Common Stock. See "--No Fractional Shares."
The Exchange Ratio is subject to adjustment under certain circumstances.
See "--Adjustment of Exchange Ratio."
Shares of Bozell Common Stock converted as provided in subparagraph (iii) of
the preceding paragraph will no longer be outstanding and will automatically be
cancelled and retired; and each holder of a Bozell Certificate will cease to
have any rights with respect thereto, except the right to receive, as
hereinafter described: (i) certificates representing the number of whole shares
of True North Common Stock into which such shares of Bozell Common Stock have
been converted, (ii) certain dividends and other distributions and (iii) cash,
without interest, in lieu of any fractional share of True North Common Stock.
See "--Exchange Agent; Procedures for Exchange of Certificates and Delivery of
Cash."
All references in this Proxy Statement/Prospectus to shares of True North
Common Stock to be received pursuant to the Merger in accordance with the
Merger Agreement will be deemed, from and after the Effective Time, to include
the associated True North Rights.
Notwithstanding the foregoing, holders of Bozell Common Stock outstanding
immediately prior to the Effective Time have the right to require appraisal of
the fair market value of their stock (collectively, the "Dissenting Shares") in
lieu of conversion thereof into True North Common Stock in the Merger upon full
compliance with Section 262 of the DGCL. Such Bozell stockholders will be
entitled to receive such consideration as may be determined to be due to them
pursuant to the DGCL, except that all Dissenting Shares held by Bozell
stockholders who withdraw their demand for appraisal or fail to perfect or
otherwise lose their rights to appraisal, will be deemed to be converted, as of
the Effective Time, solely into the amount of shares of True North Common Stock
and cash as described above, without any interest thereon, upon surrender in
the manner described above of the Bozell Certificate or Certificates that
formerly evidenced such shares of Bozell Common Stock. See "APPRAISAL RIGHTS."
NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of True North Common
Stock will be issued upon the surrender for exchange of Bozell Certificates; no
True North dividend or other distribution or stock split will relate to any
such fractional share; and no such fractional share will entitle the owner
thereof to vote or to any other rights of a securityholder of True North. In
lieu of any such fractional share, each holder of shares of Bozell Common Stock
who would otherwise have been entitled thereto upon the surrender of Bozell
Certificates for exchange will be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying (i) the per share
closing price of True North Common Stock, as reported in the NYSE Composite
Transactions Tape, on the trading day immediately prior to the date on which
the Effective Time shall occur by (ii) the fractional share to which such
holder would otherwise be entitled.
ADJUSTMENT OF EXCHANGE RATIO
In the event of any reclassification, stock split or stock dividend with
respect to True North Common Stock, any change or conversion of True North
Common Stock into other securities or any other dividend or distribution with
respect to the True North Common Stock, other than normal quarterly cash
dividends (or if a record date with respect to any of the foregoing should
occur) prior to the Effective Time, appropriate and proportionate adjustments,
if any, will be made to the exchange ratio used to determine the number of
shares of True North Common Stock to which each holder of Bozell Common Stock
will be entitled upon conversion of his or her shares of Bozell Common Stock.
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EXCHANGE AGENT; PROCEDURES FOR EXCHANGE OF CERTIFICATES AND DELIVERY OF CASH
First Chicago Trust Company of New York has been selected to act as Exchange
Agent under the Merger Agreement. Within three business days after the
Effective Time, True North will deposit with the Exchange Agent, in trust for
the holders of shares of Bozell Common Stock converted in the Merger, (i) True
North Certificates representing the shares of True North Common Stock issuable
pursuant to the Merger in accordance with the Merger Agreement or issuable in
exchange for outstanding Warrants, (ii) cash required to make payments in lieu
of any fractional shares and (iii) cash or other property to pay or make any
required dividends or distributions. The Exchange Agent will deliver the True
North Common Stock contemplated to be issued with respect to Bozell Common
Stock converted in the Merger.
Within three business days after the Effective Time, the Exchange Agent will
mail to each record holder of a Certificate (including a Bozell Certificate or
outstanding Warrants converted in the Merger) a letter of transmittal (which
will specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon actual delivery thereof to the Exchange
Agent, and will contain instructions for use in effecting the surrender of
Certificates in exchange for the property described in the next sentence). Upon
surrender for cancellation to the Exchange Agent of a Certificate, together
with such letter of transmittal duly executed, the holder of such Certificate
will be entitled to receive in exchange therefor (i) a True North Certificate
representing that number of whole shares of True North Common Stock into which
the shares or Warrants represented by the surrendered Certificates shall have
been converted at the Effective Time; (ii) cash in lieu of any fractional share
as described above under "--No Fractional Shares" and (iii) certain dividends
and other distributions described in the succeeding paragraph. Any Certificate
so surrendered will be cancelled. All shares of True North Common Stock issued
upon the surrender for exchange of Certificates in accordance with the terms of
the Merger Agreement (including any cash paid in respect of any such fractional
share or of any such dividends or distributions) will be deemed to have been
issued in full satisfaction of all rights pertaining to the shares of Bozell
Common Stock represented by such Certificates.
No dividends or other distributions that are declared on or after the
Effective Time on True North Common Stock, or are payable to the holders of
record thereof on or after the Effective Time, and no cash payment will be paid
to any person entitled by reason of the Merger to receive True North
Certificates until such person surrenders the related Certificate or
Certificates as described above. Subject to applicable law, there will be paid
to each record holder of a new True North Certificate: (i) at the time of such
surrender or as promptly as practicable thereafter, the amount of any dividends
or other distributions theretofore paid with respect to the shares of True
North Common Stock represented by such new True North Certificate and having a
record date on or after the Effective Time and a payment date prior to such
surrender, (ii) at the appropriate payment date or as promptly as practicable
thereafter, the amount of any dividends or other distributions payable with
respect to such shares of True North Common Stock and having a record date on
or after the Effective Time but prior to such surrender and a payment date on
or subsequent to such surrender and (iii) at the time of such surrender or as
promptly as practicable thereafter, the amount of any cash payable with respect
to a fractional share of True North Common Stock to which such holder is
entitled. In no event will the person entitled to receive such dividends or
other distributions be entitled to receive interest thereon. If any True North
Certificate or cash or other property is to be issued or delivered in a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of the exchange that the Certificate so
surrendered be properly endorsed and otherwise in proper form for transfer and
that the person requesting such exchange pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of such True North
Certificates in a name other than that of the registered holder of the
Certificate surrendered or establish to the satisfaction of the Exchange Agent
that such taxes have been paid or are not applicable. True North or the
Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the Merger Agreement such amounts as True North
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code or under any provision of federal, state,
local or foreign tax law. To the extent that amounts are so withheld by True
North or the Exchange Agent, such withheld amounts will be treated for all
purposes of the Merger Agreement as having been paid to the person in respect
of which such withholding was made by True North or the Exchange Agent.
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At the Effective Time, the stock transfer books of Bozell will be closed, and
no transfer of Bozell Common Stock or Warrants will thereafter be made. Subject
to any applicable abandoned property, escheat or similar laws, if, after the
Effective Time, Certificates are presented to the Surviving Corporation, the
Exchange Agent or True North, such Certificates will be cancelled and exchanged
as described above.
STOCK OPTIONS
Each Bozell Stock Option which is outstanding immediately prior to the
Effective Time pursuant to any Bozell Stock Plan will be assumed by True North
and become and represent a Substitute Option to purchase the number of shares
of True North Common Stock, decreased to the nearest full share, determined by
multiplying (i) the number of shares of Bozell Common Stock then subject to
such Bozell Stock Option by (ii) the Exchange Ratio, at an exercise price per
share of True North Common Stock (rounded up to the nearest tenth of a cent)
equal to the exercise price per share of Bozell Common Stock in effect at such
time divided by the Exchange Ratio. True North shall pay cash to holders of
Bozell Stock Options in lieu of issuing fractional shares of True North Common
Stock upon the exercise of Substitute Options for shares of True North Common
Stock, unless in the judgment of True North such payment would adversely affect
the ability to account for the Merger under the pooling of interests method.
Each Substitute Option will be otherwise exercisable upon the same terms and
conditions as were applicable under the predecessor Bozell Stock Option
immediately prior to the Effective Time. The foregoing provisions will be
subject to any contrary provision in the applicable Bozell Stock Plan or in the
option agreements respecting the Bozell Stock Options outstanding thereunder,
but Bozell has agreed to use its reasonable best efforts to obtain any
necessary consents of holders of the Bozell Stock Options to effect such
provisions. Bozell has also agreed that it will not grant any stock
appreciation rights or limited stock appreciation rights and will not permit
cash payments to holders of Bozell Stock Options in lieu of the substitution
therefor of Substitute Options as described above.
WARRANTS
Each Warrant outstanding immediately prior to the Effective Time will be
converted into that number of shares of True North Common Stock and such other
property as would have been received by the holder if such Warrant had been
exercised immediately prior to the Effective Time and the Bozell Common Stock
that would have been received upon such exercise had been converted pursuant to
the Merger Agreement. Bozell has agreed to use its reasonable best efforts to
obtain any necessary consents of holders of Warrants to effect their conversion
into True North Common Stock and other property as described in the Merger
Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Bozell, True North and CAC relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases, to
specified exceptions): (i) their due organization, existence, good standing,
corporate power and similar corporate matters; (ii) their capitalization; (iii)
their authorization, execution, delivery, and performance of and the
enforceability of the Merger Agreement and of the transactions contemplated
thereby; (iv) the absence of any conflict with their certificates of
incorporation, by-laws and certain other agreements and documents; (v) the
absence of any governmental or regulatory authorization, consent or approval
required to consummate the Merger; (vi) the documents and reports filed by True
North with the SEC and the accuracy and completeness of the information
contained therein; (vii) the accuracy and completeness of Bozell's financial
statements; (viii) the absence of certain material adverse changes or events;
(ix) their possession of all authorizations, licenses, permits, consents and
approvals relating to the conduct of their business; (x) tax matters; (xi)
pending and threatened litigation; (xii) material contracts; (xiii) employee
benefit matters; (xiv) compliance with laws; (xv) absence of undisclosed
liabilities; (xvi) labor matters; (xvii) intellectual property matters; (xviii)
the Registration Statement and this Proxy Statement/Prospectus and the accuracy
and completeness of the information contained therein and herein; and (xix) the
availability of pooling of interests accounting treatment.
CONDUCT OF BUSINESS PENDING THE MERGER
Each of True North and Bozell has agreed that during the period from the date
of the Merger Agreement through the Effective Time, except as otherwise
expressly required or permitted by the Merger Agreement, it
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will, and will cause each of its Subsidiaries to, in all material respects
carry on its business in the ordinary course as conducted at such date and, to
the extent consistent therewith, use reasonable best efforts to keep available
the services of its officers and employees and preserve its commercial
relationships in such a manner that its goodwill and ongoing business will be
unimpaired at the Effective Time. Each of True North and Bozell has agreed to
promptly advise the other orally and in writing of any change or event having,
or which could reasonably be expected to have, a Material Adverse Effect (as
defined in the Merger Agreement) on True North or Bozell, as the case may be,
or which could prevent or materially delay the consummation of the Merger.
Without limiting the generality of the foregoing, except as otherwise
expressly contemplated or permitted by the Merger Agreement, each of True North
and Bozell has agreed that it will not, and that it will not permit any of its
Subsidiaries to, without the prior written consent of the other: (i) (A)
declare, set aside or pay any dividends on, or make any other distributions in
respect of, any of its capital stock, or otherwise make any payments to its
stockholders in their capacity as such (other than regular quarterly dividends
not to exceed $.15 per share in the case of True North Common Stock and
dividends and other distributions paid by Subsidiaries), (B) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (C) purchase, redeem or otherwise acquire any shares of its
capital stock (or, in the case of Bozell, of any Subsidiary) or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities (other than, in the case of Bozell, in connection
with the termination of Bozell's employees undertaken in the ordinary course of
business and consistent with past practices and, in the case of True North, the
repurchase of shares of True North Common Stock pursuant to any open market
repurchase plan or in connection with any acquisition in which such shares are
used as consideration therefor); (ii) issue, deliver, sell, pledge, dispose of
or otherwise encumber any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible into, or any
rights, warrants or options to acquire, any such shares of capital stock,
voting securities, equity equivalent or convertible securities (other than the
issuance of shares of True North Common Stock or Bozell Common Stock, as the
case may be, upon the exercise of stock options outstanding on the date of the
Merger Agreement and other than, in the case of True North, in connection with
any acquisition permitted by the Merger Agreement); (iii) amend its certificate
of incorporation or by-laws; (iv) (A) acquire or agree to acquire, by merging
or consolidating with, by purchasing a substantial portion of the assets of or
equity in or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets, other than transactions that are in the
ordinary course of business consistent with past practice involving an
aggregate consideration paid by True North and its Subsidiaries or Bozell and
its Subsidiaries, as the case may be (including the assumption of debt and
valuing any non-cash consideration at its fair market value) not in excess of
$5 million or (B) sell, lease or otherwise dispose of, or agree to sell, lease
or otherwise dispose of, any of its assets, other than transactions that are in
the ordinary course of business consistent with past practice and which involve
assets having an aggregate fair market value or book value not in excess of $5
million; (v) make any capital expenditures, other than capital expenditures not
in excess of $20,000,000 in the aggregate made in the ordinary course of
business consistent with past practice; (vi) incur any indebtedness for
borrowed money, guarantee any such indebtedness, issue or sell any debt
securities, guarantee any debt securities of others or make any loans, advances
or capital contributions to, or other investments in, any other person, other
than (A) indebtedness, loans, advances, capital contributions and investments
between True North or Bozell, as the case may be, and any of its respective
wholly-owned Subsidiaries or between any of such wholly-owned Subsidiaries and
(B) borrowing or guarantees not in excess of $20 million in the aggregate
incurred in the ordinary course of business consistent with past practice;
(vii) alter in any fashion the corporate structure or ownership of Bozell or
any Subsidiary thereof or of True North or any Significant Subsidiary thereof,
as the case may be; (viii) enter into or adopt any, or amend any existing,
severance plan, agreement or arrangement or enter into or amend any employee
benefit plan or employment or consulting agreement, other than certain
amendments to certain True North employee benefit plans approved by True North
prior to entry into the Merger Agreement and employment agreements which each
have a future liability not in excess of $1,000,000 or as required by law; (ix)
except as permitted under the Merger Agreement or to the extent required by
written employment agreements existing on the date of the Merger Agreement, (A)
increase the compensation payable or to become payable to its officers or
employees, except, in the case of
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employees who are not officers, for increases in the ordinary course of
business consistent with past practice, (B) grant any severance or termination
pay except in the ordinary course of business consistent with past practice or
(C) establish, adopt, enter into, or amend or take action to enhance or
accelerate any rights or benefits under, any specified types of employee
benefit or welfare plan, except, in each case, as may be required to comply
with applicable law; (x) violate or fail to perform any material obligation or
duty imposed upon it by any applicable federal, state or local law, rule,
regulation, guideline or ordinance which could be reasonably expected to have a
Material Adverse Effect on True North or Bozell, as the case may be, or prevent
or materially delay the Merger; or (xi) authorize, recommend, propose or
announce an intention to do any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
In addition, except as otherwise expressly contemplated or permitted by the
Merger Agreement, Bozell has agreed that it will not, and that it will not
permit any of its Subsidiaries to, without the prior written consent of True
North (i) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures; (ii) prepare or file any federal, state,
local or foreign Tax Return materially inconsistent with past practice or, on
any such Tax Return, take any position, make any election, or adopt any method
that is materially inconsistent with positions taken, elections made or methods
used in preparing or filing similar Tax Returns in prior periods; or (iii)
settle or compromise any material federal, state, local or foreign income tax
liability.
Each of True North and Bozell has also agreed that, subject to existing
contractual and legal restrictions applicable to it, it will, and will cause
each of its Subsidiaries to, afford, during normal business hours from the date
of the Merger Agreement through the Effective Time, to the accountants,
counsel, financial advisors, officers and other representatives of the other
reasonable access to, and permit them to make such inspections as they may
reasonably require of, its properties, books, Tax Returns, contracts,
commitments and records, and, during such period, True North and Bozell will,
and will cause each of its Subsidiaries to, furnish promptly to the other (i) a
copy of each report, schedule, registration statement and other document filed
by it pursuant to the requirements of federal or state securities laws and (ii)
all other information concerning its properties, assets, business and personnel
as the other may reasonably request. All confidential information obtained by
True North or Bozell, as the case may be, will be kept confidential pursuant to
the confidentiality agreements between the parties.
Each of True North and Bozell has further agreed that from the date of the
Merger Agreement through the Effective Time, unless the other party shall
otherwise agree in writing, neither it nor its respective Subsidiaries will (i)
knowingly take or fail to take any action which would jeopardize the treatment
of the Merger as a pooling of interests for accounting purposes or (ii)
knowingly take any action which would jeopardize qualification of the Merger as
a reorganization within the meaning of Section 368(a) of the Code or would
cause any of the representations and warranties set forth in the Company Tax
Certificate (as defined in the Merger Agreement) or the Parent Tax Certificate
(as defined in the Merger Agreement) to be untrue or incorrect in any material
respect. Each of True North and Bozell has further agreed that it will use
reasonable best efforts to take, or cause to be taken, all actions reasonably
necessary in order that the Merger may be accounted for as a pooling of
interests in accordance with generally accepted accounting principles.
NO SOLICITATION
Each of True North and Bozell has agreed that from and after the date of the
Merger Agreement it will not, and will not permit any of its or its
Subsidiaries' officers, directors or employees, and will use its reasonable
best efforts to cause all of its and its Subsidiaries' attorneys, financial
advisors, agents and other representatives not to, directly or indirectly,
solicit, initiate or knowingly encourage (including by way of furnishing
information) any Parent Takeover Proposal in the case of True North or Company
Takeover Proposal in the case of Bozell or engage in or continue discussions or
negotiations relating thereto; provided that each of True North and Bozell may
engage in discussions or negotiations with, or furnish information concerning
it and its business, properties or assets to, any third party which makes a
Parent Takeover Proposal or a Company Takeover Proposal, as the case may be, if
the True North Board or the Bozell Board, as the case may be, determines, in
its good faith judgment, that such third party may ultimately propose a
Superior Parent Takeover Proposal in the case of True
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North or a Superior Company Takeover Proposal in the case of Bozell; provided,
further, that nothing shall prevent either True North or Bozell or its Board
from taking, and disclosing to its stockholders, a position with regard to any
Parent Takeover Proposal or any Company Takeover Proposal, as the case may be.
Each of True North and Bozell will promptly notify the other of the receipt of
any Parent Takeover Proposal or any Company Takeover Proposal, as the case may
be, including the material terms and conditions thereof and the identity of the
person or group making such Proposal, and will promptly notify the other of any
determination by its Board that a Superior Parent Takeover Proposal or a
Superior Company Takeover Proposal, as the case may be, may ultimately be made.
As used in the Merger Agreement and in this Proxy Statement/Prospectus, (i) a
"Company Takeover Proposal" means any proposal or offer, other than a proposal
or offer by True North or any of its Subsidiaries, for a tender or exchange
offer, a merger, consolidation or other business combination involving Bozell
or any of its Significant Subsidiaries or any proposal to acquire in any manner
a substantial equity interest in, or a substantial portion of the assets of,
Bozell or any of its Significant Subsidiaries; (ii) "Superior Company Takeover
Proposal" means a bona fide proposal or offer made by a third party to acquire
Bozell pursuant to an exchange offer, a merger, consolidation or other business
combination or a sale of all or substantially all of the assets of Bozell and
its Subsidiaries in which the sole consideration to be received by the
stockholders of Bozell (other than cash for fractional shares or other
consideration which is non-material in amount) is the common stock of a widely-
held public company which, immediately after the consummation of the
transaction, will own (directly or indirectly) all or substantially all of the
equity or assets of Bozell on terms which a majority of the members of the
Bozell Board, having received the advice of an independent financial advisor,
determines in their good faith reasonable judgment to be more favorable to
Bozell's stockholders than the terms of the transactions contemplated by the
Merger Agreement; (iii) "Parent Takeover Proposal" means any proposal or offer,
for a tender or exchange offer, a merger, consolidation or other business
combination involving True North or any of its Significant Subsidiaries or any
proposal to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, True North or any of its Significant
Subsidiaries; (iv) "Superior Parent Takeover Proposal" means a bona fide
proposal or offer made by a third party to acquire True North pursuant to an
exchange offer, a merger, consolidation or other business combination or a sale
of all or substantially all of the assets of True North and its Subsidiaries in
which the sole consideration to be received by the stockholders of True North
(other than cash for fractional shares or other consideration which is non-
material in amount) is the common stock of a widely-held public company which,
immediately after the consummation of the transaction, will own (directly or
indirectly) all or substantially all of the equity or assets of True North on
terms which a majority of the members of the True North Board, having received
the advice of an independent financial advisor, determines in their good faith
reasonable judgment to be more favorable to True North's stockholders than the
terms of the transactions contemplated by the Merger Agreement; and (v)
"Significant Subsidiary" has the meaning specified in Rule 1-02(w) of
Regulation S-X.
THIRD PARTY STANDSTILL AGREEMENTS
The Merger Agreement provides that from the date of the Merger Agreement
through the Effective Time neither Bozell nor True North may terminate, amend,
modify or waive any provision of any confidentiality or standstill agreement to
which it or any of its Subsidiaries is a party (other than any involving True
North or Bozell, as the case may be).
CONDITIONS PRECEDENT TO THE MERGER
The respective obligations of True North, Bozell and CAC to effect the Merger
are subject, among other things, to the fulfillment on or prior to the
Effective Time of the following conditions: (i) approval of the Merger
Agreement by the requisite vote of the stockholders of Bozell, and approval of
the Charter Amendment, the Share Issuance and the Election of Directors as
specified in the Merger Agreement by the requisite vote of the stockholders of
True North; (ii) the listing on the NYSE, subject to official notice of
issuance, of the shares of True North Common Stock issuable in connection with
the Merger or pursuant to the exercise of Substitute Options; (iii) expiration
or termination of the waiting period applicable to the consummation of the
Merger under the HSR Act and the obtaining, making or occurrence of all
authorizations, consents, orders, declarations or approvals of, or filings
with, or terminations or expirations of waiting periods imposed by, any
governmental
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entity, which the failure to obtain, make or occur would have the effect of
making the Merger or any of the transactions contemplated by the Merger
Agreement illegal or would have a Material Adverse Effect on True North,
assuming the Merger had taken place; (iv) the absence of any stop order
suspending the effectiveness of the Registration Statement, any initiation of
proceedings for that purpose or any threat of such proceedings by the SEC; (v)
no court or other Governmental Entity having jurisdiction over True North or
Bozell, or any of their respective Subsidiaries, having enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order then in effect which has the effect of making
the Merger or any of the transactions contemplated by the Merger Agreement
illegal and (vi) the receipt by each of True North and Bozell at the Effective
Time of an opinion of Arthur Andersen LLP to the effect that the Merger will
qualify for pooling of interests accounting treatment under Accounting
Principles Board Opinion No. 16 if closed and consummated in accordance with
the Merger Agreement, and the delivery by each of True North and Bozell of all
affiliate letters from their respective affiliates to the extent reasonably
necessary to protect the pooling of interests accounting treatment of the
Merger.
The obligation of Bozell to effect the Merger is also subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions: (i) each of True North and CAC having performed in all material
respects each of its agreements contained in the Merger Agreement required to
be performed on or prior to the Effective Time, except as contemplated or
permitted by the Merger Agreement; (ii) each of the representations and
warranties of True North and CAC contained in the Merger Agreement that is
qualified by materiality being true and correct and each of such
representations and warranties that is not so qualified being true and correct
in all material respects, in each case on and as of the Effective Time as if
made on and as of the Effective Time (other than representations and warranties
which address matters only as of a certain date which shall be true and correct
as of such certain date and except as contemplated or permitted by the Merger
Agreement); (iii) Bozell having received an opinion of White & Case relating to
certain tax matters; (iv) True North having obtained any necessary non-
governmental consents and approvals required to consummate the transactions
contemplated by the Merger Agreement; (v) the absence since the date of the
Merger Agreement of any event, change or development that would have a Material
Adverse Effect on True North, other than general advertising industry
conditions and certain matters previously disclosed to Bozell in the Parent
Letter (as defined in the Merger Agreement), including, without limitation, the
loss of a significant automobile industry client of True North; and (vi) the
absence of any pending or threatened litigation by any Governmental Entity as a
result of the Merger Agreement or any of the transactions contemplated thereby
which would have a Material Adverse Effect on True North (assuming the Merger
had taken place).
The respective obligations of True North and CAC to effect the Merger are
also subject to the fulfillment at or prior to the Effective Time of the
following additional conditions: (i) Bozell having performed in all material
respects each of its agreements contained in the Merger Agreement required to
be performed on or prior to the Effective Time, except as contemplated or
permitted by the Merger Agreement; (ii) each of the representations and
warranties of Bozell contained in the Merger Agreement that is qualified by
materially being true and correct and each of such representations and
warranties that is not so qualified being true and correct in all material
respects, in each case on and as of the Effective Time as if made on and as of
the Effective Time (other than representations and warranties which address
matters only as of a certain date which shall be true and correct as of such
certain date and except as contemplated or permitted by the Merger Agreement);
(iii) True North having received an opinion of Sidley & Austin relating to
certain tax matters; (iv) True North having obtained any necessary non-
governmental consents and approvals required to consummate the transactions
contemplated by the Merger Agreement; (v) the absence since the date of the
Merger Agreement of any event, change or development that would have a Material
Adverse Effect on Bozell, other than general advertising industry conditions
and certain matters previously disclosed to True North in the Company Letter
(as defined in the Merger Agreement); (vi) the absence of any pending or
threatened litigation by any Governmental Entity as a result of the Merger
Agreement or any of the transactions contemplated thereby which would have a
Material Adverse Effect on Bozell; and (vii) True North having received from
Bozell a statement and notification certifying that Bozell is not, and has not
been during the past five years, a "United States real property holding
corporation" for purposes of Sections 897 and 1445 of the Code.
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval of the matters presented in
connection with the Merger by the stockholders of Bozell or True North:
(i) by mutual written consent of True North and Bozell;
(ii) by either True North or Bozell if the other has failed to comply in
any material respect with any of its covenants or agreements contained in
the Merger Agreement required to be complied with prior to the date of such
termination or breaches (or if CAC breaches if Bozell is the terminating
party) any representation or warranty that is not qualified as to
materiality which has the effect of making such representation or warranty
not true and correct in all material respects or breaches (or if CAC
breaches if Bozell is the terminating party) any representation or warranty
that is so qualified which has the effect of making such representation or
warranty not true and correct, in each case after a ten business day cure
period following written notice of such breach;
(iii) by either True North or Bozell if the Merger has not been effected
on or prior to the close of business on December 31, 1997; provided that
the right to terminate the Merger Agreement pursuant to this provision is
not available to any party whose failure to fulfill any of its obligations
contained in the Merger Agreement has been the cause of, or resulted in,
the failure of the Merger to have occurred on or prior to the aforesaid
date;
(iv) by either True North or Bozell if any governmental entity has issued
an order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the transactions contemplated by the
Merger Agreement and such order, decree, ruling or other action has become
final and nonappealable; provided that True North shall, if necessary to
prevent any such issuance or the taking of such action, offer to accept an
order to divest such of Bozell's or True North's assets and businesses as
may be necessary to forestall such injunction or order and to hold separate
such assets and business pending such divestiture, but only if the amount
of such assets and businesses is not material to the assets or
profitability of Bozell and its Subsidiaries taken as a whole or True North
and its Subsidiaries taken as a whole, respectively;
(v) by either True North or Bozell if the stockholders of Bozell do not
approve the Merger Agreement at the Bozell Special Meeting;
(vi) by either True North or Bozell if the stockholders of True North do
not approve the Charter Amendment, the Share Issuance and the Election of
Directors at the True North Special Meeting;
(vii) by either True North or Bozell if the Bozell Board has reasonably
determined that a Company Takeover Proposal constitutes a Superior Company
Takeover Proposal; provided that Bozell may not terminate the Merger
Agreement pursuant to this provision unless and until (A) five business
days have elapsed following delivery to True North of a written notice of
such determination by the Bozell Board or (B) a tender offer or exchange
offer for 30% or more of the outstanding shares of Bozell Common Stock is
commenced and the Bozell Board fails within ten business days following
such commencement to recommend against acceptance of such tender offer or
exchange offer by its stockholders (including by taking no position with
respect to the acceptance of such tender offer or exchange offer by its
stockholders); provided that Bozell may not terminate the Merger Agreement
pursuant to clause (A) or (B) above unless it is in full compliance with
its no-solicitation obligation and its obligations with respect to the call
of the Bozell Special Meeting and, further, unless simultaneously with such
termination, Bozell pays to True North the amount referred to under "--Fees
and Expenses" below; and provided that any termination by True North
pursuant to clause (A) or (B) above will in no way constitute an admission
that Bozell complied with its no-solicitation obligation or any other
provisions of the Merger Agreement;
(viii) by either True North or Bozell if the Bozell Board has not
recommended, or resolved not to recommend, or modified or withdrawn its
recommendation of, the Merger or its determination that the Merger is fair
to and in the best interest of Bozell and its stockholders, or resolved to
do so; or
(ix) by either True North or Bozell if the True North Board has
reasonably determined that a Parent Takeover Proposal constitutes a
Superior Parent Takeover Proposal; provided that True North may not
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terminate the Merger Agreement pursuant to this provision unless and until
(A) five business days have elapsed following delivery to Bozell of a
written notice of such determination by the True North Board or (B) a
tender offer or exchange offer for 30% or more of the outstanding shares of
True North is commenced and the True North Board fails within ten business
days following such commencement to recommend against acceptance of such
tender offer or exchange offer by its stockholders (including by taking no
position with respect to the acceptance of such tender offer or exchange
offer by its stockholders); provided that True North may not terminate the
Merger Agreement pursuant to clause (A) or (B) above unless it is in full
compliance with its no-solicitation obligation and its obligations with
respect to the call of the True North Special Meeting and, further, unless
simultaneously with such termination, True North pays to Bozell the amount
referred to under "--Fees and Expenses" below; and provided that any
termination by Bozell pursuant to clause (A) or (B) above will in no way
constitute an admission that True North has complied with its no-
solicitation obligation or any other provisions of the Merger Agreement.
In the event of termination of the Merger Agreement by either True North or
Bozell, as provided above, the Merger Agreement will forthwith become void and
there will be no liability thereunder on the part of Bozell, True North, CAC or
their respective officers or directors (except for certain specified provisions
of the Merger Agreement which shall survive such termination, including, among
others, obligations relating to confidentiality, fees and expenses, and public
announcements); provided that nothing will relieve any party to the Merger
Agreement from any liability for any breach thereof.
FEES AND EXPENSES
The Merger Agreement provides that whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby including, without limitation, the fees and
disbursements of counsel, financial advisors and accountants, shall be paid by
the party incurring such costs and expenses, except that all printing expenses
and SEC filing fees shall be divided equally between True North and Bozell. The
Merger Agreement also provides for the payment of the following amounts:
(i) Bozell shall pay in same day funds to True North $15 million (the
"Company Termination Fee") upon demand if: (A) the Merger Agreement is
terminated by Bozell pursuant to clause (iii) under "--Termination" or by
True North or Bozell pursuant to clause (v) or (viii) under "--Termination"
and within six months following any such termination a Third Party Company
Acquisition Event (as hereinafter defined) occurs; (B) True North or Bozell
terminates the Merger Agreement pursuant to clause (vii) under "--
Termination"; or (C) the Merger Agreement is terminated and prior thereto a
Third Party Company Acquisition Event occurred; and
(ii) True North shall pay in same day funds to Bozell $15 million (the
"Parent Termination Fee") upon demand if: (A) the Merger Agreement is
terminated by True North pursuant to clause (iii) under "--Termination" or
by True North or Bozell pursuant to clause (vi) under "--Termination" and
within six months following any such termination a Third Party Parent
Acquisition Event (as hereinafter defined) occurs; (B) True North or Bozell
terminates the Merger Agreement pursuant to clause (ix) under "--
Termination"; or (C) the Merger Agreement is terminated and prior thereto a
Third Party Parent Acquisition Event occurred.
As used in the Merger Agreement and in this Proxy Statement/Prospectus, (i) a
"Third Party Company Acquisition Event" means any of the following events: (A)
any person, corporation, partnership or other entity or group (such person,
corporation, partnership or other entity or group being referred to
hereinafter, singularly or collectively, as a "Person"), other than True North
or its Subsidiaries, acquires or becomes the beneficial owner of 30% or more of
the outstanding shares of Bozell Common Stock; (B) any new group is formed
which, at the time of formation, beneficially owns 30% or more of the
outstanding shares of Bozell Common Stock (other than a group which includes or
may reasonably be deemed to include True North or any of its Subsidiaries); (C)
Bozell enters into an agreement providing for a merger or other business
combination involving Bozell or the acquisition of a substantial interest in,
or a substantial portion of the assets, business or operations of, Bozell and
its Subsidiaries (other than the transactions contemplated by the Merger
Agreement); or (D) any Person (other than True North or its Subsidiaries) is
granted any option or right, conditional or
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otherwise, to acquire or otherwise become the beneficial owner of shares of
Bozell Common Stock that results or would result in such Person being the
beneficial owner of 30% or more of the outstanding shares of Bozell Common
Stock, and (ii) a "Third Party Parent Acquisition Event" has the meaning
specified in clause (i) above for a Third Party Company Acquisition Event
except that each reference to "Bozell" shall be changed to "True North" and
each reference to "True North" shall be changed to "Bozell." For purposes of
such definitions, the terms "group" and "beneficial owner" are defined by
reference to Section 13(d) of the Exchange Act.
EMPLOYEE BENEFITS
True North has agreed that no later than January 1, 1999, a new program of
employee benefits that is generally applicable on identical terms and
conditions to all similarly situated Bozell Employees and True North Employees
(each as hereinafter defined) will be adopted by the True North Board (or a
committee thereof) and become effective. True North also has agreed that, for
the period commencing at the Effective Time, and continuing until the date such
new program is effective, True North will, or will cause its Subsidiaries,
including, without limitation, the Surviving Corporation, to, honor and
continue to maintain and contribute to all the employee benefit plans of True
North and Bozell as in existence on the date of the Merger Agreement in
accordance with the respective terms and conditions of such plans in effect on
the date of the Merger Agreement (except for any amendments to, or termination
of, certain True North employee benefit plans approved or authorized by the
True North Board or any committee thereof prior to the date of the Merger
Agreement and any amendment thereafter required to maintain the tax-qualified
status of any True North Benefit Plan or Bozell Plan intended to have such
status), except (i) that to the extent that any Bozell Plan refers to Bozell
Stock, such reference will, after the Effective Time, be changed to True North
Stock, adjusted to the extent appropriate to reflect the Exchange Ratio, or
(ii) to the extent that True North in good faith after consultation with
counsel determines to do so would be inconsistent with applicable law.
Notwithstanding the foregoing, no employee of True North or Bozell is entitled
to any minimum amount of bonus or other incentive compensation (including stock
option grants) pursuant to the terms of any True North or Bozell employee
benefit plan applicable to executives, key employees or other senior management
for any period after the Effective Time.
True North has agreed that, except as otherwise required by law or as is
necessary for the Bozell Profit Sharing Plan or the Bozell Stock Bonus Plan to
satisfy the qualification requirements of Section 401 of the Code, neither True
North nor any Subsidiary will take any action, including, but not limited to,
amending, merging or otherwise altering the Bozell Profit Sharing Plan or the
Bozell Stock Bonus Plan, which allows the reallocation of any or all of the
assets of the Bozell Stock Fund (as such term is defined in the Bozell Profit
Sharing Plan) or the Bozell Stock Bonus Plan from the account of any Current
Bozell Plan Participant (as hereinafter defined) to the account of any
individual who is not a Current Bozell Plan Participant, other than at the
election of the Current Bozell Plan Participant. As used in this Proxy
Statement/Prospectus, the term "Current Bozell Plan Participant" means an
individual who immediately prior to the Effective Time either (i) is a
participant in the Bozell Profit Sharing Plan who has, as of such time, an
account balance invested in the Bozell Stock Fund, or (ii) is a participant in
the Bozell Stock Bonus Plan.
True North has further agreed that with respect to benefits payable or
provided to former employees of Bozell or any Subsidiary of Bozell who have
retired or otherwise terminated service before the Effective Time, neither True
North nor any subsidiary of True North (including, without limitation, the
Surviving Corporation) will take or cause to be taken after the Effective Time
any action to reduce or adversely affect such benefits, including, without
limitation, retiree health, medical and life insurance benefits, from the level
and terms on which any such benefits are provided to such former employees of
Bozell or its Subsidiaries on the date hereof except to the extent that Bozell
or its Subsidiaries had the authority to do so on the date of the Merger
Agreement.
For purposes of eligibility to participate and vesting, and eligibility for
and accrual of benefits, under all True North employee benefit plans (except,
with respect to accrual of benefits under any such plan that is a defined
benefit pension plan) that may become applicable to any employee of Bozell or
its Subsidiaries, all service of any such employee with Bozell or any of its
Subsidiaries (or a predecessor of any thereof) prior to the Effective Time
will, after the Effective Time, be treated as service with the Surviving
Corporation, True North
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or their Subsidiaries (as applicable), to the same extent that service with
Bozell or any of its Subsidiaries prior to the Effective Time is taken into
account under the Bozell employee benefit plans. With respect to participation
of employees of Bozell or its Subsidiaries and their dependents in True North
employee benefit plans, True North and its Subsidiaries will, or will cause the
applicable True North employee benefit plans to (i) waive any waiting or
affiliation periods and any pre-existing condition and actively-at-work
exclusions (or other similar limitations on participation) otherwise applicable
after the Effective Time to Bozell Employees or their dependents, (ii) waive
any evidence of insurability requirements and (iii) provide that all claims and
expenses of employees of Bozell or its Subsidiaries and their dependents during
any plan year within which the Effective Time occurs shall be taken into
account for purposes of satisfying applicable deductible, coinsurance and
maximum out-of-pocket provisions (and like adjustments or limitations on
coverage) under such plans.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE
(a) From and after the Effective Time, True North has agreed to cause the
Surviving Corporation to exculpate, indemnify and hold harmless any person who
is at the Effective Time, or was at any time prior thereto, an officer or
director of Bozell and its Subsidiaries ("Indemnified Parties") to the same
extent such persons were as of the date of the Merger Agreement exculpated and
indemnified by Bozell pursuant to the Bozell Charter and Bozell's Bylaws for
acts or omissions occurring at or prior to the Effective Time.
(b) Any Indemnified Party wishing to claim such indemnification, upon
learning of any claim, action, suit, proceeding or investigation subject to
indemnification thereunder, shall promptly notify the Surviving Corporation
thereof. An Indemnified Party may select counsel to represent him or her in
connection with any of the foregoing, which counsel must be reasonably
acceptable to the Surviving Corporation, and the Surviving Corporation will
cooperate in the defense of any such matter; provided that the Surviving
Corporation will not be liable for any settlement effected without its written
consent; and provided that the Surviving Corporation will not be obligated to
pay the fees and disbursements of more than one counsel for all Indemnified
Parties in any single matter except to the extent that, in the opinion of
counsel for the Indemnified Parties, two or more of such Indemnified Parties
have conflicting interests in the outcome of such matter. The Surviving
Corporation will not have any obligation hereunder to an Indemnified Party if
and when a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
The Merger Agreement also requires True North to cause the Surviving
Corporation to provide, for an aggregate period of not less than six years
after the Effective Time, Bozell's directors and officers an insurance and
indemnification policy ("D&O Insurance") that provides coverage for events
occurring prior to the Effective Time that is no less favorable than Bozell's
policy in effect as of the date of the Merger Agreement or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
provided that the Surviving Corporation is not required to pay an annual
premium for D&O Insurance in excess of 175% of the last annual premium paid
prior to the date of the Merger Agreement, but in such case is required to
purchase as much coverage as possible for such amount.
MANAGEMENT AND OPERATION OF TRUE NORTH
The Merger Agreement provides that, at the Effective Time, by reason of their
election at the True North Special Meeting, the True North Board is to be
comprised of 12 members as follows: six directors selected by the True North
Board (Bruce Mason and J. Brendan Ryan and four non-employee directors of True
North other than the Publicis Designee, which have been determined to be
Richard S. Braddock, Stephen T. Vehslage, Richard P. Mayer and Michael E.
Murphy); five directors selected by the Bozell Board (Charles D. Peebler, Jr.,
Leo-Arthur Kelmenson and David A. Bell and two non-employee directors of
Bozell, which have been determined to be W. Grant Gregory and Donald M.
Elliman, Jr.); and only for so long as Publicis is contractually entitled to
cause its designee to serve as a director on the True North Board, the Publicis
Designee is to be a twelfth director. The Merger Agreement also establishes the
initial composition of the committees of the True North Board following the
Effective Time. See "ELECTION OF DIRECTORS OF TRUE NORTH--Election of
Directors."
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Effective as of the Effective Time, Mr. Mason will serve as Chief Executive
Officer of True North, Mr. Peebler will serve as President of True North, and
Mr. Braddock will serve as a non-executive Chairman of the Board of True North.
The Merger Agreement further provides that the chief executive officers of FCB
and other advertising Subsidiaries and Bozell's Bozell Worldwide Subsidiary
will be Mr. Ryan and Mr. Bell, respectively, and both of such chief executive
officers will report to Mr. Mason. The chief executive officers of True North's
and Bozell's remaining direct non-agency Subsidiaries will report to Mr.
Peebler. Compensation and other matters for each of Mr. Mason, Mr. Peebler and
Mr. Braddock are set forth in their respective Employment Agreements entered
into as of the date of the Merger Agreement (but effective as of the Effective
Time). The Merger Agreement provides that Mr. Mason and Mr. Peebler will be
responsible for presenting to the True North Board no later than February 28,
1999, a plan of management succession for each of their respective positions
within True North. See "THE MERGER--Interests of Certain Persons in the
Merger."
AMENDMENT
The Merger Agreement may be amended by the parties thereto, by or pursuant to
action taken by their respective Boards of Directors, at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of True North and Bozell, but, after any such approval, no
amendment may be made which by law requires further approval by such
stockholders without such further approval.
WAIVER
At any time prior to the Effective Time, the Merger Agreement permits the
parties thereto to: (i) extend the time for the performance of any of the
obligations or other acts of the other parties thereto; (ii) waive any
inaccuracies in the representations and warranties contained therein or in any
document delivered pursuant thereto; and (iii) waive compliance with any of the
agreements or conditions contained therein which may legally be waived; in each
case pursuant to a written instrument.
GOVERNING LAW
The Merger Agreement provides that it shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
STOCKHOLDERS AGREEMENTS
The holders of 13,122,434 shares of Bozell Class B Common Stock outstanding
at the close of business on the Bozell Record Date (approximately 35.1% of the
voting power of the shares of Bozell Common Stock then outstanding) have signed
stockholders agreements obligating them (without receipt of monetary
consideration) to vote in favor of the Merger and adoption of the Merger
Agreement.
The holders of 185,967 shares of True North Common Stock outstanding at the
close of business on the True North Record Date (approximately 0.74% of the
shares of True North Common Stock then outstanding) have signed stockholders
agreements obligating them (without receipt of monetary consideration) to vote
in favor of all matters to be presented by the True North Board at the True
North Special Meeting.
DESCRIPTION OF TRUE NORTH COMMON STOCK
CAPITAL STOCK
The current authorized capital stock of True North consists of 50,000,000
shares of True North Common Stock, and 100,000 shares of Preferred Stock, par
value $1.00 per share ("True North Preferred Stock"), of which 45,000 are
designated "Series A Junior Participating Preferred Stock." At June 30, 1997,
25,025,303 shares of True North Common Stock and no shares of True North
Preferred Stock were issued and outstanding and 242,881 shares of True North
Common Stock were held as treasury stock. At September 1, 1997, 3,227,278
shares of True North Common Stock were reserved for issuance upon exercise of
outstanding options and 25,000
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shares of Series A Preferred Stock were reserved for issuance upon the exercise
of True North Rights. The Charter Amendment, which will be considered at the
True North Special Meeting, would increase the authorized shares of True North
Common Stock from 50,000,000 to 90,000,000. See "PROPOSAL TO APPROVE TRUE NORTH
CHARTER AMENDMENT."
The True North Board is authorized, without any further action by the
stockholders, to designate series of True North Preferred Stock and determine
the rights, preferences, privileges and restrictions of each series. The True
North Board may issue True North Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of True
North Common Stock, and which could, among other things, have the effect of
delaying, deterring or preventing a change in control of True North.
VOTING RIGHTS
The holders of True North Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders and do not have cumulative
voting rights. The holders of a majority of the outstanding shares of True
North Common Stock represented at a meeting at which a quorum is present may
elect all directors to be elected at the meeting.
DIVIDENDS AND OTHER RIGHTS
The holders of the True North Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the True North
Board out of the assets of True North legally available therefor. In the event
of the liquidation, dissolution or winding up of True North, the holders of
True North Common Stock are entitled, after payment or provisions for payment
of debts and other liabilities, to share ratably in the remaining net assets.
There are no preemptive rights or redemption or sinking fund provisions
applicable to the True North Common Stock. All outstanding shares of True North
Common Stock are fully paid and nonassessable, and the shares of True North
Common Stock issuable in the Merger will be fully paid and nonassessable. The
dividends and liquidation rights of holders of True North Common Stock are
subject to the rights and preferences of the holders of shares of any series of
True North Preferred Stock which True North may issue in the future.
ANTI-TAKEOVER PROVISIONS
The DGCL, the True North Charter, True North's Bylaws and the Rights
Agreement dated as of November 16, 1988 (the "True North Rights Agreement")
between Foote, Cone & Belding Communications, Inc. (now known as True North)
and Harris Trust and Savings Bank, as Rights Agent, contain provisions that
could discourage or make more difficult a change of control of True North. Such
provisions are designed to protect the stockholders of True North against
coercive, unfair or inadequate tender offers and other abusive takeover tactics
and to encourage any person contemplating a business combination with True
North to negotiate with the True North Board for the fair and equitable
treatment of all stockholders of True North.
Bylaws. The True North Bylaws provide that nominations for the election of
directors may be made only by the True North Board or by a committee appointed
by the True North Board or by any stockholder entitled to vote at the
applicable meeting pursuant to notice (a "Stockholder Nomination Notice")
timely delivered to True North. To be timely delivered, a Stockholder
Nomination Notice must be received by the Secretary of True North not less than
50 nor more than 90 days prior to the applicable meeting, unless less than 60
days' notice or prior public disclosure of the date of such meeting has been
given or made, in which case a Stockholder Nomination Notice must be so
received not later than the close of business on the 10th day following the day
on which such notice was mailed or such public disclosure was made, whichever
first occurs. Each Stockholder Nomination Notice must contain specified
information, including the name and address of the stockholder, a
representation that such stockholder will be entitled to vote at such meeting
and intends to appear in person or by proxy to nominate the person(s) specified
in such Stockholder Nomination Notice, the name and address of each such
nominee, a description of all arrangements or understandings between such
stockholder and each such nominee and any other person pursuant to which the
nomination(s) are to be made by such stockholder and such other
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information regarding such nominee as would be required to be included in a
proxy statement filed under the Exchange Act; the consent of each such nominee
to serve if elected must also be submitted.
Stockholder Rights Plan. Pursuant to the True North Rights Agreement, each
holder of an outstanding share of True North Common Stock has received, and
each person receiving a whole share of True North Common Stock constituting a
portion of the Share Issuance will receive, one True North Right entitling the
holder thereof to purchase from True North, at a price of $42.50, subject to
adjustment (the "True North Purchase Price"), one two-thousandth of a share of
True North Series A Preferred Stock.
Until the earlier to occur of (i) 10 business days after the first public
announcement that a person or group (other than a True North related entity and
except for Publicis or any affiliate of Publicis unless Publicis shall become
the beneficial owner of 25% (the "Publicis Threshold") or more of the
outstanding shares of True North Common Stock ) has become the beneficial owner
of 20% or more of the outstanding shares of True North Common Stock (an
"Acquiring Person") or (ii) 10 business days (unless extended by the True North
Board in accordance with the True North Rights Agreement) after the
commencement of, or the first public announcement of the intention to make, a
tender or exchange offer the consummation of which would result in any person
or group (other than a True North related entity) becoming the beneficial owner
of 30% or more of the outstanding shares of True North Common Stock (the
earlier of the dates specified in clause (i) and (ii) being the "True North
Distribution Date"), the True North Rights will be evidenced by certificates
representing True North Common Stock, will be transferable only with the True
North Common Stock and will not be exercisable. After the True North
Distribution Date, the True North Rights become exercisable, and separate
certificates evidencing the True North Rights will be mailed to the registered
holders of outstanding shares of True North Common Stock. Such separate
certificates will thereafter constitute the sole evidence of the True North
Rights.
After the True North Rights become exercisable, in the event that any person
or group (other than a True North related entity) becomes the beneficial owner
of 30% or more of the outstanding shares of True North Common Stock (unless
such person or group becomes the owner of 85% or more of the outstanding shares
of True North Common Stock through a cash tender offer for all of the
outstanding shares of True North Common Stock), or in the event that True North
is the surviving corporation in a merger with an Acquiring Person or affiliate
or associate thereof and the shares of True North Common Stock are not changed
or exchanged, or in the event that the Acquiring Person engages in certain
self-dealing transactions specified in the Rights Agreement, proper provision
will be made so that each registered holder of a True North Right will
thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current True North Purchase Price multiplied by the number of
one two-thousandths of a share of True North Series A Preferred Stock for which
a True North Right is then exercisable, the number of shares of True North
Common Stock having a market value of two times such price. After the
occurrence of the event described in the preceding sentence, all True North
Rights which are, or under circumstances specified in the True North Rights
Agreement were, beneficially owned by such person or group will be void. In
addition, after the True North Rights become exercisable, if True North is
acquired in a merger or other business combination or if 50% or more of True
North's assets or earning power are sold or transferred, proper provision will
be made so that each registered holder of a True North Right (except True North
Rights which have become void) will thereafter have the right to receive, upon
the exercise thereof at a price equal to the then current True North Purchase
Price multiplied by the number of one two-thousandths of a share of True North
Series A Preferred Stock for which a True North Right is then exercisable, the
number of common shares of the acquiring company which at the time of such
transaction will have a market value of two times such price.
Under certain circumstances, True North may redeem the True North Rights, in
whole, but not in part, at a price of $.005 per True North Right or exchange
the True North Rights (except Rights which have become void), in whole or in
part, at an exchange ratio of one share of True North Common Stock per True
North Right, in each case subject to adjustment. The True North Rights will
expire on November 28, 1998, unless earlier redeemed or exchanged or unless
such expiration date is extended by the True North Board.
DGCL. Section 203 of the DGCL prohibits generally a public Delaware
corporation, including True North, from engaging in a Business Combination with
an Interested Stockholder for a period of three years after the
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date of the transaction in which an Interested Stockholder became such, unless:
(i) the board of directors of such corporation approved, prior to the date such
Interested Stockholder became such, either such Business Combination or such
transaction; (ii) upon consummation of such transaction, such Interested
Stockholder owns at least 85% of the voting shares of such corporation
(excluding specified shares); or (iii) such Business Combination is approved by
the board of directors of such corporation and authorized by the affirmative
vote (at an annual or special meeting and not by written consent) of at least
66 2/3% of the outstanding voting shares of such corporation (excluding shares
held by such Interested Stockholder). A "Business Combination" includes (i)
mergers, consolidations and sales or other dispositions of 10% or more of the
assets of a corporation to or with an Interested Stockholder, (ii) certain
transactions resulting in the issuance or transfer to an Interested Stockholder
of any stock of such corporation or its subsidiaries and (iii) other
transactions resulting in a disproportionate financial benefit to an Interested
Stockholder. An "Interested Stockholder" is a person who, together with its
affiliates and associates, owns (or within a three-year period did own) 15% or
more of a corporation's stock entitled to vote generally in the election of
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the True North Common Stock is First
Chicago Trust Company of New York.
AFTER THE MERGER
Upon consummation of the Merger, assuming the approval at the True North
Special Meeting of the Charter Amendment and the Stock Option Plan Amendment
and assuming that no Bozell Stock Options or options to purchase True North
Common Stock are exercised before the Effective Time, there will be
approximately 9,776,303 shares of True North Common Stock available for future
issuances, of which 4,312,028 shares will be reserved for issuance upon the
exercise of outstanding options, and approximately 5,464,275 shares will be
available for future option grants under the True North Stock Option Plan. See
"PROPOSAL TO APPROVE AMENDMENT TO TRUE NORTH STOCK OPTION PLAN." There will
also be 45,000 shares of Series A Preferred Stock reserved for issuance upon
the exercise of True North Rights and 55,000 shares of True North Preferred
Stock available for future designation and issuance. Unissued shares of True
North Common Stock may be utilized for a variety of corporate purposes,
including future public offerings to raise additional capital or to facilitate
corporate acquisitions. True North does not currently have any plans to issue
additional shares of True North Common Stock or True North Preferred Stock
(other than shares of True North Common Stock which may be issued in the Merger
or upon the conversion of the Warrants or pursuant to options granted under
True North's Stock Option Plan or the Bozell Stock Plans).
One of the effects of the existence of unissued and unreserved True North
Common Stock and True North Preferred Stock may be to enable the True North to
issue shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of True North by means of
a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of True North's management and possibly deprive the stockholders of
opportunities to sell their shares of True North Common Stock at prices higher
than prevailing market prices. Such additional shares could also be used to
dilute the stock ownership of persons seeking to obtain control of True North.
See "PROPOSAL TO APPROVE TRUE NORTH CHARTER AMENDMENT."
COMPARATIVE RIGHTS OF STOCKHOLDERS
If the Merger is consummated, the stockholders of Bozell will become
stockholders of True North. The rights of the stockholders of both True North
and Bozell are governed by and subject to the provisions of the DGCL. The
rights of current Bozell stockholders following the Merger will be governed by
the True North Charter and True North's Bylaws rather than the provisions of
the Bozell Charter and Bozell's Bylaws. The following is a brief summary of
certain differences between the rights of True North stockholders and the
rights of Bozell stockholders, and is qualified in its entirety by reference to
the relevant provisions of the DGCL and to the True North Charter, True North's
Bylaws, the Bozell Charter and Bozell's Bylaws.
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NUMBER OF DIRECTORS
The number of directors on the True North Board is set forth in True North's
Bylaws, which provide that the number of directors shall consist of not less
than nine nor more than 21 directors, as shall from time to time be determined
by the True North Board. Under the True North Charter, the number of directors
may not be less than three. The number of directors on the True North Board is
currently fixed at nine, although in connection with the Merger, the True North
Board has authorized an increase in the number of directors to twelve as of the
Effective Time of the Merger. The number of directors on the Bozell Board is
set forth in Bozell's Bylaws, which provide that the number of directors shall
be not more than 20 directors, the exact number to be determined from time to
time by resolution of the Bozell Board.
True North's Bylaws provide that nominations for director may be made by a
stockholder entitled to vote for the election of directors at a stockholders
meeting only if written notice of such stockholder's intent to make such
nominations at such meeting is received by the Secretary of True North in the
manner and within the time period specified in True North's Bylaws. See
"DESCRIPTION OF TRUE NORTH COMMON STOCK--Anti-Takeover Provisions--Bylaws." The
Bozell Bylaws do not contain a similar provision.
POWER TO CALL SPECIAL MEETINGS
True North's Bylaws provide that a special meeting of stockholders may be
called by the True North Board, the Chairman of the True North Board or the
President. Bozell's Bylaws provide that a special meeting of stockholders may
be called by the Bozell Board or the Chief Executive Officer and shall be
called by the Chief Executive Officer or Secretary at the written request of
the holders of a majority of the shares issued and outstanding and entitled to
vote.
VOTING RIGHTS
Under the True North Charter, holders of True North Common Stock are entitled
to full voting rights, with one vote for each share held of record on all
matters submitted to a vote of stockholders. Under the Bozell Charter, holders
of Bozell Class A Common Stock are entitled to 1.1 vote, and holders of Bozell
Class B Common Stock are entitled to one vote, for each share of such stock
held. The Bozell Class A Common Stock and the Bozell Class B Common Stock vote
together as a single class for the election of directors and on each other
matter on which Bozell stockholders are entitled to vote. In the case of each
of True North and Bozell, holders of a majority of shares of common stock of
such company outstanding and entitled to vote must be present in person or
represented by proxy at any meeting of the stockholders of such company in
order for a quorum to be present.
Under True North's Bylaws, assuming a quorum is present at a meeting of
stockholders, all elections and matters submitted to a vote of stockholders
shall generally be decided by a plurality vote, except in certain instances
such as where the DGCL provides that a particular vote shall be required for a
specific action, including the adoption of (i) an agreement and plan of merger,
which requires the affirmative vote of a majority of the outstanding stock
entitled to vote thereon, or (ii) an amendment of a certificate of
incorporation, which requires the affirmative vote of a majority of the
outstanding stock of the corporation entitled to vote thereon and of a majority
of the outstanding stock of each class entitled to vote thereon as a class.
Bozell's Bylaws provide that an action, other than the election of directors,
of the stockholders is authorized by the affirmative vote of a majority of the
voting power of the outstanding shares of Bozell Common Stock cast at a meeting
of stockholders by the holders of shares entitled to vote thereon, assuming a
quorum at such meeting of stockholders. Directors are elected by a plurality of
the votes cast at a meeting of stockholders by the holders of shares entitled
to vote in the election.
APPRAISAL RIGHTS
The holders of True North Common Stock will not, in the event of a merger or
consolidation in which True North is not the survivor, be entitled to rights of
appraisal of the fair market value of their True North Common Stock under
Section 262(b)(1) of the DGCL by virtue of True North Common Stock being listed
on a national
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securities exchange. In the case of the Merger, holders of Bozell Common Stock
do have such rights of appraisal under the DGCL. See "APPRAISAL RIGHTS."
ACTION BY WRITTEN CONSENT
The Bozell Charter permits the holders of Bozell Common Stock to consent in
writing to any action without a meeting, provided such consent is signed by
holders having at least the minimum number of votes required to authorize such
action at a meeting of stockholders at which all shares entitled to vote
thereon were present and voted. The True North Charter expressly prohibits
action by written consent of stockholders.
RIGHTS AGREEMENT
As described above under "DESCRIPTION OF TRUE NORTH COMMON STOCK--Anti-
Takeover Provisions--Stockholder Rights Plan," the True North Rights Agreement
may deter certain takeover proposals. Bozell does not have any similar plan.
APPRAISAL RIGHTS
The following discussion is not a complete statement of the law pertaining to
dissenters' rights under DGCL and is qualified in its entirety by reference to
the full text of Section 262 of the DGCL setting forth the rights of
stockholders who object to the Merger Agreement and the Merger. Stockholders
wishing to exercise such appraisal rights or to preserve their rights to do so
("Dissenting Stockholders") should review the following discussion and the
provisions of Section 262 of the DGCL with counsel. A copy of Section 262 of
the DGCL is attached to this Proxy Statement/Prospectus as Annex V and is
incorporated herein by reference. The failure of Dissenting Stockholders to
comply in a timely and proper manner with the procedures set forth in the DGCL
will result in the loss of appraisal rights with respect to the Merger.
Section 262 of the DGCL sets forth the rights of stockholders of Bozell who
object to the Merger Agreement. In general, as described in greater detail
below, a stockholder objecting to the Merger Agreement who wishes to dissent
must file a written notice of dissent prior to the vote on approval and
adoption of the Merger Agreement, and, after such vote is taken, comply with
Section 262 to seek appraisal of the value of his or her Bozell Common Stock.
Any holder of Bozell Common Stock who does not vote in favor of approval and
adoption of the Merger Agreement (including any such holder who abstains from
voting), or who duly revokes a vote in favor of such transaction, and (in
either case) who objects to the Merger Agreement, may, if the Merger is
consummated, obtain payment, in cash, for the appraised fair market value of
such stockholder's shares of Bozell Common Stock immediately prior to the
Merger by complying with the requirements of the DGCL. Holders of Bozell Common
Stock are ineligible to exercise their appraisal rights unless they are
stockholders on the Bozell Record Date, continue to hold such shares through
the effective time of the Merger (the "Effective Time") and have not voted in
favor of approval and adoption of the Merger Agreement.
Before the taking of the vote on approval and adoption of the Merger
Agreement at the Bozell Special Meeting, each Dissenting Stockholder must file
with Bozell a written demand for appraisal of the value of his or her shares of
Bozell Common Stock if the Merger is consummated. A written demand must be
filed with Bozell by holders of Bozell Common Stock who wish to demand
appraisal even if they vote against the Merger Agreement. Such written demand
should be addressed to the attention of Valentine J. Zammit, Vice Chairman and
Chief Financial Officer, at Bozell, Jacobs, Kenyon & Eckhardt, Inc., 40 West
23rd Street, New York, New York 10010.
If the Merger Agreement is approved, within ten days after the Effective
Time, the Surviving Corporation must provide written notice to each Dissenting
Stockholder of the Effective Time and that appraisal rights are available for
any or all of the shares of Bozell Common Stock. If the Dissenting Stockholders
and the Surviving
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Corporation cannot reach agreement as to the appraisal value of the Bozell
Common Stock, the Surviving Corporation or any Dissenting Stockholder, within
120 days after the Effective Time of the Merger, may file a petition in the
Court of Chancery in Delaware demanding a determination of the value of the
Bozell Common Stock. Within such 120 day period, any Dissenting Stockholder is
entitled to receive upon request from the Surviving Corporation a statement
setting forth the aggregate number of shares not voted in favor of approval and
adoption of the Merger Agreement and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. This written statement must be mailed to the Dissenting Stockholder
within ten days after written request is received by the Surviving Corporation.
Further, at any time within 60 days after the Effective Time of the Merger, any
Dissenting Stockholder has the right to withdraw his demand for appraisal and
accept the terms offered upon the Merger.
Following the filing of a petition in the Court of Chancery for an appraisal
of the value of the Bozell Common Stock, the Court shall determine the
stockholders who have complied with Section 262 and are entitled to appraisal
rights. The Court may demand that Dissenting Stockholders submit their
certificates of stock to the Registry in Chancery for notation thereon of the
pendency of the appraisal proceedings and may dismiss the proceedings as to any
Dissenting Stockholder failing to comply with such request. The Court will then
appraise the Bozell Common Stock determining the fair value thereof immediately
prior to the Merger exclusive of any element of value arising from the
accomplishment or expectation of the Merger together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
The Court is authorized by the DGCL to take into account all relevant factors.
Upon determination of the fair value, the Court shall then direct the Surviving
Corporation to pay the Dissenting Stockholders the fair value so determined.
Interest may be simple or compound as the Court may direct.
A vote against the Merger Agreement does not constitute a "written demand"
filed by a Dissenting Stockholder. A Dissenting Stockholder's abstention from
voting on the Merger Agreement or failure to specify any vote on the
accompanying proxy will not constitute a waiver of such stockholder's rights
under the DGCL, provided that a written demand has been properly filed. A vote
in favor of approval and adoption of the Merger Agreement will constitute a
waiver of such stockholder's appraisal rights, however, even if a written
demand has been filed.
ELECTION OF DIRECTORS OF TRUE NORTH
The Merger Agreement provides that the respective obligations of True North,
Bozell and CAC to effect the Merger are subject, among other things, to the
election of directors as specified in the Merger Agreement at the True North
Special Meeting. The Merger Agreement further provides that, at the Effective
Time, by reason of their election at the True North Special Meeting, the True
North Board is to be comprised of 12 members as follows: six directors selected
by the True North Board, five directors selected by the Bozell Board and the
Publicis Designee (for so long as Publicis shall be entitled to designate a
director). Pursuant to such terms of the Merger Agreement, the True North Board
has selected Bruce Mason, J. Brendan Ryan, Richard S. Braddock, Stephen T.
Vehslage, Richard P. Mayer and Michael E. Murphy to serve on the True North
Board, and Bozell has selected Charles D. Peebler, Leo-Arthur Kelmenson, David
A. Bell, Donald M. Elliman, Jr. and W. Grant Gregory to so serve. See "THE
MERGER AGREEMENT--Management and Operation of True North."
ELECTION OF DIRECTORS
Under the True North Charter and Bylaws, the True North Board, by a vote of a
majority of the True North Board, may increase or decrease the number of
directors (but the number of directors shall in no event be less than three).
The number of directors which currently constitutes the entire True North Board
is nine, although in connection with the Merger, the True North Board has
authorized an increase in the number of directors to 12 effective as of the
Effective Time of the Merger. If elected, the twelve nominees will constitute
all of the directors of True North commencing at the Effective Time. In the
event that the Effective Time does not occur, the current directors of True
North will continue to serve in such capacity.
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The True North Board intends that the shares represented by proxies will
(unless authority to do so is withheld) be voted in favor of the election
(contingent upon consummation of the Merger) as directors of the twelve
nominees set forth in the following table to serve until the 1998 Annual
Meeting and until their successors are duly elected and qualified. Gregory W.
Blaine and Laurel Cutler, directors of True North since 1990, are not standing
for reelection at the True North Special Meeting. Directors are elected by a
plurality of the votes cast. The 12 nominees receiving the highest number of
votes will be elected. If any nominee is unable to accept nomination or
election, which the True North Board has no reason to anticipate, the shares
represented by proxies will be voted for the election of such other person as
the True North Board may recommend, subject to the terms of the Merger
Agreement. See "THE MERGER AGREEMENT--Management and Operation of True North."
<TABLE>
<CAPTION>
TRUE NORTH
COMMON STOCK
BENEFICIALLY
OWNED
DIRECTOR OCTOBER 1,
NAME, AGE AND PRINCIPAL OCCUPATION SINCE 1997(1)
---------------------------------- -------- ------------
<S> <C> <C>
BRUCE MASON (57)........................................ 1986 287,486
Chairman of the Board and Chief Executive Officer of
True North; other senior executive positions with True
North or subsidiaries for more than five years.
CHARLES D. PEEBLER, JR. (61)............................ -- --
Director, Chief Executive Officer and President of
Bozell since January 1986; for a period of more than 20
years prior thereto, Mr. Peebler served as a director,
Chief Executive Officer and President of Bozell &
Jacobs; Director of American Radio Systems and
Ultrafem, Inc.
RICHARD S. BRADDOCK (55)................................ 1994 33,900
Consultant; formerly a Partner, Clayton, Dubilier &
Rice, Inc. 1994-1995;
Chief Executive Officer of MEDCO 1993; President and
other executive positions
with Citicorp 1973-1992; Director of Eastman Kodak,
Cadbury-Schweppes plc, E* Trade and AmTec, Inc.;
Director and Non-Executive Chairman of Ion Laser
Technology; Director of the Lincoln Center and Trustee
of the Carver Research Institute.
DAVID A. BELL (54)...................................... -- --
Director, Vice Chairman and a member of the Executive
Committee of Bozell since January 1986; President and
Chief Executive Officer of Bozell Worldwide since 1994;
prior to 1986, various senior executive positions with
Bozell & Jacobs.
DONALD M. ELLIMAN, JR. (53)............................. -- --
Director of Bozell since 1991; President of SPORTS
ILLUSTRATED since September 1992; various senior
sales/marketing and publishing positions with Time Inc.
since 1967.
W. GRANT GREGORY (56)................................... -- --
Chairman of Gregory & Hoenemeyer, Inc., merchant
bankers, since 1988; Retired as Chairman of the Board
of Touche Ross & Co. in 1987; Director of Bozell since
1987; Director of AMBAC Inc., HCIA Inc. and Inacom
Corporation.
LEO-ARTHUR KELMENSON (70)............................... -- --
Chairman of the Board and a director of Bozell since
January 1986; Chairman of Bozell Worldwide; prior to
1986, Chief Executive Officer and Chairman of the Board
of Kenyon & Eckhardt; Director of Tower Air.
RICHARD P. MAYER (57)................................... 1997 8,333
Retired; formerly Chairman and Chief Executive Officer
and other senior executive positions with Kraft General
Foods North America for more than five years; Director
of Brown-Forman Corporation and Dean Foods Company.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
TRUE NORTH
COMMON STOCK
BENEFICIALLY
OWNED
DIRECTOR OCTOBER 1,
NAME, AGE AND PRINCIPAL OCCUPATION SINCE 1997(1)
---------------------------------- -------- ------------
<S> <C> <C>
MICHAEL E. MURPHY (60).................................. 1997 2,333
Director and senior executive positions with Sara Lee
Corporation for more than five years; Director of GATX
Corporation, Payless Shoe Source, Inc., Bassett
Furniture Industries, Inc. and American General
Corporation.
J. BRENDAN RYAN (54).................................... 1994 82,325
Chairman and Chief Executive Officer of Foote, Cone &
Belding Worldwide; other senior executive positions
with True North or subsidiaries for more than five
years; Director of Capstone Pharmacy Services, Inc.
STEPHEN T. VEHSLAGE (57)................................ 1975 33,300
Consultant; formerly Senior Vice President, Corning
Franklin Health Inc. 1995-1996; various senior
executive positions with IBM Corporation for more than
five years.
ALI WAMBOLD (43) (2).................................... 1997 1,333
Managing Director of Lazard Freres & Co. LLC in New York
and of Lazard Brothers & Co., Ltd. in London for more
than five years; Director of The Albert Fisher Group
PLC, Tomkins PLC and Corporate Partners and Lazard
S.p.A. (Milan).
All directors and executive officers of True North as a
group (14 persons)..................................... -- 719,390(3)
</TABLE>
- --------
(1) Includes shares of True North Common Stock which certain nominees have the
right to acquire under True North's Stock Option Plan or Outside Director
Stock Option Plan prior to December 1, 1997 as follows: Mr. Mason, 184,280
shares; Mr. Braddock, 33,900 shares; Mr. Ryan, 72,620 shares; Mr. Vehslage,
30,500 shares; Mr. Mayer, 1,333 shares; Mr. Murphy, 1,333 shares; Mr.
Wambold, 1,333 shares; all directors and executive officers of True North
as a group, 466,659 shares. Each of the individuals named in the table has
sole voting and investment power with respect to all beneficially owned
shares. Except for the 1.1% of the shares of True North Common Stock that
Mr. Mason beneficially owns, no other director, executive officer or
director nominee beneficially owns as much as 1% of True North Common
Stock.
(2) Nominated pursuant to an Agreement, dated May 19, 1997 (the "Publicis
Agreement"), under which Publicis has the contractual right to have its
designee nominated and elected to serve as a director of the True North
Board at any time that Publicis owns at least 18% of the outstanding shares
of True North Common Stock. The Publicis Agreement provides that True North
shall fulfill its obligations pursuant to such Publicis right by including
Publicis' nominee in the slate of nominees recommended by the True North
Board to stockholders for election of directors at each annual meeting of
True North stockholders if Publicis owns at least 18% of the outstanding
shares of True North Common Stock at the time of slating of such nominees,
and by using its reasonable best efforts to cause the shares for which True
North's management or the True North Board holds proxies or is otherwise
entitled to vote to be voted in favor of such Publicis nominee. The
Publicis Agreement further provides that if, as a result of the issuance of
shares of True North Common Stock, Publicis shall own less than 18% of the
outstanding shares of True North Common Stock at the time of slating of the
nominees recommended by the True North Board to its stockholders for
election of directors at any annual meeting of stockholders of True North,
True North shall give Publicis written notice of the slating of directors
and that Publicis owns less than 18% of the outstanding shares of True
North Common Stock, and if, within five business days of receipt of such
notice, Publicis gives written notice to True North stating that Publicis
intends to purchase additional shares of True North Common Stock such that
Publicis will own at least 18% of the outstanding shares of True North
Common Stock within six months of the date of such notice, True North shall
continue to fulfill its obligations set forth above for such six month
period, provided, however, that if Publicis does not effect such purchases
within such six month period, Publicis, at the request of True North, shall
cause its designee on the True North Bard to immediately resign. Following
such resignation, the foregoing obligations of True North shall terminate.
(3)Equal to 2.9% of True North Common Stock.
The True North Board met seven times during 1996. Employee directors receive
no compensation for their services on the True North Board or committees
thereof except that they may become eligible for a benefit under True North's
Directors Part-Time Employment Agreement. Under this Agreement, an employee
director between the ages of 55 and 65 may continue employment on a part-time
basis and receive part-time salary payments for
76
<PAGE>
five years up to the attainment of age 65. Part-time salary is determined as
45% of the highest five year average compensation (salary plus variable
incentive compensation) during the prior 10 years of full time employment,
reduced by 1/30 for each year of service less than 30 years.
Directors who are not employees of True North or any of its subsidiaries are
paid $23,000 annually for their services. A per diem allowance of $2,000 is
paid to non-employee directors for attendance at True North Board meetings,
meetings of committees of the Board, work on special assignments or requested
attendance at other management meetings. Aggregate per diem payments to such
directors in 1996 were $252,000. True North directors may elect to voluntarily
defer all or a part of their annual retainer and per diem. Amounts deferred are
paid to the director at the time they leave the Board. The Outside Director
Stock Option Plan provides for 10 year grants of options on True North Common
Stock to outside directors in proportion to the total of their annual retainer
and per diem allowance. The basis for the number of options granted is a
formula tied to annual growth in the net income of True North. Under the
formula terms of this Plan, no options were granted to directors for 1996. An
option grant of 4,000 shares is also made to each new director upon his or her
election to the True North Board. Mr. Mayer and Mr. Murphy each received
options to purchase 4,000 shares upon their election to the True North Board in
May 1997. In June 1996, Mr. Vehslage received an option to purchase up to
15,000 shares of True North Common Stock at an exercise price of $24.125 per
share, such grant being related to his work on the True North Special
Committee. In January 1997, Mr. Braddock received an option to purchase up to
15,000 shares of True North Common Stock at an exercise price of $22.00 per
share, such grant being related to his work on the True North Special
Committee. Stock options awarded under this Plan are immediately exercisable
with respect to one-third of the shares covered thereby and an additional one-
third of shares covered thereby become exercisable on each of the next two
anniversaries of the date of grant. The Outside Director Retirement Plan
provides a retirement benefit to outside directors after five years of Board
service. The annual benefit is equal to a specified percentage of the annual
retainer calculated at 5% times each year of Board service plus 5% times each
year that net income growth of True North is 15% or more, subject to a maximum
of 10 years. The annual benefit is paid for five years.
Mr. Murphy and Ms. Cutler are members of True North's Audit Committee. The
functions of this committee are to (i) review and approve True North's internal
audit program and the system of internal controls, (ii) to select independent
public accountants for recommendation to the True North Board and stockholders
for approval, and (iii) to review with such accountants the scope and results
of the annual audit. True North's Audit Committee met three times during 1996.
Messrs. Vehslage, Braddock and Mayer are members of the True North
Compensation Committee. The functions of this committee are to determine the
compensation and all other terms of employment or service, including the grant
of options, for directors and officers of True North. The True North
Compensation Committee met four times during 1996.
Messrs. Vehslage, Braddock and Mayer are members of True North's Nominating
Committee. The function of this committee is to recommend to the full True
North Board nominees for election as directors. True North's Nominating
Committee met four times during 1996. Stockholders may recommend director
candidates for consideration by this committee. Any recommendations by
stockholders to the committee for nominees for election at the 1998 Annual
Meeting must be submitted in a written notice to the Secretary of True North at
least 30 days but no more than 90 days prior to March 31, 1998. True North's
Bylaws provide, in general, that stockholders may directly nominate one or more
persons for election as directors at a meeting of stockholders only if written
notice of the stockholder's intent to make such nomination is received by the
Secretary of True North at least 50 days but no more than 90 days before the
date such meeting. See "DESCRIPTION OF TRUE NORTH COMMON STOCK."
THE TRUE NORTH BOARD RECOMMENDS, WITH ONE DIRECTOR DISSENTING, THAT THE
STOCKHOLDERS OF TRUE NORTH VOTE FOR EACH OF THE NOMINEES LISTED ABOVE.
77
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table shows each person or group of persons known to the
management of True North to be the beneficial owner of more than five percent
of the outstanding shares of True North Common Stock as of the True North
Record Date:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP CLASS
- ---------------- ------------------- -------
<S> <C> <C>
Publicis Communication
133 Champs Elysees
75008 Paris, France............................... 4,658,000 shares(1) 18.43%
GeoCapital Corporation
767 Fifth Avenue
New York, New York 10153.......................... 2,270,700 shares(2) 8.98%
</TABLE>
- --------
(1) Based upon information furnished by Publicis in a Schedule 13D filed with
the SEC on November 18, 1997. According to such information, Publicis has
sole voting and investment power with respect to such shares.
(2) Based upon information furnished by GeoCapital Corporation in a Schedule
13G filed with the SEC on February 15, 1997. According to such information,
GeoCapital Corporation has sole investment power, but does not have voting
power, with respect to such shares.
EXECUTIVE COMPENSATION
The Summary Compensation Table shows the compensation for the past three
fiscal years of True North for the Chief Executive Officer and the four other
most highly compensated executive officers for the fiscal year ended December
31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION
---------------------- -----------------------
AWARDS PAYOUTS
------------ ----------
SECURITIES ALL OTHER
NAME AND PRINCIPAL UNDERLYING LTIP COMPENSATION
POSITION YEAR SALARY BONUS OPTIONS/SARS PAYOUTS(1) (2)
- ------------------ ---- -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce Mason............. 1996 $600,000 $400,000 42,000 -- $511,759
Chairman and Chief 1995 $600,000 $580,000 46,200 $210,000 $451,326
Executive Officer 1994 $600,000 $630,000 53,000 $225,000 $420,457
J. Brendan Ryan......... 1996 $529,167 $400,000 22,300 -- $249,526
Chairman and CEO 1995 $439,583 $460,000 27,500 $160,000 $253,190
Foote, Cone & Belding,
Worldwide 1994 $394,166 $600,000 16,600 $250,000 $211,356
Gregory W. Blaine....... 1996 $400,000 $200,000 13,100 -- $134,922
Chairman and Chief 1995 $325,000 $240,000 16,500 $115,000 $147,810
Executive Officer of TN 1994 $325,000 $340,000 13,400 $162,000 $149,380
Technologies Inc.
Mitchell T. Engel....... 1996 $323,358 $175,000 9,800 -- $ 50,022
President, Associated 1995 $286,500 $285,000 2,600 $117,000 $ 46,005
Communications 1994 $280,250 $ 90,000 6,000 $ 35,000 $ 57,823
Companies and
Corporate Operations
Terry M. Ashwill(3)..... 1996 $380,000 -- 30,500 -- $167,932
Executive Vice
President, 1995 $380,000 $280,000 37,400 $135,000 $180,988
Chief Financial Officer 1994 $375,000 $395,000 31,800 $190,000 $180,101
</TABLE>
- --------
(1) Amounts shown in this column are the total Deferred Variable Incentive
Compensation awarded in the year shown. Upon award, this is 20% vested and
vests an additional 20% at each of the next four anniversaries of the date
of the award. There were no awards made to named executives for 1996.
78
<PAGE>
(2) Amounts shown in this column are for True North's contributions and
accruals under compensation and benefit programs for the named executives.
The amounts are as follows:
True North's contribution to the True North Profit Sharing-Retirement Plan
was $5,496 for 1996 for each of the named executives.
True North's matching contribution to the True North Stock Purchase Plan
was $4,904 for 1996 for each of the named executives.
True North's matching contribution to the True North Stock Purchase
Integration Plan for 1996, was $37,788 for Mr. Mason, $30,190 for Mr. Ryan,
$18,120 for Mr. Blaine, $16,476 for Mr. Engel and $18,538 for Mr. Ashwill.
True North's contribution to the True North Profit Sharing Integration
Plan for 1996 was $44,509 for Mr. Mason, $36,314 for Mr. Ryan, $21,162 for
Mr. Blaine, $19,838 for Mr. Engel and $21,822 for Mr. Ashwill.
The amount accrued under True North's Directors Part-Time Employment
Agreement for 1996 was $406,391 for Mr. Mason, $163,851 for Mr. Ryan,
$74,857 for Mr. Blaine, and $117,172 for Mr. Ashwill. Mr. Engel is a
participant in this program, but his accrual did not start until 1997.
True North paid the following amounts for life insurance for the named
executives for 1996: $12,671 for Mr. Mason, $8,771 for Mr. Ryan, $10,383 for
Mr. Blaine and $3,309 for Mr. Engel.
(3) Mr. Ashwill resigned in March 1997.
STOCK OPTIONS
During 1996, stock option grants covering 576,400 shares were awarded to 181
key employees under the True North Stock Option Plan. Each grant was made at
the fair market value on the date of the award, vests over five years and is
exercisable over ten years. The option grants in 1996 for the named executive
officers are shown in the following table.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS(1) OPTION TERM
-------------------------------------------- -------------------
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED TO EXERCISE
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bruce Mason............. 42,000 7.3% $19.250 2/13/06 $508,461 $1,288,541
J. Brendan Ryan......... 22,300 3.9% $19.250 2/13/06 $269,969 $ 684,154
Gregory W. Blaine....... 13,100 2.3% $19.250 2/13/06 $158,592 $ 401,902
Mitchell T. Engel....... 9,800 1.7% $19.250 2/13/06 $118,641 $ 300,660
Terry M. Ashwill........ 30,500 5.3% $19.250 2/13/06 $369,240 $ 935,726
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Options were granted at market price on the date of grant (2/13/96). All
options are exercisable at a rate of 20% per year beginning on the first
anniversary of the date of grant.
The exercised options during 1996, number of options held and their value at
year end for the named executives officers are shown in the following table:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS
SHARES FY- END AT FY-END
ACQUIRED VALUE --------------- -----------------
ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE ($) UNEXERCISABLE UNEXERCISABLE
- ---- -------- -------- --------------- -----------------
<S> <C> <C> <C> <C>
Bruce Mason................. 0 $ 0 128,340/151,360 $747,685/$488,742
J. Brendan Ryan............. 0 0 48,940/ 69,460 $295,291/$223,452
Gregory W. Blaine........... 0 0 32,340/ 42,380 $199,632/$125,333
Mitchell T. Engel........... 0 0 16,120/ 16,680 $132,507/$ 40,954
Terry M. Ashwill............ 16,602 $180,547 67,998/101,100 $365,196/$302,518
</TABLE>
79
<PAGE>
OTHER AGREEMENTS
The following directors and named executive officers entered into employment
agreements with True North since January 1, 1996.
Mr. Mason entered into an employment agreement with True North in July 1996
that provides for annual renewals through December 31, 1999. The agreement
provides for minimum base salary and bonus of $1,000,000 per year beginning
with calendar year 1996. Should Mr. Mason elect not to renew the agreement
prior to July 1, 1997, Mr. Mason would receive $1,000,000/year through December
31, 1999. Should True North not renew the contract or involuntarily terminate
Mr. Mason without cause, Mr. Mason would receive $1,350,000 per year through
December 31, 1999. The agreement also provides for full vesting of stock
options should termination occur prior to December 31, 1999. At the expiration
of payments described above, Mr. Mason would be entitled to a benefit under
True North's Directors Part-Time Employment Agreement. This benefit would
provide 45% of Mr. Mason's five-year final average salary (base plus incentive
compensation). The amount determined would be payable annually for five years.
At the Effective Time of the Merger, this employment agreement will terminate,
and the Mason Employment Agreement will become effective. See "THE MERGER--
Interests of Certain Persons in the Merger."
Mr. Ryan entered into an employment agreement with True North in December
1996. See "THE MERGER--Interests of Certain Persons in the Merger."
Mr. Blaine entered into an employment agreement with True North in October
1996 covering the period through December 31, 1997 and renewable for one-year
periods thereafter. The agreement provides for a minimum incentive compensation
payment of $200,000 for 1996. No other incentive compensation amounts were
guaranteed under this agreement. Should True North terminate Mr. Blaine without
cause prior to the end of the agreement, base salary would continue through the
term of the agreement but for no less than a minimum of 12 months. He would
also be entitled to a pro rata incentive compensation payment for the year of
termination or, if higher, the average of the three years' incentive
compensation awarded in the years prior to termination. In the case of an
involuntary termination by True North without cause or a voluntary termination
by Mr. Blaine, deferred compensation accounts and stock options would be fully
vested on his behalf. In addition, at the conclusion of the salary payments,
Mr. Blaine would be entitled to a full benefit under the Directors Part-Time
Employment Agreement. This benefit would provide 45% of Mr. Blaine's five-year
final average salary (base plus incentive compensation). The amount determined
would be payable annually for five years.
Mr. Engel entered into an employment agreement with True North in January
1997 covering the period through December 31, 1999 and renewable for one-year
periods thereafter. Should True North involuntarily terminate Mr. Engel without
cause or should Mr. Engel terminate his employment for certain enumerated
reasons prior to the end of the agreement, base salary would continue through
the term of the agreement, but for no less than a minimum of 12 months. Mr.
Engel would also be entitled to a pro rata incentive compensation payment for
the year of termination or, if higher, the average of the three year's
incentive compensation awarded in the years prior to termination. In addition,
deferred compensation accounts and stock options would be fully vested on his
behalf. At the conclusion of the salary payments, Mr. Engel would be entitled
to a pro rata benefit based on his years of service with True North, including
the period salary payments are made per the termination provisions of this
agreement, under True North's Directors Part-Time Employment Agreement as
described above, regardless of any age or service restrictions of the plan. See
"THE MERGER--Interests of Certain Persons in the Merger."
Mr. Braddock entered into an employment agreement which will take effect at
the Effective Time of the Merger. See "THE MERGER--Interests of Certain Persons
in the Merger."
Messrs. Mason, Ryan, Blaine and Engel are covered by True North's Asset
Protection Plan. This plan provides for annual payments of base salary plus
bonus (the highest bonus in the last three years) for three years if
termination of the executive occurs as a result of a change in control of True
North. Each executive would also be entitled to a pro rata benefit based on his
years of service at the time of termination under True North's Directors Part-
Time Employment Agreement as described above regardless of any age or service
restrictions of the plan.
80
<PAGE>
On January 22, 1997 Jack Balousek and Craig Wiggins resigned their positions
and directorships with True North. Separation agreements were negotiated by the
outside directors constituting the True North Compensation Committee. The
separation agreements were filed in a separate disclosure with the SEC on
February 14, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Vehslage, Newton N. Minow, Louis E. Scott and William A. Schreyer served
as True North's Compensation Committee during 1996. Mr. Scott is a former
officer of True North who retired in 1987. In 1996 and during 1997 until the
date hereof, True North and certain of its subsidiaries retained the legal
services of Sidley & Austin, a firm where Mr. Minow is of counsel, including in
connection with the Merger and the Merger Agreement and the preparation of this
Proxy Statement/Prospectus. True North and certain of its subsidiaries expect
to retain Sidley & Austin subsequent to the date hereof.
PROPOSAL TO APPROVE TRUE NORTH CHARTER AMENDMENT
At the True North Special Meeting, the holders of True North Common Stock
will be asked to consider and vote upon an amendment to True North's Restated
Certificate of Incorporation which would increase the number of authorized
shares of True North Common Stock from 50,000,000 to 90,000,000.
At the close of business on the True North Record Date, there were 25,271,533
shares of True North Common Stock outstanding and 4,210,403 shares of True
North Common Stock reserved for future issuance. It is expected that
consummation of the Merger and the issuance of shares pursuant to the Merger
Agreement will require the issuance of approximately 18,627,141 additional
shares of True North Common Stock as of the Effective Time and, assuming the
approval of the Stock Option Plan Amendment, the reservation for future
issuance of approximately 9,776,303 additional shares of True North Common
Stock, and, accordingly, a total of approximately 53,674,977 shares of True
North Common Stock would be outstanding, subject to options or reserved for
issuance after the Merger on a fully diluted basis. As this amount exceeds the
amount of shares of True North Common Stock currently authorized, consummation
of the Merger will require the approval of the Charter Amendment.
If the Charter Amendment is approved by the holders of True North Common
Stock, True North will have authorized a sufficient amount of shares of True
North Common Stock to consummate the Merger and will also have approximately
35,879,635 shares of True North Common Stock available for future issuance.
Although there are no current plans or commitments for their use, such shares
would be available for issuance without further action by the holders of True
North Common Stock except as required by law or applicable exchange
requirements.
The True North Board believes it is desirable to authorize additional shares
of True North Common Stock so the Merger can be consummated and there will be
sufficient shares available for issuance for purposes that the True North Board
may hereafter determine to be in the best interests of True North and its
stockholders. Such purposes could include the offering of shares for cash, the
declaration of stock splits and stock dividends, mergers and acquisitions and
other general corporate purposes. In many situations, prompt action may be
required which would not permit seeking stockholder approval to authorize
additional shares for the specific transaction. The True North Board believes
it should have the flexibility to act promptly in the best interests of
stockholders. The terms of any future issuances of shares of True North Common
Stock will depend heavily on market and financial conditions and other factors
existing at the time of issuance.
Although the True North Board has no current intention of issuing any
additional shares of True North Common Stock as an anti-takeover defense, the
issuance of additional shares could be used to create impediments to or
otherwise discourage persons attempting to gain control of True North. For
example, the issuance of additional shares could be used to dilute the voting
power of shares then outstanding. Shares of True North Common Stock could also
be issued to persons or entities who would support the True North Board in
opposing a takeover bid which the True North Board determines not to be in the
best interests of True North and its stockholders. In the case of a hostile
tender offer, the issuance of additional shares of True North Common Stock
could be viewed as beneficial to management by stockholders who want to
participate in such tender offer. See "DESCRIPTION OF TRUE NORTH COMMON STOCK--
After the Merger."
81
<PAGE>
If the Charter Amendment is approved, the first paragraph of Article FOURTH
of the True North Charter will be amended to read in its entirety as follows:
"FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is ninety million one hundred thousand
(90,100,000), divided into two classes as follows:
(a) One hundred thousand (100,000) shares shall be of the par value
of one dollar ($1.00) per share and shall be designated as Preferred
Stock; and
(b) Ninety million (90,000,000) shares shall be of the par value of
thirty-three and one-third cents (33 1/3c) per share and shall be
designated as Common Stock."
Approval of the Charter Amendment will require the affirmative vote of a
majority of the outstanding shares of True North Common Stock entitled to vote
thereon.
THE TRUE NORTH BOARD HAS DETERMINED THAT THE CHARTER AMENDMENT IS ADVISABLE,
FAIR AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF TRUE NORTH. THE TRUE
NORTH BOARD RECOMMENDS, WITH ONE DIRECTOR DISSENTING, THAT THE STOCKHOLDERS OF
TRUE NORTH VOTE IN FAVOR OF THE CHARTER AMENDMENT. APPROVAL OF THE CHARTER
AMENDMENT IS A CONDITION TO THE CONSUMMATION OF THE MERGER.
PROPOSAL TO APPROVE TRUE NORTH STOCK OPTION PLAN, AS AMENDED AND RESTATED
The True North Stock Option Plan, first adopted in 1967, has been amended
from time to time with stockholder approval. The most recent such amendment
requiring stockholder approval was approved by the stockholders in 1994. The
True North Stock Option Plan also has been amended by the True North Board
without stockholder approval, as permitted by the Plan. As currently in effect,
the True North Stock Option Plan and amendments thereto (the "Plan") allocate
7,614,000 shares of True North Common Stock for the grant of options and
related stock appreciation rights. As of September 1, 1997, options under the
Plan were outstanding to purchase a total of 3,155,710 shares at an average
option price of $18.32 per share. At that date, 3,046,787 shares had been
issued on the exercise of options granted under the Plan and options relating
to 71,568 shares had been granted under the Company's Outside Director Stock
Option Plan and thereby were not available for grant under the Plan. A total of
930,635 shares were available for the grant of additional options and 409,300
shares were no longer available under the Plan because of the exercise of stock
appreciation rights or the grant of awards under a prior Restricted Stock
Incentive Plan. The Plan expires on November 16, 2001.
THE TRUE NORTH BOARD HAS EVALUATED THE OPERATION OF THE PLAN AND HAS
DETERMINED THAT THE PLAN SHOULD BE AMENDED TO PROVIDE THAT AN ADDITIONAL
4,500,000 SHARES WILL BE AVAILABLE FOR THE GRANT OF OPTIONS UNDER THE PLAN. THE
FOLLOWING DESCRIPTION OF THE PLAN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PLAN AS PROPOSED TO BE AMENDED AND RESTATED, WHICH IS SET FORTH AS ANNEX IV
HERETO.
ADDITIONAL INFORMATION
The Plan provides for the grant of options to purchase shares of the True
North Common Stock and the award of related stock appreciation rights to
employees of, and certain other key individuals (other than directors who are
not employees of True North) who perform services for, True North or its
applicable subsidiaries (collectively, the "Companies"). At September 1, 1997,
approximately 5,500 persons were eligible to receive grants under the Plan. It
is expected that, as of the Effective Time, approximately 9,600 persons will be
eligible to receive grants under the Plan. All shares subject to the Plan will
continue to be registered at True North's expense under the Securities Act. The
Plan is administered by the True North Compensation Committee. The True North
Board has full authority to amend or discontinue the Plan. Options and stock
appreciation rights may be granted only by the True North Compensation
Committee, which consists of directors who are not employees of True North.
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Under the terms of the Plan, options and stock appreciation rights may be
granted at any time prior to November 17, 2001. Shares involved in the
unexercised portion of any terminated or expired option may again be subjected
to options, except that the shares reserved for issuance on the exercise of
options as to which stock appreciation rights have been granted are not again
available for the grant of options under the Plan if the stock appreciation
right is exercised.
The option price in each instance cannot be less than 100% of the then
current fair market value of the shares at the time the option is granted.
Options granted to date have a term of ten years from the date of grant.
Options are exercisable at such time as the True North Compensation Committee
determines when granting the option, except that an option will become fully
exercisable upon a change in control of True North. The number of shares
subject to option and the option price are subject to adjustment in certain
circumstances to prevent dilution. The option price may be paid either in cash
or (with True North's consent) by using True North Common Stock already owned
by the optionee, valued at the then fair market value of such True North Common
Stock, or a combination thereof.
If the employment or services of an optionee are terminated because of death
or permanent incapacity or for another reason other than for cause by one of
the Companies, the option expires at a time determined by the True North
Compensation Committee when granting the option, which expiration time can be
up to one year after the date of death, up to the maximum option period for
termination due to incapacity and up to 90 days after the date of termination
for any other termination other than for cause; and within that period the
optionee or such optionee's personal representative or beneficiary may exercise
the option, to the extent exercisable at the date of death or such termination.
If the employment or service of an optionee is terminated for cause by one of
the Companies, the option expires on the date of such termination.
Stock appreciation rights may be granted in connection with an option either
concurrently with the option or any time thereafter prior to the exercise or
expiration of such option. A stock appreciation right cannot be exercisable
before the optionee can exercise the related option and expires or terminates
no later than such related option. A stock appreciation right entitles the
optionee to receive (subject to withholding taxes), upon exercise, the excess
of the fair market value, on the date of exercise, of the shares to which such
right relates over the option price of those shares. Payment in such event to
an optionee may be made either in shares of True North Common Stock, valued at
the fair market value of such True North Common Stock on the date of exercise,
or (with the consent of the True North Compensation Committee) in cash or a
combination thereof. There are no stock appreciation rights currently
outstanding.
The Plan may be supplemented, amended, suspended or discontinued by the True
North Board at any time for any reason, except (unless the True North Board
specifically provides otherwise) that any revision or amendment that would
cause the Plan to fail to comply with applicable law or regulations if such
revision or amendment were not approved by True North stockholders will not
become effective unless and until it is so approved. In addition, no
unexercised option or stock appreciation right may be altered or cancelled,
except in accordance with its terms, without the consent of the participant to
whom it was granted.
The agreements covering options previously granted under the Plan provide
generally that the options are exercisable only in installments as follows: up
to 20% of the number of shares covered by the option after the first year from
the date of grant; up to 40% of the number of shares covered by the option
after the second year from the date of grant; up to 60% of the number of shares
covered by the option after the third year from the date of grant; up to 80% of
the number of shares covered by the option after the fourth year from the date
of grant; and with respect to the total number of shares covered by the option
after the fifth year from the date of grant and before expiration of the option
ten years from the date of grant.
One or more options may be granted to any eligible individual, including
persons who, prior to the grant, have been granted options. The maximum number
of shares with respect to which options may be granted during any calendar year
to any person is 300,000. Each grant will be determined on the basis of the
participant's responsibilities and current and potential further contributions
to the success of True North and its subsidiaries. Awards of stock options
under the Plan in 1996 to the Chief Executive Officer and the four other most
highly
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compensated executive officers of True North are shown under the caption "Stock
Options" under "ELECTION OF DIRECTORS OF TRUE NORTH" elsewhere in this Proxy
Statement/Prospectus. Executive officers of True North, and employees of True
North excluding executive officers, were awarded stock options under the Plan
during 1996 with respect to a total of 94,000 and 482,400 shares, respectively.
In general, a participant receiving an option under the Plan will not
recognize taxable income upon the grant of the option, but will recognize
compensation taxable as ordinary income at the time of exercise in the amount
of the difference between the purchase price and fair market value of the
shares purchased on the date of exercise. However, a participant does not
recognize income at the time of exercise of an incentive stock option, but will
recognize income or loss upon disposition of the shares, which may be ordinary
income or capital gain (or loss), or both, depending on the length of time the
shares have been held. Upon exercise of an option, True North will be entitled
to a deduction as compensation expense in an amount equal to the amount taxable
to the participant as ordinary income.
Persons who are granted stock appreciation rights do not recognize any
taxable income upon such grant. Upon exercise, the individual recognizes
taxable compensation in an amount equal to the fair market value of any shares
delivered and the amount of cash paid by True North. This amount is deductible
by True North as compensation expense.
In the case of the use of previously-acquired shares to exercise an option,
the participant will not recognize any gain by reason of such use and the tax
basis of the shares received upon such exercise is as follows: (i) for a number
of newly-received shares equal to the number surrendered by the participant,
the basis is equal to the basis of the surrendered shares and the holding
period does not start anew, and (ii) the basis of the balance of the newly-
acquired shares is the market value on the date of exercise. The latter amount
is subject to federal income taxes at ordinary rates in the year of exercise.
True North is entitled to a deduction as compensation expense in an amount
equal to the amount taxable to the participant as income.
Approval of the Stock Option Plan Amendment will require the affirmative vote
of a majority of the votes cast on the Stock Option Plan Amendment, provided
that the total number of votes cast in such proposal represents more than 50%
of the outstanding shares of True North Common Stock entitled to vote thereon
at the True North Special Meeting. Abstentions will have the same effect as
votes against the Stock Option Plan Amendment.
THE TRUE NORTH BOARD HAS DETERMINED THAT THE APPROVAL OF THE STOCK OPTION
PLAN, AS AMENDED AND RESTATED, IS ADVISABLE, FAIR AND IN THE BEST INTERESTS OF
THE STOCKHOLDERS OF TRUE NORTH. THE TRUE NORTH BOARD RECOMMENDS, WITH ONE
DIRECTOR DISSENTING, THAT THE STOCKHOLDERS OF TRUE NORTH VOTE TO APPROVE THE
STOCK OPTION PLAN, AS AMENDED AND RESTATED.
BUSINESS OF TRUE NORTH
True North is a communications company which is the holding company for FCB
and certain additional marketing services agencies or companies. True North's
other operating units are TN Technologies Holdings, Inc. and True North
Associated Communications Companies.
The agencies held by True North design and create advertising campaigns for
radio, television and print media, and, in addition, offer services such as
consumer market and product research, digital and interactive communications,
sales promotion and direct marketing, yellow pages directory advertising,
health care advertising, Hispanic marketing, package design, trademark and
trade name development and public relations. The agencies offer these services
through fully staffed offices in the United States, Canada, Europe, Latin
America, Asia and the Pacific under a number of agency brands.
TN Technologies Holdings, Inc. offers digital interactive marketing and has
developed over 500 interactive/new media marketing programs since 1987. The
company delivers a range of digital interactive marketing products and services
including: customized global intranets; creation, production, updating and
maintenance of World Wide Web sites and other interactive communications
vehicles; analysis of customer
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requests, purchases and behaviors; delivery of uniform and updated sales tools
for sales forces; and technical consulting. The company was formed on December
31, 1996 through the combination of TN Technologies Inc. and Modem Media, which
was acquired at that time.
True North Associated Communications Companies are stand-alone companies
specializing in marketing services. The companies include Wahlstrom, a yellow
pages and directory advertising agency in Philadelphia; Borders, Perrin &
Norrander, a creative advertising agency in the Pacific Northwest; and Market
Growth Resources, a sales promotion agency with a niche in retail-specific
programs.
The predecessor company to True North was incorporated in Delaware in 1942
and, in 1943, succeeded to an advertising business originally established in
1873. This company became True North Communications Inc. in 1994 pursuant to a
merger and corporate name change. The principal executive offices of True North
are located at 101 East Erie Street, Chicago, Illinois 60611 and its telephone
number is (312) 425-6500. For further information concerning True North, see
"AVAILABLE INFORMATION," "INCORPORATION OF DOCUMENTS BY REFERENCE," "SUMMARY--
Parties to the Merger Agreement--True North," "--True North Selected Historical
Financial Data" and "PARTIES TO THE MERGER AGREEMENT--True North."
INFORMATION REGARDING BOZELL
Bozell is a global marketing and communications company. It is the 8th
largest United States based advertising agency holding company and the 14th
largest in the world based on gross income. Through its subsidiaries, Bozell
operates full service advertising agencies, which plan and create advertising
campaigns for clients and place advertising with media, and provides marketing
consultation, market research, public relations and production services,
digital interactive marketing, branding, direct response marketing,
communications management and healthcare advertising.
Bozell's predecessor was founded in Omaha, Nebraska in 1921. Bozell was
formed in 1987 in contemplation of the acquisition of the Bozell business. That
acquisition was completed in February 1988. Currently, Bozell has eight
divisions and over thirty operating units. The eight divisions are: BJK&E
Diversified Services; BJK&E Worldwide; BJK&E Media Group; McCracken Brooks;
Bozell Sawyer Miller Group; Poppe Tyson; Bozell Wellness Worldwide and Temerlin
McClain.
Bozell Worldwide, Bozell's largest division, ranks as the 11th largest agency
in the United States and 20th largest in the world based on capitalized
billings. Bozell Worldwide is a full service multinational advertising agency.
It maintains six domestic full service offices, of which the largest is in New
York City, and approximately 35 offices located throughout the United States.
Temerlin McClain is a full service advertising agency and the largest agency
operation in the southern United States. Temerlin McClain's clients include
American Airlines, GTE and JC Penney. In addition to traditional advertising
services, Temerlin McClain provides public relations, direct responses and
interactive marketing services to its clients.
Poppe Tyson is a leader in digital interactive marketing. Poppe Tyson
develops interactive marketing applications for digital media such as the World
Wide Web. Poppe Tyson has provided design and development services for the
White House Web site and Web sites for clients such as Cadillac, LensCrafters,
Merrill Lynch and Netscape. Poppe Tyson also provides transaction processing
services to clients selling products and services on the Web and offers
proprietary Web-related software products as part of its Web services and on a
stand-alone basis. In addition to its domestic operations, Poppe Tyson has
opened offices in London, Hong Kong, Malaysia and Sao Paulo.
Bozell Diversified Services is composed of a number of operations offering
specialized, non-traditional capabilities and services, including sponsorship
consultation and event marketing, ethnic marketing, providing interactive
healthcare information systems (kiosks), corporate and brand identity
consulting, and, as a result of recent acquisitions, direct response services
and evaluation of marketing and communications effectiveness.
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The Bozell Media Group purchases all network media on behalf of Bozell
clients. In addition to the Bozell Media Group's focus on broadcast buying,
programming and research, its services also include media planning,
syndication, media promotions and a Yellow Pages operation. In 1992, the Bozell
Media Group became the first independent media-services operation within a
major United States agency holding company and its clients include several non-
Bozell advertising accounts. In local broadcast, the Bozell Media Group is the
third largest spot television and radio buying organization in the United
States. It also publishes a leading analysis and prognostication on television
programming.
Bozell Sawyer Miller Group provides communications management for
corporations, financial institutions, trade associations and governments.
Bozell Sawyer Miller Group is one of the largest communications management
firms in the world. Bozell Sawyer Miller Group has six operating units: Sawyer
Miller Consulting (strategic communications consulting); Bozell Public
Relations (public relations and marketing); KRC Research (additional research);
Bozell/Eskew Advertising (image and advocacy advertising); Bozell Sawyer Miller
Group Medical & Health Communications (healthcare and pharmaceutical public
relations and management communications); and, as a result of an acquisition in
the summer of 1997, Charles Barker plc (European operations).
Bozell Wellness Worldwide manages all of Bozell's healthcare services. This
division works across traditional organizational lines, culling operating units
from throughout the Bozell operation. In 1996, Bozell Wellness Worldwide ranked
as the third largest integrated healthcare marketing services company in the
United States and the fourth largest in the world based on gross income.
McCracken Brooks is a full service, integrated marketing communications
company specializing in promotion marketing, database marketing and promotional
advertising. Bozell acquired McCracken Brooks in November 1996.
Bozell's principal source of revenues is from commissions and fees earned on
advertising placed with the various media, and commissions and fees earned for
the production and preparation of advertising. Bozell has over 600 domestic
clients. Major clients include American Airlines, Bell Atlantic, Bristol Myers-
Squibb, Chrysler Corporation, GTE, JCPenney, Merrill Lynch, Milk Industry
Foundation, NationsBank, National Pork Producers Council, Subaru of America,
Inc., Taco Bell and Toshiba.
Bozell has its headquarters in New York City and maintains over 90 offices in
more than 50 countries on six continents and employs over 4,000 employees
worldwide. Bozell's agencies located in foreign countries generally provide
clients with a full range of those advertising services available in the local
markets. The preponderance of Bozell's foreign operations are in Europe.
Bozell's international operations are overseen by its offices located in New
York, London and Hong Kong. Bozell's foreign offices are operated by foreign
subsidiaries in which Bozell's interests range from 100% to a minority
interest. Co-investors in these foreign subsidiaries are generally local
executives who manage the offices. In certain countries, including those where
it may not be economically, legally or politically feasible to have an equity
interest, Bozell has established affiliate relationships with local agencies.
PERSONNEL
Bozell's principal asset is people. Bozell has an array of employee benefit
and training programs to attract and retain personnel considered to be industry
leaders. As of March 31, 1997, Bozell employed 4,139 people in majority owned
offices: 3,228 were employed in its domestic offices and 911 in its
international offices. Of the 4,139 total employees, 1,030 were engaged in the
creation and production of advertising, 1,432 in account management, 606 in
media and research activities and 1,071 in administrative and clerical
functions.
PROPERTIES
Virtually all of Bozell's operations are conducted in leased premises.
Bozell's physical property consists primarily of leasehold improvements,
furniture, fixtures and equipment. See "BOZELL CONSOLIDATED FINANCIAL
STATEMENTS."
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MARKET PRICE AND DIVIDENDS ON BOZELL COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
At the close of business on the Bozell Record Date, there were issued and
outstanding 8,266,959 shares of Bozell Class A Common Stock and 28,256,848
shares of Bozell Class B Common Stock, the only outstanding classes of Bozell's
equity securities, held by approximately 207 owners of record. There is no
established public trading market for Bozell Common Stock.
Bozell has not paid a cash dividend on the Bozell Common Stock within the
past two years.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding the beneficial
ownership of Bozell Common Stock (i) by each stockholder known by Bozell to own
beneficially more than five percent (5%) of either Bozell Class A Common Stock
or Bozell Class B Common Stock, (ii) by each member of the Bozell Board and
(iii) by all directors and executive officers of Bozell as a group. This
information is as of November 20, 1997.
<TABLE>
<CAPTION>
TITLE OF CLASS AMOUNT AND PERCENT OF
OF NATURE OF TOTAL
NAME AND ADDRESS OF BOZELL BENEFICIAL PERCENT OF VOTING
BENEFICIAL OWNER(1) COMMON STOCK OWNERSHIP(2) CLASS(2)(3) POWER(3)
- ------------------- -------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Trustees for the benefit of
Bozell Stock Bonus Plan... Class A 5,866,959 71.0% 17.3%
Trustees for the benefit of
Bozell Profit Sharing and
Savings Plan.............. Class A 2,400,000 29.0% 7.1%
The Northwestern Mutual
Life
Insurance Company
720 East Wisconsin Ave.
Milwaukee, Wisconsin
53020..................... Class B 5,533,724(4) 19.6% 14.8%
The MCJ Foundation
330 South Street
Morristown, New Jersey
07960..................... Class B 4,278,520 15.1% 11.4%
Charles D. Peebler, Jr..... Class B 2,567,644 9.1% 6.9%
David Bell................. Class B 1,157,546 4.1% 3.1%
Leo-Arthur Kelmenson....... Class B 812,678 2.9% 2.2%
Dennis McClain............. Class B 720,900 2.6% 1.9%
Rolland Anderson........... Class B 598,346 2.1% 1.6%
Valentine J. Zammit........ Class B 588,424(5) 2.1% 1.6%
Harris Diamond............. Class B 364,828 1.3% 1.0%
Michael Drexler............ Class B 347,006 1.2% *
W. Grant Gregory
c/o Gregory & Hoenemeyer,
Inc.
660 Steamboat Road
Greenwich, Connecticut
06830..................... Class B 241,338 * *
Brian A. Tucker............ Class B 200,000 * *
Donald M. Elliman, Jr...... Class B 10,000 * *
Kenneth C. Nichols......... Class B 14,000 * *
J. Thomas Christofferson... -- -- (6) -- --
All directors and executive
officers of Bozell
as a group (17 persons)... Class B 8,057,912(7) 28.5%(7) 21.6%
</TABLE>
- --------
*Less than 1%.
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(1) Unless otherwise shown, the address for each beneficial owner is c/o
Bozell, Jacobs, Kenyon & Eckhardt, Inc., 40 West 23rd Street, New York,
New York 10010. Except as described in the next sentence or in the
following footnotes, each person named in the table possesses sole voting
and sole investment power with respect to all shares of Bozell Common
Stock listed in the table as owned by such person. Each of the following
persons named in the table has agreed to vote his or its shares of Bozell
Common Stock in favor of approval of the Merger Agreement: Messrs.
Anderson, Bell, Diamond, Drexler, Kelmenson, McClain, Peebler, Tucker, and
Zammit and NML. See "STOCKHOLDERS AGREEMENTS."
(2) Pursuant to a Stockholders Agreement, Bozell stockholders who are parties
thereto are required to vote their shares of Bozell Class B Common Stock
to elect as directors of Bozell nominees proposed by NML and Mr. Peebler
and have given Mr. Peebler a proxy to vote their shares of Bozell Class B
Common Stock with respect to certain matters (but not including the vote
on approval of the Merger Agreement). The table does not take into account
such voting provisions. It is intended that this Stockholders Agreement
will terminate upon the Merger.
(3) The Bozell Class A Common Stock and Bozell Class B Common Stock vote
together as a single class for the election of directors and, except as
otherwise provided by Delaware law, on any other matters submitted to a
vote of Bozell common stockholders. Each holder of Bozell Class A Common
Stock is entitled to 1.1 votes per share with respect to such shares, and
each holder of Bozell Class B Common Stock is entitled to one vote per
share with respect to such shares. The percentages shown in the columns
"Percent of Class" and "Percent of Total Voting Power" are calculated
separately for each person on the basis of actual number of outstanding
shares at the close of business on November 20, 1997 and assumes, for
purposes of the calculation, that shares issuable upon exercise of
Warrants, which are currently exercisable, held by such person (but no
other stockholders) had been issued as of such date. See "THE MERGER
AGREEMENT--Warrants." The percentages shown do not take into account the
shares of Bozell Class A Common Stock allocated to participants' accounts
pursuant to the Bozell Stock Bonus Plan or the Bozell Profit Sharing Plan.
(4) Mr. Christofferson, a director of Bozell, is the Manager of Investments of
NML. Mr. Christofferson disclaims beneficial ownership of any shares owned
by NML.
(5) Does not include 8,266,959 shares of Class A Common Stock held by the
Bozell Stock Bonus Plan and the Bozell Profit Sharing Plan, of which Mr.
Zammit is a co-trustee. As such, Mr. Zammit has shared voting power with
respect to such shares. These plans provide that for certain extraordinary
matters, including the Merger, the Trustees shall vote the stock as
directed by the participants in such plans. Mr. Zammit disclaims
beneficial ownership of any shares owned by either of these Plans.
(6) Does not include 5,533,724 shares of Bozell Class B Common Stock held by
NML, of which Mr. Christofferson is the Manager of Investments, as to
which Mr. Christofferson disclaims beneficial ownership.
(7) The shares set forth in the table do not include the 5,533,724 shares of
Bozell Class B Common Stock owned by NML, as to which Mr. Christofferson
disclaims any beneficial ownership. See footnote (4) to this table.
CERTAIN TRANSACTIONS
Since January 1, 1996, Charles D. Peebler, Jr., the President and Chief
Executive Officer of Bozell and a nominee for the True North Board, incurred
indebtedness to Bozell in the form of short term advances without interest. The
largest aggregate amount of indebtedness to Bozell during this time was
$603,046. As of October 30, 1997, the amount of indebtedness outstanding was
$255,960.
Since January 1, 1996, Leo-Arthur Kelmenson, the Chairman of the Board of
Directors of Bozell and a nominee for the True North Board, incurred
indebtedness to Bozell in the form of a short term advance of $200,000 with 8%
per annum interest, and a short term advance of $21,538 without interest. The
largest aggregate amount of indebtedness to Bozell during this time was
$221,538. As of October 30, 1997, the amount of indebtedness outstanding was
$35,599.
Since January 1, 1996, David Bell, the Chief Executive Officer of Bozell
Worldwide and a nominee for the True North Board, incurred indebtedness to
Bozell in the form of short term advances without interest. The largest
aggregate amount of indebtedness to Bozell during this time was $250,000. As of
October 30, 1997, there was no indebtedness outstanding.
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UNAUDITED QUARTERLY DATA
Quarterly results (in thousands except for per share data), adjusted for the
retroactive two-for-one stock split which occurred on January 20, 1997, are as
follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996
Revenues............................... $ 90,309 $ 95,456 $106,351 $115,874
Unusual charges........................ -- 2,674 -- --
Income before provisions for income
taxes................................. 2,606 1,106 9,244 9,726
Net income (loss)...................... (220) (809) 4,932 5,499
Net income (loss) per share............ (.01) (.02) .13 .14
1997
Revenues............................... $106,908 $117,275 $123,351 $147,454
Unusual charges (income)............... (598) -- 697 6,851
Income before provisions for income
taxes................................. 3,521 8,172 7,993 10,468
Net income............................. 371 4,297 3,386 6,110
Net income per share................... .01 .11 .09 .16
1998
Revenues............................... $132,384 $133,197
Unusual charges........................ -- --
Income before provisions for income
taxes................................. 8,064 8,649
Net income............................. 3,144 5,256
Net income per share................... .08 .14
</TABLE>
Bozell has experienced and expects to continue to experience quarterly
variations in its results of operations principally due to the timing of
clients' advertising campaigns and additions of new campaigns for existing
clients. Unusual charges related primarily to impairment losses on intangible
assets, a writeoff of offering expenses, cost of early retirement of debt and a
gain on the sale of business. See also Note 17 to Bozell's consolidated
financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
(AMOUNTS IN THOUSANDS)
The following discussion highlights the principal factors affecting the
results of operations and the significant changes in balance sheet items of
Bozell for the periods listed as well as Bozell's liquidity and capital
resources. This discussion should be read in conjunction with the Bozell
Consolidated Financial Statements and the Notes thereto appearing elsewhere
herein.
Six Months Ended September 30, 1997 Compared to Six Months Ended September 30,
1996
Revenues. Bozell revenues from consolidated operations increased 18.5% to
$265,581 in the six months ended September 30, 1997 from $224,183 in the six
months ended September 30, 1996. United States revenues increased 14.1% to
$217,639 while international revenues increased 43.5% to $47,942. The majority
of the increase in revenues is due to new business from existing clients.
Since September 30, 1996, Bozell has purchased several agencies
internationally. These acquisitions contributed 61.2% to the total
international revenue increase of 43.5% and 21.5% to the total consolidated
revenue increase of 18.5%.
Expenses. Salaries and employee benefits expenses increased 16.4%, which is
slightly less than the increase in consolidated revenues, due to higher
staffing levels required to service increases in new business from existing and
new clients and from employees hired through acquisitions. Office and general
expenses increased $12,868 or 18.3%. Cost savings were realized due to less
incremental growth in the areas of travel and entertainment, postage, insurance
and relocation costs.
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As more fully described in Note 17 to its March 31, 1997 consolidated
financial statements, Bozell recorded a net pretax credit of $598 in the six
months ended September 30, 1996 due to a gain on the sale of a business offset
by the cost of terminating an employment contract.
During the six months ended September 30, 1997, interest expense was reduced
as debt was repaid and interest income remained constant.
Income Taxes. The effective income tax rate decreased to 53.4% for the six
months ended September 30, 1997 from 60.5% for the six months ended September
30, 1996. Bozell's international subsidiaries reported net losses before income
taxes in 1997 and 1996, for which no tax benefit is recorded. These
international pretax losses resulted in effective rates higher than Bozell's
annual effective tax rate of 57.1% for the year ended March 31, 1997.
Other. Minority interests remained relatively constant between periods.
Equity income increased in the six months ended September 30, 1997 due to
increased profitability in two Asian and two European locations along with an
acquisition in the Middle East.
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996
Revenues. Bozell revenues from consolidated operations increased 21.3% to
$494,988 in fiscal year ended March 31, 1997 from $407,990 in fiscal year ended
March 31, 1996. United States revenues increased 21.4% to $411,286 while
international revenues increased 21.1% to $83,702. The majority of the increase
in revenues is due to new business from existing clients.
During the fiscal year ended March 31, 1997, Bozell purchased several
agencies in the United States and internationally. These acquisitions
contributed $22.0 million to Bozell's revenues during fiscal year ended March
31, 1997. Bozell Wellness Worldwide and Poppe Tyson provided revenue increases
of $28.6 million in 1997 versus 1996. In the United States, Bozell Worldwide
provided revenue increases of $31.1 million in 1997 versus 1996.
Expenses. Salaries and employee benefits expenses increased by 21.4% due to
higher staffing levels required to service increases in new business from
existing clients and from employees hired through acquisitions. Office and
general expenses increased 18.6%, which is slightly less than the increase in
consolidated revenues. Worldwide, Bozell was able to increase revenues faster
than the increase in expenses. The decrease in office and general expenses as a
percentage of revenues is attributable due to the bankruptcy and write-off of
an individually significant account receivable in 1996, and reduced printing,
stationery and insurance costs.
As more fully described in Note 17 to its consolidated financial statements,
Bozell recorded a net pretax charge of $6,950 in the fiscal year ended March
31, 1997 due to (i) impairment losses on intangible assets, (ii) loss from
write-off of offering expenses, and (iii) cost of early retirement of debt, and
(iv) offset by a gain on the sale of business.
During the fiscal year ended March 31, 1997, interest expense was reduced as
debt was repaid and interest income increased as profits were invested.
Income Taxes. The effective income tax rate was 57.1% for the year ended
March 31, 1997 as compared to 59.8% for the year ended March 31, 1996. This
2.7% reduction in the effective tax rate is due principally to a decrease in
the tax differential of international subsidiaries.
Other. Minority interest remained relatively constant between fiscal years.
Equity income increased in the fiscal year ended March 31, 1997 due to
increased profitability in England and Taiwan.
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31, 1995
Revenues. Bozell revenues from consolidated operations increased 21.1% to
$407,990 in fiscal year ended March 31, 1996 from $336,887 in fiscal year ended
March 31, 1995. U.S. revenues increased 21.9% to $338,849 while international
revenues increased 17.5% to $69,141. The majority of the increase in revenues
is due to new business from existing clients.
90
<PAGE>
During the fiscal year ended March 31, 1996, Bozell purchased several
agencies in the U.S. and an agency in Japan. These acquisitions contributed
$11,400 to Bozell's revenues during fiscal year ended March 31, 1996. Bozell
Wellness Worldwide and Poppe Tyson provided increases of $12.6 million in 1996
versus 1995. In the United States, Bozell Worldwide provided revenue increases
of $27.8 million in 1996 versus 1995.
Expenses. Salaries and employee benefits expenses increased by 19.1% due to
higher staffing levels required to service increases in new business from
existing clients and from employees hired through acquisitions. This increase
is slightly less than the increase in consolidated revenues. Office and general
expenses increased $24,350, or 23.7%. During the year ended March 31, 1996,
Bozell incurred $2.6 million in increased legal and consulting costs and a $1.5
million increase in the Provision for Doubtful Accounts due to the bankruptcy
and write-off of an individually significant account.
During the year ended March 31, 1996, Bozell closed its Portugal office,
resulting in a pretax charge of $2,674 principally from the write-down of
excess of purchase price over fair value of assets acquired. Interest expense
and interest income did not significantly change between years.
Income Taxes. The effective income tax rate was 59.8% for the year ended
March 31, 1996 as compared to 64.0% for the year ended March 31, 1995. This
4.2% reduction in the effective tax rate is due to a decrease in the tax
differential of international subsidiaries and a decrease in expenses not
deductible for tax purposes.
Other. Minority interest remained relatively constant between fiscal years.
Equity income decreased in the fiscal year ended March 31, 1996 due to
increased profitability in Hong Kong and Portugal being more than offset by
decreased profitability in Mexico, South Korea, Taiwan and the British Virgin
Islands.
Liquidity and Capital Resources
Bozell's primary source of liquidity for each of the years in the three-year
period ending March 31, 1997, and for the six-month period ending September 30,
1997, has been cash flow from operations.
Cash provided by operating activities was $64.4 million during 1997. This was
the result principally of increases in net earnings before amortization and
depreciation and net increases in cash from changes in current assets and
current liabilities. Cash used in investing activities in 1997 was $34.4
million, of which $15.4 million was for the purchase of property and equipment
and $22.9 million was for the acquisitions of businesses. Many of Bozell's
acquisitions are structured using earn-out provisions. However, management does
not expect these future cash commitments to have a significant effect on
Bozell's liquidity. Cash used in financing activities included $22.5 million of
payments for long-term debt, including payments of $12 million for early
retirement of subordinated debt.
Cash provided by operating activities was $27.2 million during 1996. This
resulted primarily from increases in net earnings before depreciation and
amortization. Cash used in investing activities in 1995 was $15.8 million, of
which $10.3 million was cash payments for the acquisition of property and
equipment and $3.2 million was cash paid for acquisitions. Cash used in
financing activities in 1996 was $13.8 million, of which $10.6 million was
payments for maturities of long-term debt and $3.0 million was payments on
capital leases for equipment.
Cash provided by operating activities in 1995 was $30.0 million. This was the
result principally of increases in net earnings before amortization and
depreciation and net increases in cash from changes in current assets and
current liabilities. Cash used in investing activities in 1995 was $14.8
million, of which $8.2 million was for the purchase of property and equipment
and $4.5 million was for the acquisition of businesses. Cash provided by
financing activities in 1995 was $5.8 million. In 1995, Bozell repurchased
3,000,000 shares of Class B common stock from Warner Communications and
subsequently resold at the same price 2,400,000 shares of Class A common stock
to the Bozell Profit Sharing and Savings Plan and 600,000 shares of stock to
employees. Bozell also restructured its debt facilities in 1995 because the old
debt facility was expiring.
91
<PAGE>
Cash used by operating activities for the six months ended September 30,
1997, was $4.8 million, principally due to a seasonal decrease in net earnings
before amortization and depreciation and net cash used in changes in current
assets and current liabilities. Cash used in investing activities was $8.4
million for the six months ended September 30, 1997. Cash used in financing
activities was $10.1 million, principally due to payments of long term debt
and obligations, and purchases of treasury stock, at September 30, 1997. As of
October 28, 1997, Bozell had available borrowing capacity of approximately $50
million under its revolving bank facilities.
Capital expenditures for property and equipment have generally been financed
from operations and the use of capital leases. The Company intends to finance
its future capital expenditures through cash flows from operations, bank lines
of credit or additional capital leases. Bozell had no material commitments for
capital expenditures at March 31, 1997. Capital expenditures by Bozell for the
first six months of the fiscal year 1998 were approximately $6.9 million.
Bozell is primarily liable to media for the cost of advertising placed on
client's behalf. Bozell has generally been able to time payments with receipts
from clients so that it has not had to advance its own funds.
Bozell believes that funds provided by operations, together with available
credit under its revolving bank facilities, will be sufficient to finance its
current operations and planned capital expenditure requirements in 1998.
INFLATION
Bozell does not believe that inflation has had a material effect on its
results of operations in recent years.
EXPERTS
The consolidated financial statements of True North for each of the three
years in the period ended December 31, 1996 incorporated by reference in this
Proxy Statement/Prospectus and elsewhere in the Registration Statement and the
schedules appearing elsewhere in the Registration Statement, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated herein by reference in
reliance upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Publicis for each of the three
years in the period ended December 31, 1996 incorporated by reference in this
Proxy Statement/Prospectus and elsewhere in this Registration Statement have
been audited by Mazars & Guerard, independent public accountants, as indicated
in their reports with respect thereto, and are incorporated herein by
reference in reliance upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements and schedules of Bozell for each of
the years in the three year period ended March 31, 1997 included herein and
elsewhere in the Registration Statement have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, as indicated in their reports
with respect thereto, and are included herein and elsewhere in the
Registration Statement in reliance upon the authority of such firm as experts
in accounting and auditing.
Representatives of Arthur Andersen LLP and KPMG Peat Marwick LLP are
expected to be present at the True North Special Meeting and the Bozell
Special Meeting, respectively. Such representatives will have the opportunity
to make a statement if they desire to do so and will be available to respond
to appropriate questions.
LEGAL OPINIONS
The validity of the shares of True North Common Stock to be issued in
connection with the Merger is being passed upon for True North by Sidley &
Austin, counsel to True North. Newton N. Minow, of counsel at Sidley & Austin,
was a member of the True North Board from 1980 until May 1997.
92
<PAGE>
Sidley & Austin has also delivered an opinion to True North concerning
certain federal income tax consequences of the Merger. White & Case, counsel to
Bozell, has delivered an opinion to Bozell concerning certain federal income
tax consequences of the Merger. See "THE MERGER AGREEMENT--Conditions Precedent
to the Merger" and "THE MERGER--Certain Federal Income Tax Consequences."
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in True North's Proxy Statement for
its annual meeting to be held in 1998, all stockholder proposals must be
received by True North on or prior to December 12, 1997.
OTHER MATTERS
The True North Board is not aware of any business which will be presented at
the True North Special Meeting other than as set forth herein and in the
accompanying Notice of Special Meeting. However, if any other matters are
properly presented at the True North Special Meeting, the persons designated in
the proxies will have discretion to vote thereon. It is intended that such
persons will vote such matters in accordance with the recommendations of the
True North Board.
The Bozell Board is not aware of any business which will be presented at the
Bozell Special Meeting other than as set forth herein and in the accompanying
Notice of Special Meeting. However, if any other matters are properly presented
at the Bozell Special Meeting, the persons designated in the proxies will have
discretion to vote thereon. It is intended that such persons will vote such
matters in accordance with the recommendations of the Bozell Board.
93
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of March 31, 1996 and 1997............... F-3
Consolidated Statements of Operations for the Years Ended March 31,
1995, 1996 and 1997.................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
March 31, 1995, 1996 and 1997.......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31,
1995, 1996 and 1997.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
UNAUDITED FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheets--September 30, 1997 (Unaudited)
and March 31, 1997 (Audited)........................................... F-20
Consolidated Condensed Statements of Operations--For the Six Months
Ended September 30, 1996 and 1997 (Unaudited).......................... F-21
Consolidated Statements of Cash Flows--For the Six Months Ended
September 30, 1996 and 1997 (Unaudited)................................ F-22
Notes to Consolidated Financial Statements (Unaudited).................. F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bozell, Jacobs, Kenyon & Eckhardt, Inc.:
We have audited the accompanying consolidated balance sheets of Bozell,
Jacobs, Kenyon & Eckhardt, Inc. and subsidiaries as of March 31, 1996 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
March 31, 1997. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements 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 financial position of Bozell,
Jacobs, Kenyon & Eckhardt, Inc. and subsidiaries as of March 31, 1996 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended March 31, 1997 in conformity with
generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, Bozell,
Jacobs, Kenyon & Eckhardt, Inc. and subsidiaries changed their method of
accounting for postretirement benefits as of April 1, 1995, to conform with
the requirements of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
KPMG PEAT MARWICK LLP
Omaha, Nebraska
May 16, 1997
F-2
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS MARCH 31,
------ -------------------
1996 1997
-------- ---------
<S> <C> <C>
Current Assets:
Cash..................................................... $ 29,977 $ 27,018
Accounts receivable, net of reserve for doubtful accounts
of $2,618 in 1996 and $2,624 in 1997.................... 309,438 384,679
Other current assets..................................... 25,682 33,532
-------- ---------
$365,097 $ 445,229
-------- ---------
Property and Equipment:
Leasehold improvements................................... $ 21,606 $ 25,249
Furniture and equipment.................................. 47,410 58,765
Equipment under capital leases........................... 12,063 19,718
-------- ---------
$ 81,079 $ 103,732
Less--Accumulated depreciation and amortization.......... (40,406) (51,834)
-------- ---------
$ 40,673 $ 51,898
-------- ---------
Other Assets:
Excess of purchase price over fair value of net assets
acquired, net of accumulated amortization of $22,566 in
1996 and $27,198 in 1997................................ $ 81,522 $ 96,370
Investments in and advances to affiliated companies...... 7,471 5,258
Other assets............................................. 11,854 12,336
-------- ---------
$100,847 $ 113,964
-------- ---------
$506,617 $ 611,091
======== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Current Liabilities:
Accounts payable.......................................... $353,566 $441,974
Income taxes.............................................. 6,052 6,882
Current portion of long-term debt......................... 14,305 18,633
Accrued expenses.......................................... 32,418 52,178
-------- --------
$406,341 $519,667
Noncurrent Liabilities:
Long-term debt............................................ 29,033 4,671
Deferred compensation..................................... 11,213 14,639
Other noncurrent liabilities.............................. 8,886 6,133
-------- --------
Total liabilities....................................... $455,473 $545,110
-------- --------
Minority Interests In Subsidiaries......................... $ 563 $ 1,052
-------- --------
Stockholders' Equity:
Serial preferred stock, $.01 par value. Authorized
103,665 shares; none issued or outstanding............... $ -- $ --
Common stock, $.001 par value:
Class A--authorized 12,000,000 shares; issued and
outstanding 8,172,992 shares in 1996 and 8,262,768
shares in 1997........................................... 8 8
Class B--authorized 43,000,000 shares; outstanding
27,381,144 shares in 1996 and 27,072,344 shares in 1997
(2,762,204 shares held in treasury in 1996 and 3,071,004
shares in 1997).......................................... 27 27
Additional paid-in capital................................ 48,283 47,897
Retained earnings......................................... 4,570 19,092
International currency translation adjustment............. (1,107) (1,495)
Deferred compensation..................................... (1,200) (600)
-------- --------
Total stockholders' equity.............................. $ 50,581 $ 64,929
-------- --------
Commitments and Contingent Liabilities..................... -- --
-------- --------
$506,617 $611,091
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
(IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues......................................... $336,887 $407,990 $494,988
-------- -------- --------
Cost and Expenses:
Salaries and benefits.......................... $209,612 $249,574 $303,041
Office and general............................. 102,811 127,161 150,865
Unusual transactions........................... -- 2,674 6,950
Interest expense............................... 8,604 8,530 7,302
Interest income................................ (2,415) (2,631) (3,324)
-------- -------- --------
$318,612 $385,308 $464,834
-------- -------- --------
Income before Provision for Income Taxes......... $ 18,275 $ 22,682 $ 30,154
Provision for Federal, Foreign and State Income
Taxes........................................... 11,689 13,570 17,207
-------- -------- --------
$ 6,586 $ 9,112 $ 12,947
Minority Interest Provision (Credit)............. (347) 135 419
Equity in Net Earnings of Affiliated Companies... 238 155 798
-------- -------- --------
Net Income....................................... $ 6,477 $ 9,402 $ 14,164
======== ======== ========
Net Income Per Share............................. $ .17 $ .24 $ .37
======== ======== ========
Weighted Average Common and Common Equivalent
Shares Outstanding.............................. 38,724 38,781 38,466
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
(IN 000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INTERNATIONAL
COMMON STOCK ADDITIONAL RETAINED CURRENCY TOTAL
--------------- PAID-IN EARNINGS TRANSLATION DEFERRED STOCKHOLDERS'
CLASS A CLASS B CAPITAL (DEFICIT) ADJUSTMENT COMPENSATION EQUITY
------- ------- ---------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1994................... $ 5 $30 $46,914 $(11,309) $(1,711) $(2,400) $31,529
Net income............. -- -- -- 6,477 -- -- 6,477
International currency
translation
adjustment............ -- -- -- -- (79) -- (79)
Purchase of 3,578,328
shares of Class B
common stock.......... -- (4) (9,154) -- -- -- (9,158)
Issuance of 2,677,438
shares of Class A
common stock and
1,345,080 shares of
Class B common stock.. 3 1 10,478 -- -- -- 10,482
Amortization of
deferred compensation. -- -- -- -- -- 600 600
--- --- ------- -------- ------- ------- -------
Balance at March 31,
1995................... $ 8 $27 $48,238 $ (4,832) $(1,790) $(1,800) $39,851
Net income............. -- -- -- 9,402 -- -- 9,402
International currency
translation
adjustment............ -- -- -- -- 683 -- 683
Purchase of 491,000
shares of Class B
common stock.......... -- -- (2,083) -- -- -- (2,083)
Issuance of 245,398
shares of Class A
common stock and 315
shares of Class B
common stock.......... -- -- 2,128 -- -- -- 2,128
Amortization of
deferred compensation. -- -- -- -- -- 600 600
--- --- ------- -------- ------- ------- -------
Balance at March 31,
1996................... $ 8 $27 $48,283 $ 4,570 $(1,107) $(1,200) $50,581
Net income............. -- -- -- 14,164 -- -- 14,164
International currency
translation
adjustment............ -- -- -- -- (388) -- (388)
Purchase of 454,800
shares of Class B
common stock.......... -- -- (3,234) -- -- -- (3,234)
Issuance of 89,776
shares of Class A
common stock and
146,000 shares of
Class B common stock.. -- -- 1,759 -- -- -- 1,759
Gain on issuance of
subsidiary stock...... -- -- 1,089 -- -- -- 1,089
Dividend of DoubleClick
stock................. -- -- -- 358 -- -- 358
Amortization of
deferred compensation. -- -- -- -- -- 600 600
--- --- ------- -------- ------- ------- -------
Balance at March 31,
1997................... $ 8 $27 $47,897 $ 19,092 $(1,495) $ (600) $64,929
=== === ======= ======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
(IN 000'S)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net earnings................................... $ 6,477 $ 9,402 $ 14,164
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization................ 13,010 15,030 19,205
Provisions for deferred compensation plans... 379 700 1,167
Equity in earnings of affiliated companies... (238) (155) (798)
Compensation expense from contribution of
Class A common stock........................ 1,000 1,000 1,000
Other non-cash charges....................... -- 2,056 3,550
Minority interests........................... 347 (135) (419)
Changes in assets and liabilities, net of
acquisitions:
Receivables................................ (54,681) (21,891) (75,241)
Billable production expenditures........... 959 (6,147) (715)
Prepaid expenses........................... (433) 69 (4,189)
Other assets............................... (1,284) (1,824) (2,402)
Accounts payable........................... 59,365 28,257 88,408
Accrued expenses........................... 5,098 2,496 24,026
Deferred income taxes...................... 28 (1,646) (3,403)
-------- -------- --------
Net cash provided by operating
activities.............................. $ 30,027 $ 27,212 $ 64,353
-------- -------- --------
Cash flows used in investing activities:
Payments for purchases of property and
equipment..................................... $ (8,163) $(10,321) $(15,399)
Payments for acquisitions of domestic
businesses.................................... (2,280) (2,486) (7,062)
Payments for acquisitions of international
businesses and minority interests............. (2,170) (664) (15,822)
Payments from affiliated companies............. 73 311 560
Other transactions............................. (2,284) (2,723) 3,351
-------- -------- --------
Net cash used in investing activities.... $(14,824) $(15,883) $(34,372)
-------- -------- --------
Cash flows provided by (used in) financing
activities:
Payments of long-term debt..................... $(19,702) $(10,591) $(22,540)
Payments for debt and stock transaction costs.. (1,089) -- --
Proceeds from issuance of long-term debt....... 27,800 -- --
Payments of obligations under capitalized
leases........................................ (1,404) (2,954) (5,222)
Proceeds from (payments of) other long-term
obligations, net.............................. (100) 689 (2,315)
Proceeds from issuance of common stock......... 9,482 1,129 759
Payments for purchase of Class B common stock.. (9,158) (2,083) (3,234)
-------- -------- --------
Net cash provided by (used in) financing
activities.............................. $ 5,829 $(13,810) $(32,552)
-------- -------- --------
Effect of exchange rate changes on cash.......... $ (79) $ 683 $ (388)
-------- -------- --------
Net increase (decrease) in cash.................. $ 20,953 $ (1,798) $ (2,959)
Cash at beginning of year........................ 10,822 31,775 29,977
-------- -------- --------
Cash at end of year.............................. $ 31,775 $ 29,977 $ 27,018
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, 1996 AND 1997
(IN 000'S, EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
Bozell, Jacobs, Kenyon & Eckhardt, Inc. and subsidiaries (the "Company") is
engaged primarily in offering full service advertising and public relations
services throughout the world. The Company's services are delivered through
major advertising agency systems, which include Bozell Worldwide, Temerlin
McClain, Poppe Tyson, Bozell Sawyer Miller Group, Bozell Wellness Worldwide,
McCracken Brooks Communications and BJK&E Media Group. The Company also
operates specialized divisions related to professional marketing, the creation
and production of new media content and applications, and specialized
production services. The Company operates in a single industry segment.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly and majority-owned subsidiaries using a fiscal year-end of
March 31. The Company's international subsidiaries are consolidated using a
December 31 fiscal year to facilitate timely reporting of consolidated
financial statements. All significant intercompany accounts and transactions
are eliminated in consolidation.
Investments in minority-owned companies are included in the consolidated
financial statements on the basis of the equity method of accounting.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(d) Revenue Recognition
Commission and fee income is recognized when media placements appear and as
production costs are incurred. Salaries and other agency costs are expensed as
incurred.
(e) Depreciation and Amortization
Depreciation of furniture, fixtures, equipment and amortization of
capitalized leases are provided on a straight-line basis over the estimated
useful lives of the respective assets. Amortization of leasehold improvements
is provided on a straight-line basis over the terms of the respective leases.
(f) Excess of Purchase Price Over Fair Value of Net Assets Acquired
The excess of cost of acquisitions over the fair value of the net assets
acquired is being amortized on a straight-line basis over five to forty years.
The Company assesses the recoverability of intangible assets by determining
whether the amortization of the asset over its remaining life can be recovered
through undiscounted future operating cash flows and/or realized gains upon
the sale of such assets of the acquired business. The amount of impairment
loss, if any, is measured based on fair value. The assessment of the
recoverability of intangible assets will be impacted if estimated future cash
flows are not achieved.
F-7
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) Income Taxes
The Company uses the asset and liability method to account for income taxes.
Under this method, deferred income taxes are recognized at enacted tax rates
for the tax consequences of temporary differences between financial statement
carrying amounts and the tax bases of existing assets and liabilities.
Provisions are made for the U.S. income tax liability on earnings of foreign
subsidiaries, except for those locations that the Company considers such
earnings to be permanently invested.
(h) International Currency Translation Adjustment
For purposes of consolidating the financial statements of the Company's
international subsidiaries, substantially all assets and liabilities are
translated at the year-end exchange rates, and income and expenses are
translated at the average exchange rates prevailing during the year.
Translation adjustments are accumulated in a separate section of stockholders'
equity.
(i) Stock-Based Compensation
The Company has elected to account for its stock option plans in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such compensation expense is recorded on the date of grant only if the current
fair value of the underlying stock exceeds the exercise price of the option
(the "intrinsic method"). On April 1, 1996, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants.
(j) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
(k) Reclassifications
Certain amounts from 1995 and 1996 have been reclassified to conform with
the current year presentation.
(l) Net Income Per Share
Net income per share has been determined by dividing net income by using the
weighted average number of common and common equivalent shares outstanding.
(m) Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income," which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Statement No. 130 is
effective for the Company's fiscal year ending December 31, 1998. The Company
has not yet determined the impact of Statement No. 130 on the reporting and
display of its financial statements.
F-8
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for
financial reporting of operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. Statement No.
131 is effective for the Company's fiscal year ending December 31, 1998. The
Company has not yet determined the impact of Statement No. 131 on the
reporting and display of its financial statements.
(2) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES
A summary of combined financial information for the investments in
affiliated companies accounted for under the equity method is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Current assets........................................ $ 66,470 $79,170
Current liabilities................................... (57,879) (70,315)
-------- -------
Working capital................................... $ 8,591 $ 8,855
Other assets (principally property and equipment)..... 7,101 7,538
Long-term obligations................................. (3,108) (4,561)
-------- -------
Net assets........................................ $ 12,584 $11,832
======== =======
Investments and advances represented by:
Equity in net assets................................ $ 3,651 $ 3,777
Advances............................................ 1,873 77
Excess of purchase price over fair value of net
assets acquired.................................... 1,947 1,404
-------- -------
Total investments and advances.................... $ 7,471 $ 5,258
======== =======
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Gross revenues................................... $33,744 $28,205 $26,991
======= ======= =======
Net earnings..................................... $ 2,578 $ 1,626 $ 3,197
======= ======= =======
Company's share of net earnings.................. $ 238 $ 155 $ 798
======= ======= =======
</TABLE>
F-9
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SEGMENT INFORMATION
A summary of financial information of the Company's operations by geographic
area is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C> <C>
Total assets:
United States...................................... $389,350 $443,879
International...................................... 117,267 167,212
-------- --------
Total assets..................................... $506,617 $611,091
======== ========
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Total revenues:
United States............................. $278,019 $338,849 $411,286
International............................. 58,868 69,141 83,702
-------- -------- --------
Total revenues.......................... $336,887 $407,990 $494,988
======== ======== ========
Pretax income (loss):
United States............................. $ 21,226 $ 27,676 $ 31,322
International............................. (2,951) (4,994) (1,168)
-------- -------- --------
Pretax income........................... $ 18,275 $ 22,682 $ 30,154
======== ======== ========
</TABLE>
(4) ACQUISITIONS
During 1995, 1996 and 1997, the Company acquired several businesses which
were all accounted for under the purchase method of accounting. Purchase price
has been allocated to the assets acquired in each acquisition based upon their
fair value at the date of the acquisition. Cash paid for acquisitions of
businesses acquired in 1995, 1996 and 1997 was approximately $4,458, $2,371
and $20,660, respectively, and, after allocating purchase price to assets
acquired and liabilities assumed, approximately $4,229, $2,560 and $18,164 was
recorded as the excess of purchase price over fair value of net assets or
liabilities acquired. Several of the acquisition agreements include contingent
cash consideration for the value of future gross income from the client
accounts of the acquired agencies generally over three to five years. The
Company expects to pay approximately $8.2 million in contingent consideration
through the fiscal year ending March 31, 2001. Contingent consideration
incurred in 1995, 1996 and 1997 was approximately $0, $139 and $582,
respectively, all of which was included as additions to excess of purchase
price over fair value of net assets acquired. In addition, the Company
acquired additional minority interests in subsidiaries through cash payments
of approximately $62, $562, and $1,642 in 1995, 1996 and 1997, respectively.
Payments were primarily allocated to excess of purchase price over fair value
of net assets acquired. Management has omitted pro forma disclosures for the
above acquisitions because such acquisitions are immaterial to the
consolidated financial statements.
(5) LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Senior bank term loan.................................. $ 18,800 $12,800
15% senior subordinated notes.......................... 16,000 --
8.25%-11.5% obligations under capitalized leases....... 7,457 9,994
8.25%-11.75% notes payable............................. 1,081 510
-------- -------
Total long-term debt............................... $ 43,338 $23,304
Less current portion................................... (14,305) (18,633)
-------- -------
Long-term debt, excluding current portion.......... $ 29,033 $ 4,671
======== =======
</TABLE>
F-10
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The senior bank loan agreement provides for interest at floating rates and
requires semiannual principal payments, with final maturity of the loan
occurring on February 1, 1998. The agreement also provides for a revolving
line of credit with a maximum principal amount which may be drawn at any time
thereunder of the lesser of $48,200 or 60% of eligible receivables ("Revolving
Working Capital Loan"). At the Company's request, the revolving line of credit
may be increased by an amount equal to 50% of each payment of principal on the
term loan. The senior bank term loan interest rate was 8.375% and 8.125% at
March 31, 1996 and 1997, respectively. The Company is required to pay a
commitment fee of 1/2% on the average daily unused portion of the Revolving
Working Capital Loan. The obligations under the Term Loan and the Revolving
Working Capital Loan are secured by the pledge of all of the outstanding
shares of the Company's U.S. subsidiaries. The borrowings are further secured
by accounts receivable, contract rights and certain other intangible property
with a maximum recourse to the banks as a secured party of $35,000.
The terms of the senior subordinated notes provided for a required principal
prepayment of $4,000 on March 15, 1997, with a final payment of $12,000 on
March 15, 1998. Interest was payable semiannually. In 1997, the Company repaid
its senior subordinated notes ahead of their scheduled maturity. (See also
notes 15 and 17.)
The terms of the obligations under capitalized leases provide for payment of
principal and interest in annual installments, with the final purchase
payments of 10% or $1.00 due on various dates between April 1996 and January
2000. The leases were for the acquisition of equipment.
The senior bank loan agreement contains covenants restricting, among other
items, future indebtedness, capital expenditures, leases, investments, ability
to declare dividends on or repurchase shares of the Company's common stock,
liens, disposition of assets, mergers and acquisitions and entering new
businesses. In addition, the agreement requires the Company to maintain
specified levels of tangible net worth and working capital and specified
ratios, as defined, of senior debt to gross revenues, current assets to
current liabilities, net earnings to interest expense, liabilities to net
worth and fixed charges to operating income. The Company was in compliance
with, or has obtained waivers for, all applicable covenants.
The 8.25%-11.75% notes payable, scheduled for repayment through 1997, were
issued in connection with the purchase of equity investments in subsidiaries
in France. The notes payable are secured by the stock of the purchased
subsidiaries.
A summary of the scheduled maturities of long-term debt follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
------------------ -------
<S> <C>
1998.......................... $18,633
1999.......................... 3,517
2000.......................... 1,154
-------
$23,304
=======
</TABLE>
(6) DEFERRED COMPENSATION
The liability for deferred compensation is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred compensation (a)................................ $ 3,058 $ 3,033
Other compensation (b)................................... 8,155 11,606
------- -------
Liability for deferred compensation.................. $11,213 $14,639
======= =======
</TABLE>
F-11
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(a) The Company has deferred compensation plans covering directors and
officers of U.S. subsidiaries which provide fixed benefits payable over a
specified period of time upon retirement or death. Liabilities are net of
cash surrender value of life insurance policies of $7,961 and $9,048 in
1996 and 1997, respectively. The expense related to these plans amounted
to $1,673, $926 and $988 for 1995, 1996 and 1997, respectively.
(b) The Company has plans which pay bonuses and commissions based on
profitability of the domestic subsidiaries. The expense related to these
plans amounted to $12,074, $12,662 and $21,454 for 1995, 1996 and 1997,
respectively. Bonus awards are paid in three annual installments, with
approximately one-third of the amount paid in the year of the award.
(7) OTHER NONCURRENT LIABILITIES
Other long-term obligations are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Leases (a)................................................. $3,287 $2,110
Acquisition price payable (b).............................. 3,577 1,936
Other (c).................................................. 2,022 2,087
------ ------
Total other noncurrent liabilities..................... $8,886 $6,133
====== ======
</TABLE>
- --------
(a) The Company has accrued rent expense for a lease with favorable
concessions and has deferred income due to a prepayment on property the
Company has subleased.
(b) The Company incurred long-term liabilities in connection with acquisitions
of advertising agencies.
(c) This amount is comprised principally of other long-term obligations,
accruals for postretirement benefits other than pensions and deferred
compensation plans of majority-owned international subsidiaries.
(8) INCOME TAXES
Income tax expense (benefit) consists of the following for the years ended
March 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------- ------------------------- -------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
-------- -------- ------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Federal............ $ 7,054 $24 $ 7,078 $10,254 $(1,315) $ 8,939 $13,591 $(2,944) $10,647
State and local......... 3,059 4 3,063 3,776 (331) 3,445 5,345 (459) 4,886
International........... 1,548 -- 1,548 1,186 -- 1,186 1,674 -- 1,674
-------- --- ------- ------- ------- ------- ------- ------- -------
$ 11,661 $28 $11,689 $15,216 $(1,646) $13,570 $20,610 $(3,403) $17,207
======== === ======= ======= ======= ======= ======= ======= =======
</TABLE>
F-12
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Actual income tax expense differs from amounts computed by applying the U.S.
Federal income tax rate of 35% to pretax earnings as a result of the
following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Computed "expected" Federal tax expense........ $ 6,396 $ 7,939 $10,554
State and local taxes, net of Federal tax
benefit....................................... 1,991 2,239 3,176
Tax differentials of international
subsidiaries.................................. 2,405 1,434 776
Nondeductible expenses, primarily amortization
of intangible assets and meals and
entertainment................................. 1,700 1,565 2,808
Other.......................................... (803) 393 (107)
------- ------- -------
$11,689 $13,570 $17,207
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
MARCH 31
----------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities for deferred compensation and bonuses... $10,430 $12,411
Other accrued liabilities................................... 398 1,633
Allowance for doubtful accounts............................. 398 449
Capital loss carry forward.................................. 1,025 98
Other....................................................... 159 233
------- -------
Gross deferred tax assets................................... $12,410 $14,824
Valuation allowance......................................... (1,192) (425)
------- -------
Net deferred tax assets..................................... $11,218 $14,399
------- -------
Deferred tax liabilities:
Fixed assets................................................ 2,621 2,399
------- -------
Net deferred tax asset.................................... $ 8,597 $12,000
======= =======
</TABLE>
The Company has not recognized a deferred tax liability for undistributed
earnings of its majority-owned international subsidiaries because management
currently does not expect those unremitted earnings to become taxable to the
Company in the foreseeable future. Undistributed earnings of its majority-
owned international subsidiaries are not significant.
(9) EMPLOYEE STOCK PLANS
The Company is authorized to issue two classes of common stock having
similar rights and privileges. Each holder of Class A and Class B common stock
is entitled to 1.1 and 1 vote per share, respectively. Certain members of
management hold warrants to purchase 1,670,496 shares of the Company's Class B
common stock at March 31, 1997. The warrants are exercisable at $0.005 per
share through February 18, 2002. Shares issued under the exercise of the
warrants were 70,512, 54,844 and 31,340 in 1995, 1996 and 1997, respectively.
The Company has a nonqualified stock option plan granting options to
purchase up to 2,600,000 shares of Class B common stock. The options may be
granted to officers and key employees. The option price per share equals the
appraised value of the stock at the date of grant. Generally, the options
become exercisable upon the sixth anniversary of the date of grant, but in no
event later than ten years from the date of grant. To date, employees have
been granted options to purchase a total of 2,090,000 shares of Class B common
stock at option prices ranging from $1.93 to $5.20 per share.
F-13
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company granted nonqualified stock options to purchase a total of
689,656 shares of Class B common stock at an option price of $2.18 per share.
In June 1996, these options were canceled and no shares were issued under this
stock option plan.
Effective March 1996, the Company's wholly-owned subsidiary, Poppe Tyson,
Inc. ("Poppe"), established a 1996 Stock Option Plan (the "Plan") to grant
options to employees and consultants to Poppe meeting specified eligibility
requirements. Under the Plan, Poppe may grant incentive and non-qualified
stock options to purchase Poppe common stock. The Plan provides for the
granting of a maximum of 2,287,389 options. As of March 31, 1997, the Company
had outstanding options to purchase 701,195 shares of the subsidiary's common
stock, of which 220,195 options are exercisable with exercise prices of $2.42
to $10.00 per share, which was determined with reference to appraised or fair
value. The maximum term of an option may not exceed ten years for both
incentive and non-qualified options.
If the Company and its subsidiary, Poppe, recorded compensation expense
based upon the fair-value based method of SFAS No. 123, the effects of the
difference in accounting methods would not have a material impact on the
Company's net income in 1996 and 1997. Therefore, the Company has omitted pro
forma disclosures of SFAS No. 123.
Stock option and warrant activity may be summarized as follows:
<TABLE>
<CAPTION>
BJK&E POPPE
-------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, April 1, 1994........ 4,166,848 $1.13 -- --
Granted......................... 950,000 2.58 -- --
Canceled/Forfeited.............. -- -- -- --
Exercised....................... (70,512) .005 -- --
----------
Outstanding, April 1, 1995........ 5,046,336 1.41 -- --
Granted......................... -- -- 469,980 2.42
Canceled/Forfeited.............. (200,000) 1.93 -- --
Exercised....................... (54,844) .005 -- --
---------- --------
Outstanding, March 31, 1996....... 4,791,492 1.42 469,980 2.42
Granted......................... 90,000 5.20 576,604 9.89
Canceled/Forfeited.............. (1,089,656) 1.93 (236,746) 5.19
Exercised....................... (31,340) .005 (108,643) 2.42
---------- --------
Outstanding, March 31, 1997....... 3,760,496 $1.32 701,195 7.62
========== ========
Exercisable, March 31, 1997....... 1,670,496 $.005 220,195 2.43
========== ===== ======== ====
</TABLE>
The weighted average fair value of options granted for BJK&E and Poppe in
1997 was $5.20 and $0.55, respectively, and $0.39 for Poppe in 1996.
At March 31, 1997, the range of exercise prices and weighted average
remaining contractual life of the outstanding options and warrants was $0.005
per share to $5.20 per share for the Company ($2.42 per share to $10.00 per
share for Poppe) and 1 year (3 years for Poppe), respectively.
F-14
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) STOCKHOLDERS' EQUITY
On June 27, 1996, a consolidated subsidiary ("Poppe") of the Company
acquired the outstanding common shares of Animated Systems & Design.
Consideration for the transaction included cash of $1,500 and common stock
issued by Poppe with an estimated fair value of $1,100. The Company has
recorded a gain on the issuance of stock by its subsidiary as an adjustment of
$1,089 to additional paid-in capital.
On August 28, 1996, the Company declared and distributed 10,236,460 shares
of DoubleClick, Inc. ("DoubleClick") common stock, representing 60% of the
outstanding common stock of DoubleClick. For the period of January 23, 1996,
through August 28, 1996, DoubleClick operated as a majority-owned subsidiary
and, therefore, its results of operations and cash flows have been
consolidated through August 28, 1996. The dividend of DoubleClick to the
Company's shareholders was recorded at book value of $358 through a credit to
retained earnings.
On January 20, 1997, the Company effected a 2-to-1 stock split, which has
been given retroactive effect in the accompanying consolidated financial
statements. The authorized common stock of the Company was also increased from
5,000,000 shares to 12,000,000 shares of Class A common and from 30,000,000
shares to 43,000,000 shares of Class B common.
(11) EMPLOYEE BENEFIT PLANS
Profit-Sharing and Savings Plan
The Company has a profit-sharing and savings plan covering substantially all
U.S. employees. The contribution to the profit-sharing component of the plan
is determined annually by the Board of Directors and may not exceed the
amounts allowable under the Internal Revenue Code. The Company made a profit-
sharing contribution of $2,400 in 1997 and no contributions in 1995 and 1996.
Under the employee savings component of the plan, the Company will match 50%
of an employee's contribution up to 4% of salary which is vested immediately.
The Company contributed $1,507, $1,780 and $1,973 for 1995, 1996 and 1997,
respectively, to the employee savings plan.
Stock Bonus Plan
The Company has a U.S. employee Stock Bonus Plan. Contributions to the Stock
Bonus Plan may be made annually at the discretion of the Board of Directors.
The Company contributed stock having an appraised value of $1,000 in 1995,
1996 and 1997. The Company made additional cash contributions of $1,250 and
$1,750 for 1995 and 1996, respectively. No cash contributions were made in
1997.
Postretirement Benefits Other Than Pensions
The Company also provides health care and life insurance benefits to retired
employees meeting certain eligibility criteria. Substantially all of the
Company's employees may become eligible for these benefits if they reach
normal retirement age while working for the Company.
Effective April 1, 1995, the Company adopted FASB Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," on a
prospective basis. The net transition obligation represents the difference
between the Company's April 1, 1995 accrued benefits costs prior to the
adoption of Statement No. 106 and the Plan's unfunded liability as of that
date. The net transition liability at April 1, 1995 was $2,412 and will be
amortized into income over twenty years.
F-15
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of net periodic postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Service cost--benefits earned during the year................. $ 71 $ 97
Interest on projected benefit obligations..................... 211 195
Amortization of net transition obligation over 20 years....... 120 121
Other......................................................... 3 4
---- ----
Net postretirement benefit costs............................ $405 $417
==== ====
</TABLE>
A reconciliation of the accumulated postretirement benefit obligation to the
liability recognized in the consolidated balance sheets as of March 31, 1996
and 1997, is as follows:
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Active participants.................................... $ 1,194 $1,209
Retirees............................................... 1,598 1,971
------- ------
$ 2,792 $3,180
Unrecognized transition obligation....................... (2,292) (2,171)
Unrecognized prior service cost.......................... (41) (112)
Unrecognized net losses.................................. (238) (450)
------- ------
Postretirement benefit obligation........................ $ 221 $ 447
======= ======
</TABLE>
The actuarial calculation assumes a health care inflation assumption of 8.6%
and 8.4% in 1996 and 1997, respectively, and grades down uniformly to 7.0% in
2004 and remains level thereafter. Increases in the health care cost trend
rate have a minor effect on the amounts reported because the Company's share
of health care premium rates are capped. The discount rate used in determining
the accumulated postretirement benefit obligation was 7.25% in 1996 and 1997.
The Company's postretirement benefit plans are not funded.
(12) CASH FLOWS
A summary of supplemental disclosures of cash flow information follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest........................................ $7,675 $ 7,978 $ 5,996
Income taxes.................................... $9,598 $11,664 $19,235
====== ======= =======
</TABLE>
The Company also acquired equipment and assumed obligations under capital
leases for $4,922, $4,557 and $7,759 in 1995, 1996 and 1997, respectively.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and temporary cash investments, receivables,
accounts payable, accrued expenses and long-term debt approximates fair value.
It is not considered practicable to estimate the fair value of the Company's
financial guarantees and commitments described in note 14.
Fair value estimates are based on judgments regarding current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of judgment.
F-16
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) COMMITMENTS AND CONTINGENT LIABILITIES
(a) Consulting, Noncompete and Employment Agreements
At March 31, 1997, the Company was committed to minimum annual payments for
employment, consulting and noncompete agreements as follows:
<TABLE>
<S> <C>
1998............................ $ 17,327
1999............................ 9,198
2000............................ 5,950
2001............................ 4,317
2002............................ 2,120
</TABLE>
Payments under these and other agreements approximated $19,838, $22,576 and
$22,387 for 1995, 1996 and 1997, respectively.
(b) Rental Agreements
The Company occupies office space in various locations under operating lease
agreements. Rent expense, net of sublease rentals, under these agreements
approximated $22,218, $25,458 and $29,638 for 1995, 1996 and 1997,
respectively.
At March 31, 1997, the Company's minimum annual rentals under noncancellable
leases, some of which provide for rental adjustments due to increased property
taxes and operating costs and sublease rentals, are as follows:
<TABLE>
<CAPTION>
NET
LEASE SUBLEASE LEASE
RENTALS RENTALS RENTALS
--------- -------- --------
<S> <C> <C> <C>
1998.......................................... $ 42,527 $ 9,228 $ 33,299
1999.......................................... 40,558 6,305 34,253
2000.......................................... 36,068 5,048 31,020
2001.......................................... 31,059 5,214 25,845
2002.......................................... 26,979 5,343 21,636
2003 forward.................................. 95,117 28,484 66,633
--------- ------- --------
$ 272,308 $59,622 $212,686
========= ======= ========
</TABLE>
It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other properties.
(c) Litigation
The Company is a party to various lawsuits arising out of the ordinary
course of business, none of which, in the opinion of management, is material.
(d) Guarantees
The Company has issued guarantees and letters of credit totaling
approximately $20,200 at March 31, 1997. Guarantees and letters of credit are
generally issued for the purpose of obtaining and securing trade debt for the
international subsidiaries.
F-17
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) RELATED PARTY TRANSACTIONS
The Company incurred interest and related financing expenses on amounts due
to Citibank, N.A. and The Northwestern Mutual Life Insurance Company
("Northwestern"), major stockholders of the Company, of approximately $893 and
$3,000, respectively, during 1995; $855 and $2,975, respectively, during 1996;
and $607 and $3,007, respectively, during 1997. The Company also paid a
redemption premium of $706 to Northwestern for the early retirement of
subordinated notes payable to Northwestern. (See also notes 5 and 17)
At March 31, 1997, the Company has cash advances to its former subsidiary,
DoubleClick, Inc., of approximately $5,400, which have been classified with
receivables. The advances bear interest at 8.125% at March 31, 1997.
In 1995, the Company purchased 3,000,000 shares of Class B common stock from
Warner Communications Inc. at appraised value. Subsequently, the Company sold
2,400,000 shares of Class A common stock to the Company's Profit-Sharing and
Savings Plan and 600,000 shares of Class B common stock to selected members of
management at appraised values.
(16) MAJOR CUSTOMER
One customer accounted for approximately 28%, 26% and 24% of the Company's
consolidated commissions and fees for 1995, 1996 and 1997, respectively.
(17) UNUSUAL TRANSACTIONS
Unusual charges in 1996 and 1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Impairment losses on intangible assets(a).................. $2,674 $3,902
Write-off of offering expenses(b).......................... -- 2,300
Cost of early retirement of debt(c)........................ -- 1,021
Gain on the sale of business(d)............................ -- (898)
Other, net................................................. -- 625
------ ------
$2,674 $6,950
====== ======
</TABLE>
- --------
(a) In 1997, the Company recorded write-offs for the impairment of intangible
assets, including covenants not-to-compete and excess of purchase price
over fair value of net assets acquired. In addition, a write-off was
recorded by the Company in 1996 for the impairment of excess of purchase
price over fair value.
(b) The Company recognized a loss for the write-off of deal-related expenses
incurred by a subsidiary in an initial public offering ("IPO"). The write-
off resulted from the subsidiary's decision to postpone its IPO.
(c) The Company recorded a loss from the early repayment of subordinated notes
payable. The loss consisted of a redemption premium and unamortized debt
issue costs.
(d) In June 1996, the Company signed a Reorganization and Asset Sale Agreement
with certain executive officers of one of its subsidiaries. Under that
agreement, certain client accounts and fixed assets were sold to the
executive officers, resulting in a gain. In addition, the Company
terminated its employment contracts with the executive officers.
F-18
<PAGE>
(18) SUPPLEMENTARY INFORMATION
Following is a summary of supplementary information about the Company's
valuation account for accounts receivable:
<TABLE>
<CAPTION>
BALANCE AT WRITE OFFS, BALANCE
BEGINNING BAD DEBT NET OF AT END
DESCRIPTION OF YEAR EXPENSE RECOVERIES OF YEAR
----------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1995............ $2,149 $1,944 $1,723 $2,370
====== ====== ====== ======
Year ended March 31, 1996............ $2,370 $3,581 $3,333 $2,618
====== ====== ====== ======
Year ended March 31, 1997............ $2,618 $1,815 $1,809 $2,624
====== ====== ====== ======
</TABLE>
F-19
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1997 AND SEPTEMBER 30, 1997 (UNAUDITED)
(IN 000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH SEPTEMBER 30,
ASSETS 31, 1997 1997
------ -------- -------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash...................................................... $ 27,018 $ 2,105
Accounts receivable, net of reserve for doubtful accounts. 384,679 403,456
Other current assets...................................... 33,532 47,626
-------- --------
$445,229 $453,187
-------- --------
Property and Equipment:
Leasehold improvements.................................... $ 25,249 $ 28,328
Furniture and equipment................................... 58,765 61,443
Equipment under capital leases............................ 19,718 21,248
-------- --------
$103,732 $111,019
Less--Accumulated depreciation and amortization........... (51,834) (58,513)
-------- --------
$ 51,898 $ 52,506
-------- --------
Other Assets:
Excess of purchase price over fair value of net assets
acquired, net of accumulated amortization of $27,198 as
of March 31, 1997 and $29,147 as of September 30, 1997... $ 96,370 $ 96,078
Investments in and advances to affiliated companies....... 5,258 6,702
Other assets.............................................. 12,336 18,414
-------- --------
$113,964 $121,194
-------- --------
$611,091 $626,887
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable.......................................... $441,974 $475,716
Current portion of long-term debt......................... 18,633 16,222
Accrued expenses.......................................... 59,060 48,174
-------- --------
$519,667 $540,112
Noncurrent Liabilities:
Long-term debt............................................ 4,671 3,558
Other noncurrent liabilities.............................. 20,772 13,608
-------- --------
Total liabilities..................................... $545,110 $557,278
-------- --------
Minority Interests In Subsidiaries.......................... $ 1,052 $ 823
-------- --------
Stockholders' Equity:
Serial preferred stock, $.01 par value.................... $ -- $ --
Common stock:
Class A................................................. 8 8
Class B................................................. 27 27
Additional paid-in capital.............................. 47,897 44,667
Retained earnings....................................... 19,092 27,492
International currency translation adjustment........... (1,495) (3,108)
Deferred compensation................................... (600) (300)
-------- --------
Total stockholders' equity............................ $ 64,929 $ 68,786
-------- --------
$611,091 $626,887
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(IN 000'S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Revenues................................................... $224,183 $265,581
-------- --------
Cost and Expenses:
Salaries and benefits.................................... $141,694 $164,864
Office and general....................................... 70,349 83,217
Unusual transactions..................................... (598) --
Interest expense......................................... 2,476 2,205
Other (income)........................................... (1,431) (1,418)
-------- --------
$212,490 $248,868
-------- --------
Income before Provision for Income Taxes................... $ 11,693 $ 16,713
Provision for Federal, Foreign and State Income Taxes...... 7,074 8,926
-------- --------
$ 4,619 $ 7,787
Minority Interest Provision................................ (41) 132
Equity in Net Earnings (loss) of Affiliated Companies...... 90 481
-------- --------
Net Income................................................. $ 4,668 $ 8,400
======== ========
Net Income Per Share....................................... $ .12 $ .22
======== ========
Weighted Average Common Shares and Common Share
Equivalents............................................... 38,171 37,832
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
(IN 000'S)
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Cash flows used in operating activities:
Net earnings............................................ $ 4,668 $ 8,400
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization......................... 8,450 9,999
Equity in earnings of unconsolidated subsidiaries and
minority interest.................................... (49) (613)
Non-recurring charges and other non-cash transactions. (598) --
Changes in assets and liabilities:
Accounts receivable................................. (64,382) (17,004)
Other current assets................................ (11,445) (21,746)
Accounts payable and accrued expenses............... 2,575 16,165
--------- --------
Net cash used in operating activities............. $ (60,781) $ (4,799)
--------- --------
Cash flows used in investing activities:
Capital expenditures.................................... $ (4,707) $ (6,890)
Payments for acquisitions of domestic businesses........ (2,594) (3,329)
Other transactions, net................................. 114 1,814
--------- --------
Net cash used in investing activities............. $ (7,187) $ (8,405)
--------- --------
Cash flows provided by (used in) financing activities:
Payments of long-term debt and obligations.............. $ (5,154) $ (5,054)
Increase in liability for book overdrafts............... 48,233 --
Payments of other long-term obligations................. (1,729) (1,812)
Payments for purchase of Class B common stock........... (2,849) (3,230)
--------- --------
Net cash provided by financing activities......... $ 38,501 $(10,096)
--------- --------
Effect of exchange rate changes on cash................... $ (510) $ (1,613)
--------- --------
Net decrease in cash...................................... $ (29,977) $(24,913)
Cash at beginning of period............................... 29,977 27,018
--------- --------
Cash at end of period..................................... $ -- $ 2,105
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996, AND 1997 (UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission, and include all adjustments (which comprise only of
normal recurring items) which the Company considers necessary for a fair
presentation. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. The consolidated condensed financial statements should be
read in conjunction with the financial statements and notes thereto included
elsewhere in this registration statement.
Revenues and net income for the first three months of the year should not be
considered reliable indicators of revenues or net income for the entire year.
(2) INCOME TAXES
The difference between the Company's income tax expense as reported in the
accompanying financial statements and that which would be calculated using the
statutory Federal income tax rate of 35% on income is primarily due to state
and local income taxes, tax differentials of international subsidiaries, and
expenses not deductible for tax purposes.
(3) UNUSUAL TRANSACTIONS
For the six months ended September 30, 1996, the Company recorded a net
pretax credit of $598 due to a gain on the sale of a business, offset by the
cost of terminating an employment contract.
F-23
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Condensed Balance Sheet as of
September 30, 1997 combines the historical balance sheets of True North and
Bozell as if the Merger had been effective on September 30, 1997, after giving
effect to certain pro forma adjustments described in the accompanying notes.
The following Unaudited Pro Forma Combined Statements of Operations are
presented as if the Merger had been effective January 1, 1994. True North's
fiscal year ends on December 31; Bozell's fiscal year ends on March 31. True
North's financial reporting period ending December 31 will be adopted by the
combined entity. For purposes of the following Unaudited Pro Forma Combined
Statements of Operations, the year-ends of the two companies have not been
conformed, as permitted under Regulation S-X. For purposes of presenting
unaudited pro forma combined financial data, revenues of $115,874 and $147,454
and net income of $5,499 and $6,110, representing Bozell's results of
operations for the period from January 1 through March 31, 1996 and 1997,
respectively, are included in the unaudited pro forma combined results of
operations for the twelve months ended December 31, 1995 and 1996,
respectively, and for the nine months ended September 30, 1996 and 1997,
respectively.
The Unaudited Pro Forma Combined Financial Information and notes thereto
reflect the application of the pooling-of-interests method of accounting for
the acquisition of Bozell. Under this method of accounting, the recorded
assets, liabilities, income and expenses of True North and Bozell are combined
and recorded at their historical cost amounts, except as noted below.
As required in a pooling-of-interests business combination, the Unaudited
Pro Forma Combined Financial Information reflects certain adjustments to
conform the accounting policies of both companies. The significant accounting
policies of True North and Bozell differ in only one respect: True North has
accounted for Staff Accounting Bulletin #51, "Accounting for Sales of Stock by
a Subsidiary" (SAB 51), gains and losses through its income statement whereas
Bozell has accounted for such gains and losses as changes in stockholders'
equity. On a combined basis, True North and Bozell will account for such gains
as changes in stockholders' equity. As a result, these adjustments
retroactively conform, for all periods presented, this accounting policy of
both companies, consistent with the intent to present both entities as though
they had always been combined. The amounts and nature of such conforming
accounting adjustments included or disclosed in the Unaudited Pro Forma
Combined Financial Information may change as more information becomes
available.
True North expects to record a material pre-tax charge following
consummation of the Merger to cover the direct costs of the Merger (including
the fees of financial advisors, legal counsel and independent auditors), the
cost of integrating certain aspects of the businesses of True North and
Bozell, the cost of asset rationalizations and employee terminations to
eliminate duplicative functions and excess capacity, and other unusual items.
This pre-tax charge is estimated to be in the range of $80,000-$120,000. The
after-tax impact of this charge is estimated to be in the range of $56,000-
$81,000, and the midpoint of this range has been charged to Retained Earnings
in the Unaudited Pro Forma Combined Condensed Balance Sheet at September 30,
1997. The estimated charge and nature of the costs included therein as well as
the periods in which these costs are recorded are subject to change as True
North's integration plan is developed and more accurate estimates become
possible. Moreover, the after-tax cost of the charge is likely to change
depending upon the magnitude of the pre-tax charge, the nature of the costs
therein, the tax laws of the particular countries applicable to the entities
incurring these costs, and the tax-paying status of such entities.
True North expects to achieve operating costs savings primarily through
reductions in staff and the consolidation of certain functions associated with
corporate level, administrative and operational level duplication at both
companies. The operating cost savings are expected to be achieved in various
amounts at various times during the years subsequent to the consummation of
the Merger and not ratably over, or at the beginning or end of, such periods.
No adjustments have been reflected in the Unaudited Pro Forma Combined
Statements of Operations for the anticipated cost savings.
F-24
<PAGE>
The Unaudited Pro Forma Combined Financial Information included herein is
not necessarily indicative of the consolidated financial position or results
of future operations of the combined entity or the actual results that would
have been achieved had the Merger been consummated at the beginning of the
periods indicated. The Unaudited Pro Forma Combined Financial Information
should be read in conjunction with and are qualified in their entirety by the
separate historical consolidated financial statements and notes thereto of
True North and Bozell. The financial statements of True North are incorporated
by reference into this Joint Proxy Statement/Prospectus; the financial
statements of Bozell appear elsewhere herein. See "INCORPORATION OF DOCUMENTS
BY REFERENCE" and "BOZELL CONSOLIDATED FINANCIAL STATEMENTS."
F-25
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1997
(IN 000'S)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
TRUE NORTH BOZELL ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and marketable
securities................. $ 43,101 $ 2,105 $ 0 $ 45,206
Accounts receivable, net.... 481,226 403,456 0 884,682
Other current assets........ 65,774 47,626 0 113,400
---------- -------- ---------- ----------
$ 590,101 $453,187 $ 0 $1,043,288
Property & equipment, net... 63,699 52,506 (10,000)(3) 106,205
Goodwill, net............... 230,543 96,078 0 326,621
Investment in affiliated
companies.................. 163,135 6,702 0 169,837
Other noncurrent assets..... 19,492 18,414 32,000 (3) 69,906
---------- -------- ---------- ----------
$1,066,970 $626,887 $ 22,000 $1,715,857
========== ======== ========== ==========
Liabilities and Stockholders'
Equity:
Accounts payable and
accruals................... $ 568,550 $523,890 $ 55,000 (3) $1,147,440
Short-term bank borrowings.. 67,015 0 0 67,015
Current portion of long-term
debt....................... 1,524 16,222 0 17,746
---------- -------- ---------- ----------
$ 637,089 $540,112 $ 55,000 $1,232,201
---------- -------- ---------- ----------
Long-term debt.............. $ 65,885 $ 3,558 $ 0 $ 69,443
---------- -------- ---------- ----------
Accrued future compensation
expense.................... $ 41,837 $ 0 $ 0 $ 41,837
---------- -------- ---------- ----------
Other noncurrent
liabilities................ $ 47,004 $ 14,431 $ 35,000 (3) $ 96,435
---------- -------- ---------- ----------
Common stock................ $ 8,480 $ 35 $ 0 $ 8,515
Paid-in capital............. 156,416 44,667 3,480 (2) 204,563
Retained earnings........... 122,368 27,492 (71,480) 78,380
Less--Treasury stock........ (5,155) 0 0 (5,155)
Less--Deferred Compensation. 0 (300) 0 (300)
Cumulative translation
adjustment................. (6,954) (3,108) 0 (10,062)
---------- -------- ---------- ----------
$ 275,155 $ 68,786 $ (68,000) $ 275,941
---------- -------- ---------- ----------
$1,066,970 $626,887 $ 22,000 $1,715,857
========== ======== ========== ==========
</TABLE>
See notes to unaudited pro forma combined financial information.
F-26
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
----------------------
TRUE NORTH BOZELL ADJUSTMENTS COMBINED
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues.......................... $493,050 $494,988 $ 0 $988,038
-------- -------- ------- --------
Costs and Expenses:
Salaries and benefits........... $318,539 $303,041 $ 0 $621,580
Office and general.............. 150,740 150,865 0 301,605
Unusual transactions............ 1,356 6,950 5,800(2) 14,106
Interest expense................ 8,585 7,302 0 15,887
Other (income).................. (5,384) (3,324) 0 (8,708)
-------- -------- ------- --------
$473,836 $464,834 $ 5,800 $944,470
-------- -------- ------- --------
Income before Provision for Income
Taxes............................ $ 19,214 $ 30,154 ($5,800) $ 43,568
Provision for Federal, Foreign and
State Income Taxes............... 9,697 17,207 (2,320)(4) 24,584
-------- -------- ------- --------
$9,517 $ 12,947 ($3,480) $ 18,984
Minority Interest Income.......... 31 419 0 450
Equity in Net Earnings of
Affiliated Companies............. 18,286 798 0 19,084
-------- -------- ------- --------
Net Income........................ $ 27,834 $ 14,164 ($3,480) $ 38,518
======== ======== ======= ========
Net Income Per Share.............. $ 1.20 $ .37 $ .90
======== ======== ========
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding...................... 23,254 38,466 19,618(5) 42,872
======== ======== ======= ========
</TABLE>
See notes to unaudited pro forma combined financial information.
F-27
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
---------------------
TRUE NORTH BOZELL ADJUSTMENTS COMBINED
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues............................ $439,053 $407,990 $ 0 $847,043
-------- -------- ------ --------
Costs and Expenses:
Salaries and benefits............. $280,619 $249,574 $ 0 $530,193
Office and general................ 128,169 127,161 0 255,330
Unusual transactions.............. 10,185 2,674 0 12,859
Interest expense.................. 8,087 8,530 0 16,617
Other (income).................... (2,758) (2,631) 0 (5,389)
-------- -------- ------ --------
$424,302 $385,308 $ 0 $809,610
-------- -------- ------ --------
Income before Provision for Income
Taxes.............................. $ 14,751 $ 22,682 $ 0 $ 37,433
Provision for Federal, Foreign and
State Income Taxes................. 3,705 13,570 0 17,275
-------- -------- ------ --------
$11,046 $ 9,112 $ 0 $ 20,158
Minority Interest Income (Expense).. (558) 135 0 (423)
Equity in Net Earnings of Affiliated
Companies.......................... 9,165 155 0 9,320
-------- -------- ------ --------
Net Income.......................... $ 19,653 $ 9,402 $ 0 $ 29,055
======== ======== ====== ========
Net Income Per Share................ $ .87 $ .24 $ .69
======== ======== ========
Weighted Average Number of Common
and Common
Equivalent Shares Outstanding...... 22,542 38,781 19,778(5) 42,320
======== ======== ====== ========
</TABLE>
See notes to unaudited pro forma combined financial information.
F-28
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
---------------------
TRUE NORTH BOZELL ADJUSTMENTS COMBINED
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues............................ $403,690 $336,887 $ 0 $740,577
-------- -------- ------ --------
Costs and Expenses:
Salaries and benefits............. $248,955 $209,612 $ 0 $458,567
Office and general................ 117,684 102,811 0 220,495
Interest expense.................. 7,027 8,604 0 15,631
Other (income).................... (5,972) (2,415) 0 (8,387)
-------- -------- ------ --------
$367,694 $318,612 $ 0 $686,306
-------- -------- ------ --------
Income before Provision for Income
Taxes.............................. $ 35,996 $ 18,275 $ 0 $ 54,271
Provision for Federal, Foreign and
State Income Taxes................. 16,068 11,689 0 27,757
-------- -------- ------ --------
$19,928 $ 6,586 $ 0 $ 26,514
Minority Interest Income (Expense).. 146 (347) 0 (201)
Equity in Net Earnings of Affiliated
Companies.......................... 10,203 238 0 10,441
-------- -------- ------ --------
Net Income.......................... $ 30,277 $ 6,477 $ 0 $ 36,754
======== ======== ====== ========
Net Income Per Share................ $ 1.34 $ .17 $ .87
======== ======== ========
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding........................ 22,678 38,724 19,749(5) 42,427
======== ======== ====== ========
</TABLE>
See notes to unaudited pro forma combined financial information.
F-29
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
----------------------
TRUE NORTH BOZELL ADJUSTMENTS COMBINED
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues........................... $444,551 $413,035 $ 0 $857,586
-------- -------- -------- --------
Costs and Expenses:
Salaries and benefits............ $286,321 $250,243 $ 0 $536,564
Office and general............... 133,180 126,417 0 259,597
Unusual transactions............. 0 6,852 0 6,852
Interest expense................. 9,818 4,990 0 14,808
Other (income)................... (3,132) (2,648) 0 (5,780)
-------- -------- -------- --------
$426,187 $385,854 $ 0 $812,041
-------- -------- -------- --------
Income before Provision for Income
Taxes............................. $ 18,364 $ 27,181 $ 0 $ 45,545
Provision for Federal, Foreign and
State Income Taxes................ 8,778 13,515 0 22,293
-------- -------- -------- --------
$ 9,586 $ 13,666 $ 0 $ 23,252
Minority Interest Income (Expense). (786) (87) 0 (873)
Equity in Net Earnings of
Affiliated Companies.............. 5,423 931 0 6,354
-------- -------- -------- --------
Net Income......................... $ 14,223 $ 14,510 $ 0 $ 28,733
======== ======== ======== ========
Net Income Per Share............... $.58 $.38 $.66
======== ======== ========
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding....................... 24,397 37,832 19,294(5) 43,691
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma combined financial information.
F-30
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
----------------------
TRUE NORTH BOZELL ADJUSTMENTS COMBINED
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues........................... $350,166 $340,057 $ 0 $690,223
-------- -------- -------- --------
Costs and Expenses:
Salaries and benefits............ $230,623 $209,664 $ 0 $440,287
Office and general............... 109,586 107,062 0 216,648
Unusual transactions............. 0 (598) 0 (598)
Interest expense................. 7,140 4,681 0 11,821
Other (income)................... (4,978) (2,172) 0 (7,150)
-------- -------- -------- --------
$342,371 $318,637 $ 0 $661,008
-------- -------- -------- --------
Income before Provision for Income
Taxes............................. $ 7,795 $ 21,420 $ 0 $ 29,215
Provision for Federal, Foreign and
State Income Taxes................ 3,914 11,895 0 15,809
-------- -------- -------- --------
$ 3,881 $ 9,525 $ 0 $ 13,406
Minority Interest Income (Expense). 358 (269) 0 89
Equity in Net Earnings of
Affiliated Companies.............. 7,121 911 0 8,032
-------- -------- -------- --------
Net Income......................... $ 11,360 $ 10,167 $ 0 $ 21,527
======== ======== ======== ========
Net Income Per Share............... $0.49 $0.27 $0.50
======== ======== ========
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding....................... 23,228 38,171 19,467(5) 42,695
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma combined financial information.
F-31
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
NOTE 1--BASIS OF PRESENTATION
For accounting purposes, the Merger will be treated as a pooling-of-
interests. Accordingly, the accompanying unaudited pro forma condensed
combined financial statements give retroactive effect to the Merger and
include the combined operations of True North and Bozell for all periods
presented.
True North's fiscal year ends on December 31; Bozell's fiscal year ends on
March 31. True North's financial reporting period ending December 31 will be
adopted by the combined entity. For purposes of the Unaudited Pro Forma
Combined Statements of Operations, the year-ends of the two companies have not
been conformed, as permitted under Regulation S-X. For purposes of presenting
unaudited pro forma combined financial data, revenues of $115,874 and $147,454
and net income of $5,499 and $6,110, representing Bozell's results of
operations for the period from January 1 through March 31, 1996 and 1997,
respectively, are included in the unaudited pro forma combined results of
operations for the twelve months ended December 31, 1995 and 1996,
respectively, and for the nine months ended September 30, 1996 and 1997,
respectively.
NOTE 2--ADJUSTMENTS TO CONFORM ACCOUNTING POLICIES
As required in a pooling-of-interests business combination, the Unaudited
Pro Forma Combined Financial Information reflects certain adjustments to
conform the accounting policies of both companies. The significant accounting
policies of True North and Bozell differ in only one respect: True North has
accounted for SAB 51 gains and losses through its income statement whereas
Bozell has accounted for such gains and losses as changes in stockholders'
equity. On a combined basis, True North and Bozell will account for such gains
as changes in stockholders' equity. As a result, these adjustments
retroactively conform, for all periods presented, this accounting policy of
both companies, consistent with the intent to present both entities as though
they had always been combined.
NOTE 3--ADJUSTMENTS TO RECORD MERGER-RELATED CHARGE
True North expects to record a material pre-tax charge following
consummation of the Merger to cover the direct costs of the merger (including
the fees of financial advisors, legal counsel and independent auditors), the
cost of integrating certain aspects of the businesses of True North and
Bozell, the cost of asset rationalizations and employee terminations to
eliminate duplicative functions and excess capacity, and other unusual items.
This pre-tax charge is estimated to be in the range of $80,000-$120,000. The
after-tax impact of this charge is estimated to be in the range of $56,000-
$81,000, and the midpoint of this range has been charged to Retained Earnings
in the Unaudited Pro Forma Combined Condensed Balance Sheet at September 30,
1997. The estimated charge and nature of the costs included therein as well as
the periods in which these costs are recorded are subject to change as True
North's integration plan is developed and more accurate estimates become
possible. Moreover, the after-tax cost of the charge is likely to change
depending upon the magnitude of the pre-tax charge, the nature of the costs
therein, the tax laws of the particular countries applicable to the entities
incurring these costs, and the tax-paying status of such entities. For
purposes of recording the various components of this charge in the Unaudited
Pro Forma Combined Condensed Balance Sheet at September 30, 1997, the
following assumptions were made: (1) $10,000 of the pre-tax charge represents
the write-off of leasehold improvements and other fixed assets, (2) $35,000 of
the pre-tax charge represents lease reserves for excess space, and (3) $55,000
of the pre-tax charge represents severance and other costs related to
restructuring activities. The entire amount of the estimated tax benefit of
$32,000 was recorded as a noncurrent deferred tax asset.
NOTE 4--INCOME TAXES
Estimated provision for income taxes related to pro forma adjustments are
based on an assumed combined federal and state income tax rate of
approximately 40%, adjusted for certain nondeductible items.
F-32
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NOTE 5--NET INCOME (LOSS) PER COMMON SHARE
The pro forma combined per common share data has been computed based on the
combined historical income from continuing operations as adjusted for
retroactive changes in certain accounting methods of both companies in order
to achieve conformity and on the combined historical weighted average common
shares outstanding. For purposes of this calculation, Bozell's weighted
average common and common equivalent shares outstanding were multiplied by
0.51, the Exchange Ratio. See "THE MERGER AGREEMENT--Conversion of Shares in
the Merger."
F-33
<PAGE>
ANNEX I (CONFORMED COPY)
AGREEMENT AND PLAN OF MERGER
AMONG
TRUE NORTH COMMUNICATIONS INC.
CHEROKEE ACQUISITION CORPORATION
AND
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
DATED AS OF JULY 30, 1997
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TABLE OF CONTENTS
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ARTICLE I THE MERGER....................................................... I-1
Section 1.1 The Merger.................................................. I-1
Section 1.2 Effective Time.............................................. I-1
Section 1.3 Effects of the Merger....................................... I-2
Section 1.4 Charter and By-laws; Directors; Officers.................... I-2
Section 1.5 Conversion of Securities.................................... I-2
Section 1.6 Parent to Make Certificates Available....................... I-3
Section 1.7 Dividends; Transfer Taxes; Withholding...................... I-3
Section 1.8 No Fractional Securities.................................... I-4
Section 1.9 Return of Exchange Fund..................................... I-4
Section 1.10 Adjustment of Exchange Ratio................................ I-4
Section 1.11 No Further Ownership Rights in Company Common Stock......... I-5
Section 1.12 Closing of Company Transfer Books........................... I-5
Section 1.13 Lost Certificates........................................... I-5
Section 1.14 Further Assurances.......................................... I-5
Section 1.15 Closing..................................................... I-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB................ I-5
Section 2.1 Organization, Standing and Power............................ I-5
Section 2.2 Subsidiaries................................................ I-6
Section 2.3 Capital Structure........................................... I-6
Section 2.4 Authority................................................... I-7
Section 2.5 Consents and Approvals; No Violations....................... I-7
Section 2.6 SEC Documents and Other Reports............................. I-8
Section 2.7 Absence of Certain Changes or Events........................ I-8
Section 2.8 Permits and Compliance...................................... I-8
Section 2.9 Tax Matters................................................. I-9
Section 2.10 Actions and Proceedings..................................... I-10
Section 2.11 Certain Agreements.......................................... I-10
Section 2.12 Benefit Plans............................................... I-11
Section 2.13 Compliance with Certain Laws................................ I-13
Section 2.14 Liabilities................................................. I-13
Section 2.15 Labor Matters............................................... I-13
Section 2.16 Intellectual Property....................................... I-13
Section 2.17 Continuity of Business...................................... I-13
Section 2.18 Company..................................................... I-14
Section 2.19 Information in Registration Statement....................... I-14
Section 2.20 Opinion of Financial Advisor................................ I-14
Section 2.22 Required Vote of Parent Stockholders........................ I-14
Section 2.23 Pooling of Interests........................................ I-14
Section 2.24 Operations of Sub........................................... I-14
Section 2.25 Brokers..................................................... I-14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. I-15
Section 3.1 Organization................................................ I-15
Section 3.2 Subsidiaries................................................ I-15
Section 3.3 Capital Structure........................................... I-15
Section 3.4 Authority................................................... I-16
Section 3.5 Consent and Approvals; No Violations........................ I-16
Section 3.6 Company Financial Information............................... I-16
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Section 3.7 Absence of Certain Changes or Events....................... I-17
Section 3.8 Permits and Compliance..................................... I-17
Section 3.9 Tax Matters................................................ I-17
Section 3.10 Actions and Proceedings.................................... I-18
Section 3.11 Certain Agreements......................................... I-18
Section 3.12 Benefit Plans.............................................. I-19
Section 3.13 Compliance with Certain Laws............................... I-21
Section 3.14 Liabilities................................................ I-21
Section 3.15 Labor Matters.............................................. I-21
Section 3.16 Intellectual Property...................................... I-21
Section 3.17 Continuity of Business..................................... I-21
Section 3.18 Company Employees.......................................... I-21
Section 3.19 Information in Registration Statement...................... I-22
Section 3.20 Opinion of Financial Advisor............................... I-22
Section 3.21 State Takeover Statutes.................................... I-22
Section 3.22 Required Vote of Company Stockholders...................... I-22
Section 3.23 Pooling of Interests....................................... I-22
Section 3.24 Brokers.................................................... I-22
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS...................... I-22
Section 4.1 Conduct of Business by the Company Pending the Merger...... I-22
Section 4.2 Conduct of Business by Parent Pending the Merger........... I-24
Section 4.3 No Solicitation............................................ I-25
Section 4.4 Third Party Standstill Agreements.......................... I-26
Section 4.5 Pooling of Interests; Reorganization....................... I-27
Section 4.6 Other Actions.............................................. I-27
ARTICLE V ADDITIONAL AGREEMENTS........................................... I-27
Section 5.1 Stockholder Meetings....................................... I-27
Section 5.2 Proxy Statement; Filings; Other Actions.................... I-27
Section 5.3 Comfort Letters............................................ I-28
Section 5.4 Access to Information; Financial Reports................... I-28
Section 5.5 Compliance with the Securities Act......................... I-29
Section 5.6 Stock Exchange Listings.................................... I-29
Section 5.7 Fees and Expenses.......................................... I-29
Section 5.8 Company Stock Options...................................... I-30
Section 5.9 Reasonable Best Efforts.................................... I-31
Section 5.10 Public Announcements....................................... I-31
Section 5.11 Real Estate Transfer and Gains Tax......................... I-31
Section 5.12 State Takeover Laws........................................ I-31
Section 5.13 Indemnification; Directors and Officers Insurance.......... I-32
Section 5.14 Notification of Certain Matters............................ I-32
Section 5.15 Employee Benefit Plans..................................... I-32
Section 5.16 Management of Parent....................................... I-33
Section 5.17 Board of Directors of Parent and Committees Thereof........ I-34
Section 5.18 Certain Litigation......................................... I-34
Section 5.19 FIRPTA Certificate......................................... I-34
ARTICLE VI CONDITIONS PRECEDENT TO THE MERGER............................. I-34
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. I-34
Section 6.2 Conditions to Obligation of the Company to Effect the Merg-
er..................................................................... I-35
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger................................................................. I-36
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ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............................. I-38
Section 7.1 Termination................................................. I-38
Section 7.2 Effect of Termination....................................... I-39
Section 7.3 Amendment................................................... I-39
Section 7.4 Extension; Waiver........................................... I-39
ARTICLE VIII GENERAL PROVISIONS............................................ I-40
Section 8.1 Non-Survival of Representations and Warranties.............. I-40
Section 8.2 Notices..................................................... I-40
Section 8.3 Interpretation.............................................. I-40
Section 8.4 Counterparts................................................ I-40
Section 8.5 Entire Agreement; No Third-Party Beneficiaries.............. I-40
Section 8.6 Governing Law............................................... I-40
Section 8.7 Assignment.................................................. I-40
Section 8.8 Severability................................................ I-41
Section 8.9 Enforcement of this Agreement............................... I-41
Section 8.10 Obligations of Subsidiaries................................. I-41
SCHEDULE 1--Principal Stockholders
SCHEDULE 2--Initial Parent Board Committees Following Effective Time
EXHIBIT A--Company Stockholders Agreement
EXHIBIT B--Parent Stockholders Agreement
EXHIBIT C--Bruce Mason Employment Agreement
EXHIBIT D--Charles D. Peebler, Jr. Employment Agreement
EXHIBIT E--Richard S. Braddock Agreements
EXHIBIT 5.5(a)
EXHIBIT 5.5(b)
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<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger, dated as of July 30, 1997 (this "Agreement"),
among True North Communications Inc., a Delaware corporation ("Parent"),
Cherokee Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Parent ("Sub"), and Bozell, Jacobs, Kenyon & Eckhardt, Inc., a
Delaware corporation (the "Company") (Sub and the Company being hereinafter
collectively referred to as the "Constituent Corporations").
WITNESSETH:
Whereas, the respective Boards of Directors of Parent, Sub and the Company
have approved the merger of Sub and the Company (the "Merger"), upon the terms
and subject to the conditions set forth herein, whereby each issued and
outstanding share of the Company's Class A Common Stock, par value $.001 per
share ("Class A Common Stock"), and Class B Common Stock, par value $.001 per
share ("Class B Common Stock" and, together with Class A Common Stock,
"Company Common Stock"), not owned directly by Parent or the Company will be
converted into shares of Parent Common Stock, par value $.33 1/3 per share
("Parent Common Stock");
Whereas, the respective Boards of Directors of Parent and the Company have
determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is in the best interest of their
respective stockholders;
Whereas, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
Whereas, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests; and
Whereas, concurrently with the execution and delivery of this Agreement and
as an inducement to each other to enter into this Agreement, (i) the
stockholders of the Company listed on Schedule 1 hereto (the "Principal
Stockholders") have entered into an agreement with Parent, substantially in
the form attached hereto as Exhibit A (the "Company Stockholder Agreement"),
pursuant to which the Principal Stockholders have agreed, among other things,
to vote their shares of Company Common Stock in favor of the Merger, and (ii)
certain stockholders of Parent have entered into an agreement with the
Company, substantially in the form attached hereto as Exhibit B (the "Parent
Stockholder Agreement"), pursuant to which such stockholders have agreed,
among other things, to vote their shares of Parent Common Stock in favor of
the Charter Amendment (as hereinafter defined), the Share Issuance (as
hereinafter defined) and the election of directors provided for herein; and
Now, Therefore, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions hereof,
and in accordance with the Delaware General Corporation Law (the "DGCL"), Sub
shall be merged with and into the Company at the Effective Time (as
hereinafter defined). Following the Merger, the separate corporate existence
of Sub shall cease and the Company shall continue as the surviving corporation
(the "Surviving Corporation") and shall succeed to and assume all the rights
and obligations of Sub in accordance with the DGCL.
Section 1.2 Effective Time. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), executed in accordance
with the relevant provisions of the DGCL, is filed with the
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Secretary of State of the State of Delaware. When used in this Agreement, the
term "Effective Time" shall mean the date and time at which the Certificate of
Merger is accepted for record. The filing of the Certificate of Merger shall
be made on the date of the Closing (as defined in Section 1.15).
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
Section 1.4 Charter and By-laws; Directors; Officers. (a) At the Effective
Time, the Restated Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law; provided, however, that at the
Effective Time, Article FOURTH of the Restated Certificate of Incorporation of
the Company shall be amended to read in its entirety as follows: "The total
number of shares of all classes of capital stock which the Corporation shall
have authority to issue is 1,000 shares of Common Stock, par value $.01 per
share." At the Effective Time, the By-laws of the Company, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by the
Certificate of Incorporation.
(b) At the Effective Time, the Board of Directors of the Surviving
Corporation shall be comprised of the following individuals: Leo-Arthur
Kelmenson, Charles D. Peebler, Jr., David A. Bell, Dennis McClain and
Valentine J. Zammit.
(c) Sections 5.16 and 5.17 hereof set forth agreements as to officers and
directors, respectively, of Parent.
Section 1.5 Conversion of Securities. As of the Effective Time, by virtue of
the Merger and without any action on the part of Sub, the Company or the
holders of any securities of the Constituent Corporations:
(a) Capital Stock of Sub. Each issued and outstanding share of common
stock, par value $.01 per share, of Sub shall be converted into one validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock. All shares of
Company Common Stock that are held in the treasury of the Company and any
shares of Company Common Stock owned by Parent or by any wholly-owned
Subsidiary of Parent shall be canceled and no capital stock of Parent or
other consideration shall be delivered in exchange therefor. For all
purposes of this Agreement, shares held of record by the Company's Stock
Bonus Plan and its Profit Sharing and Savings Plan shall be treated as
issued and outstanding and shall not be considered treasury shares.
(c) Conversion of Shares of Company Common Stock. Subject to the
provisions of Sections 1.8 and 1.10, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with Section 1.5(b) and Dissenting
Shares (as hereinafter defined)) shall be converted into 0.51 (such number
being the "Exchange Ratio") validly issued, fully paid and nonassessable
shares of Parent Common Stock. All such shares of Company Common Stock,
when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive (i) any dividends and other distributions in accordance
with Section 1.7, (ii) certificates representing the shares of Parent
Common Stock into which such shares are converted and (iii) any cash,
without interest, in lieu of fractional shares to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance
with Section 1.8.
(d) Warrants, Stock Options, Etc. Except to the extent otherwise provided
in Section 5.8, each outstanding stock option or other right to purchase
shares of Company Common Stock (excluding the Warrants (as hereinafter
defined)), whether or not then exercisable or vested, shall remain
outstanding after the Effective Time and shall, at the Effective Time, be
converted into and become the right to purchase, subject to the
satisfaction of the vesting provisions and the payment of the exercise
price thereof, that number of shares of Parent Common Stock equal to the
Exchange Ratio, for each share of Company
I-2
<PAGE>
Common Stock that would have been issued if such option or other right had
been exercised immediately prior to the Effective Time. Each outstanding
Warrant shall be converted into that number of shares of Parent Common
Stock and such other property as would have been received by the holder if
such Warrant had been exercised immediately prior to the Effective Time and
the Company Common Stock that would have been received upon such exercise
had been converted pursuant to Section 1.5(c).
(e) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding shares of Company
Common Stock held by a person (a "Dissenting Stockholder") who objects to
the Merger and complies with all the provisions of the DGCL concerning the
right of holders of shares of Company Common Stock to dissent from the
Merger and require appraisal of their shares (the "Dissenting Shares")
shall not be converted as described in Section 1.5(c), but shall be
converted into the right to receive such consideration as may be determined
to be due to such Dissenting Stockholder pursuant to the DGCL. If, after
the Effective Time, such Dissenting Stockholder withdraws his demand for
appraisal or fails to perfect or otherwise loses his right of appraisal, in
any case pursuant to the DGCL, his shares of Company Common Stock shall be
deemed to be converted as of the Effective Time solely into the amount of
shares of Parent Common Stock provided in Section 1.5(c).
Section 1.6 Parent to Make Certificates Available.
(a) Exchange of Certificates. Parent shall authorize First Chicago Trust
Company of New York (or such other bank or trust company as shall be
acceptable to Parent and the Company) to act as the Exchange Agent
hereunder (the "Exchange Agent"). Within three business days after the
Effective Time (but subject to Section 1.8), Parent shall deposit with the
Exchange Agent, in trust for the holders of shares of Company Common Stock
converted in the Merger, (i) certificates representing the shares of Parent
Common Stock issuable pursuant to Section 1.5(c) in exchange for
outstanding shares of Company Common Stock or issuable pursuant to Section
1.5(d) in exchange for outstanding Warrants, (ii) cash required to make
payments in lieu of any fractional shares pursuant to Section 1.8 and (iii)
cash or other property to pay or make any dividends or distributions
pursuant to Section 1.7 (such cash and shares of Parent Common Stock,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions, deliver the Parent Common Stock
contemplated to be issued pursuant to Section 1.5(c) out of the Exchange
Fund.
(b) Exchange Procedures. Within three business days after the Effective
Time, the Exchange Agent shall mail to each record holder of a certificate
or certificates that immediately prior to the Effective Time represented
outstanding shares of Company Common Stock or outstanding Warrants
converted in the Merger (the "Certificates") a letter of transmittal in
form reasonably acceptable to the Company (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon actual delivery of the Certificates to the Exchange
Agent, and shall contain instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock and cash in lieu of fractional shares). Upon surrender for
cancellation to the Exchange Agent of a Certificate, together with such
letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (i) a certificate representing
that number of whole shares of Parent Common Stock into which the shares or
Warrants represented by the surrendered Certificate shall have been
converted at the Effective Time pursuant to this Article I, (ii) cash in
lieu of any fractional share in accordance with Section 1.8 and (iii)
certain dividends and other distributions in accordance with Section 1.7.
Any Certificate so surrendered shall forthwith be canceled.
Section 1.7 Dividends; Transfer Taxes; Withholding. No dividends or other
distributions that are declared on or after the Effective Time on Parent
Common Stock, or are payable to the holders of record thereof on or after the
Effective Time, will be paid to any person entitled by reason of the Merger to
receive a certificate representing Parent Common Stock until such person
surrenders the related Certificate or Certificates, as provided in Section
1.6, and no cash payment in lieu of fractional shares will be paid to any such
person pursuant to Section 1.8 until such person shall so surrender the
related Certificate or Certificates. Subject to the effect of applicable
escheat, abandoned property or similar laws, there shall be paid to each
record holder of a new
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certificate representing such Parent Common Stock: (i) at the time of such
surrender or as promptly as practicable thereafter, the amount of any
dividends or other distributions theretofore paid with respect to the shares
of Parent Common Stock represented by such new certificate and having a record
date on or after the Effective Time and a payment date prior to such
surrender; (ii) at the appropriate payment date or as promptly as practicable
thereafter, the amount of any dividends or other distributions payable with
respect to such shares of Parent Common Stock and having a record date on or
after the Effective Time but prior to such surrender and a payment date on or
subsequent to such surrender; and (iii) at the time of such surrender or as
promptly as practicable thereafter, the amount of any cash payable with
respect to a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 1.8. In no event shall the person entitled to
receive such dividends or other distributions be entitled to receive interest
on such dividends or other distributions. If any certificate representing
shares of Parent Common Stock or cash or other property is to be issued or
delivered in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange shall
pay to the Exchange Agent any transfer or other taxes required by reason of
the issuance of certificates for such shares of Parent Common Stock in a name
other than that of the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. Parent or the Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to
this Agreement such amounts as Parent or the Exchange Agent is required to
deduct and withhold with respect to the making of such payment under the Code
or under any provision of federal, state, local or foreign tax law. To the
extent that amounts are so withheld by Parent or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the person in respect of which such deduction and withholding was
made by Parent or the Exchange Agent.
Section 1.8 No Fractional Securities. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates pursuant to this Article I, and no Parent
dividend or other distribution or stock split shall relate to any fractional
share, and no fractional share shall entitle the owner thereof to vote or to
any other rights of a security holder of Parent. In lieu of any such
fractional share, each holder of Company Common Stock who would otherwise have
been entitled to a fraction of a share of Parent Common Stock upon surrender
of Certificates for exchange pursuant to this Article I will be paid an amount
in cash (without interest), rounded to the nearest cent, determined by
multiplying (i) the per share closing price on the New York Stock Exchange,
Inc. (the "NYSE") of Parent Common Stock (as reported in the NYSE Composite
Transactions) on the trading day prior to the date of the Effective Time by
(ii) the fractional interest to which such holder would otherwise be entitled.
Within three business days after the determination of the amount of cash, if
any, to be paid to holders of fractional share interests, the Exchange Agent
shall so notify Parent, and Parent shall deposit such amount with the Exchange
Agent and shall cause the Exchange Agent to forward payments to such holders
of fractional share interests subject to and in accordance with the terms of
Section 1.7 and this Section 1.8. For purposes of paying such cash in lieu of
fractional shares, all Certificates surrendered for exchange by a Company
stockholder shall be aggregated, and no such Company stockholder will receive
cash in lieu of fractional shares in an amount equal to or greater than the
value of one full share of Parent Common Stock with respect to such
Certificates surrendered.
Section 1.9 Return of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the former stockholders of the Company for one year
after the Effective Time shall be delivered to Parent and any such former
stockholders who have not theretofore complied with this Article I shall
thereafter look only to Parent for payment of their claim for Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock and any
dividends or distributions with respect to Parent Common Stock. Neither Parent
nor the Surviving Corporation shall be liable to any former holder of Company
Common Stock for any such shares of Parent Common Stock, cash and dividends
and distributions held in the Exchange Fund which is delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
Section 1.10 Adjustment of Exchange Ratio. Subject to Section 4.2, in the
event of any reclassification, stock split or stock dividend with respect to
Parent Common Stock, any change or conversion of Parent Common
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Stock into other securities or any other dividend or distribution with respect
to the Parent Common Stock, other than normal quarterly cash dividends (or if
a record date with respect to any of the foregoing should occur), prior to the
Effective Time, appropriate and proportionate adjustments, if any, shall be
made to the Exchange Ratio, and all references to the Exchange Ratio in this
Agreement shall be deemed to be to the Exchange Ratio as so adjusted.
Section 1.11 No Further Ownership Rights in Company Common Stock. All shares
of Parent Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms hereof (including any cash paid pursuant to
Section 1.8) shall be deemed to have been issued in full satisfaction of all
rights pertaining to the shares of Company Common Stock represented by such
Certificates.
Section 1.12 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares
of Company Common Stock or Warrants shall thereafter be made on the records of
the Company. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, the Exchange Agent or the Parent, such Certificates
shall be canceled and exchanged as provided in this Article I.
Section 1.13 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent or the Exchange Agent, the posting by such person of a
bond, in such reasonable amount as Parent or the Exchange Agent may direct
(but consistent with the practices Parent applies to its own stockholders) as
indemnity against any claim that may be made against them with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the shares of Parent Common Stock, any cash in lieu
of fractional shares of Parent Common Stock to which the holders thereof are
entitled pursuant to Section 1.8 and any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 1.7.
Section 1.14 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise,
in the Surviving Corporation its right, title or interest in, to or under any
of the rights, privileges, powers, franchises, properties or assets of either
of the Constituent Corporations, or (b) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and
directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and to do, in the name and on
behalf of either Constituent Corporation, all such other acts and things as
may be necessary, desirable or proper to vest, perfect or confirm the
Surviving Corporation's right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of such
Constituent Corporation and otherwise to carry out the purposes of this
Agreement.
Section 1.15 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") and all actions specified in this Agreement to occur
at the Closing shall take place at the offices of Sidley & Austin, One First
National Plaza, Chicago, Illinois, at 10:00 a.m., local time, no later than
the second business day following the day on which the last of the conditions
set forth in Article VI shall have been fulfilled or waived, or at such other
time and place as Parent and the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 2.1 Organization, Standing and Power. Parent, Sub and each of
Parent's Significant Subsidiaries (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of
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the jurisdiction of its incorporation and has all requisite corporate power
and authority to carry on its business as now being conducted, except where
the failure to be so organized, validly existing or in good standing would not
have a Material Adverse Effect (as hereinafter defined) on Parent or prevent
or materially delay the consummation of the Merger. Parent and each of its
Significant Subsidiaries is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on Parent or prevent or materially delay the
consummation of the Merger. Parent has made available to the Company complete
and correct copies of its Restated Certificate of Incorporation and By-Laws
and the Restated Certificate of Incorporation and By-laws (or similar
organizational documents) of its Significant Subsidiaries.
As used in this Agreement, any reference to any state of facts, event,
change or effect having a "Material Adverse Effect" on or with respect to
Parent or the Company, as the case may be, means such state of facts, event,
change or effect has had, or would reasonably be expected to have, a material
adverse effect on the business, properties, results of operations or financial
condition of Parent and its Subsidiaries, taken as a whole, or the Company and
its Subsidiaries, taken as a whole, as the case may be. No dollar amounts used
as a threshold in any provision hereof (including without limitation the
amount appearing in Sections 2.17 and 3.17) shall be determinative of
materiality. For purposes of this Agreement, (i) "Subsidiary" means any
corporation, partnership, limited liability company, joint venture or other
legal entity of which Parent or the Company, as the case may be (either alone
or through or together with any other Subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation, partnership, joint
venture or other legal entity and (ii) "Significant Subsidiary" means any
Subsidiary of Parent or the Company, as the case may be, that would constitute
a "significant subsidiary" of Parent or the Company within the meaning of Rule
1.02(v) of Regulation S-X as promulgated by the Securities and Exchange
Commission (the "SEC").
Section 2.2 Subsidiaries. Except as set forth in item 2.2 of the letter
dated the date hereof and delivered on the date hereof by Parent to the
Company, which letter relates to this Agreement and is designated therein as
the Parent Letter (the "Parent Letter"), Exhibit 21 to Parent's Annual Report
on Form 10-K for the year ended December 31, 1996, as filed with the SEC (the
"Parent Annual Report"), is a true, accurate and correct statement in all
material respects of all of the information required to be set forth therein
by the regulations of the SEC.
Section 2.3 Capital Structure. (a) The authorized capital stock of Parent
consists of 50,000,000 shares of Parent Common Stock and 100,000 shares of
Preferred Stock, par value $1.00 per share ("Parent Preferred Stock"), of
which 30,000 shares have been designated as "Series A Junior Participating
Preferred Stock" (the "Series A Preferred Stock"). At the close of business on
July 29, 1997, (i) 25,099,092 shares of Parent Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable
and free of preemptive rights, and (ii) no shares of Parent Preferred Stock
were outstanding.
(b) As of the date of this Agreement, except for stock options held by
current and former employees and directors of Parent and its Subsidiaries, as
described on item 2.3(b) of the Parent Letter (the "Parent Stock Options"),
and the rights to purchase shares of Series A Preferred Stock (the "Rights")
issued pursuant to the Rights Agreement (the "Rights Agreement") dated as of
November 16, 1988, as amended, and any other matter set forth in item 2.3(b)
of the Parent Letter, there are no options, warrants, calls, rights or
agreements to which Parent or any of its Subsidiaries is a party or by which
any of them is bound obligating Parent or any of its Subsidiaries to issue or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock of Parent or any Subsidiary or obligating Parent or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right or agreement.
(c) Each of the outstanding shares of capital stock of each of Parent's
Significant Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and is owned by a direct or indirect wholly owned Subsidiary of
Parent, free and clear of all liens, pledges, security interests, rights of
first refusal, claims and other encumbrances (collectively, "Liens"), in each
case except as reflected in item 2.3(c) of the Parent Letter.
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(d) Except as set forth in item 2.3(d) of the Parent Letter, as of the date
of this Agreement, there are no outstanding obligations of Parent or any of
its Subsidiaries (i) to repurchase, redeem or otherwise acquire any shares of
capital stock of Parent or any of its Subsidiaries, (ii) to vote or to dispose
of any shares of the capital stock of any of Parent's Subsidiaries or (iii) to
make or pay any dividend, distribution or other payment in respect of its
capital stock or other equity related right of Parent or any of its
Subsidiaries.
(e) Except for shares of Parent Common Stock, no voting rights with respect
to Parent are conferred on the holders of any outstanding equity or debt
instruments of Parent.
Section 2.4 Authority. The Boards of Directors of Parent and Sub have duly
approved this Agreement and the election of directors and officers as provided
in Sections 5.16 and 5.17. The Board of Directors of Parent has declared
advisable an amendment to Parent's Restated Certificate of Incorporation to
increase the number of authorized shares of Parent Common Stock to 90,000,000
(the "Charter Amendment"), and the Board of Directors of Parent has resolved
to recommend the approval by Parent's stockholders of the Charter Amendment
and the issuance of Parent Common Stock in connection with the Merger (the
"Share Issuance"). Each of Parent and Sub has all corporate power and
authority to enter into this Agreement and, subject to approval by the
stockholders of Parent of the Charter Amendment, the Share Issuance and the
election of directors as provided in Section 5.17, to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub, subject to approval by the
stockholders of Parent of the Charter Amendment and the Share Issuance. This
Agreement has been duly executed and delivered by Parent and Sub and (assuming
the valid authorization, execution and delivery of this Agreement by the
Company) constitutes the valid and binding obligation of Parent and Sub
enforceable against each of them in accordance with its terms, except that
such enforceability (i) may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting or relating to the enforcement of creditors'
rights generally and (ii) is subject to general principles of equity. The
Charter Amendment, the Share Issuance and the filing of a registration
statement on Form S-4 with the SEC by Parent under the Securities Act of 1933,
as amended (together with the rules and regulations promulgated thereunder,
the "Securities Act"), for the purpose of registering shares of Parent Common
Stock to be issued in the Merger (together with any amendments or supplements
thereto, whether prior to or after the effective date thereof, the
"Registration Statement") have been duly authorized by Parent's Board of
Directors.
Section 2.5 Consents and Approvals; No Violations. Except as set forth in
item 2.5 of the Parent Letter, the execution and delivery by Parent and Sub of
this Agreement do not, and the consummation of the transactions contemplated
hereby and compliance by Parent and Sub with the provisions hereof will not,
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give a right of termination, cancellation or
acceleration of any obligation or the loss of a benefit under, or result in
the creation of any Lien upon, any of the properties or assets of Parent or
any of its Subsidiaries under, (i) the Restated Certificate of Incorporation,
By-laws or comparable organization documents of Parent or any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Parent or any of its Subsidiaries or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clause (ii) or (iii), any
such violations, defaults, rights, losses or Liens that, individually or in
the aggregate, would not have a Material Adverse Effect on Parent or prevent
or materially delay the consummation of Merger. No filing or registration
with, or authorization, consent or approval of, any domestic (federal and
state), foreign or supranational court, commission, governmental body,
regulatory agency, authority or tribunal (a "Governmental Entity") is required
by or with respect to Parent or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by Parent or Sub or is necessary for
the consummation of the Merger and the other transactions contemplated by this
Agreement, except (i) in connection, or in compliance, with the provisions of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act and the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act"), (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware in accordance with the DGCL, (iii)
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such filings and consents as may be required under any environmental, health
or safety law or regulation pertaining to any notification, disclosure or
required approval triggered by the Merger, (iv) such filings as may be
required in connection with the taxes described in Section 5.11 and such
filings contemplated by Section 5.19, (v) applicable requirements, if any, of
state securities or "blue sky" laws ("Blue Sky Laws") and the NYSE, (vi) as
may be required under foreign laws, (vii) such filings as may be required
under the DGCL in connection with the Charter Amendment and (viii) such other
consents, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, have a Material Adverse Effect on Parent, or prevent or materially
delay the consummation of the Merger.
Section 2.6 SEC Documents and Other Reports. Except as set forth in item 2.6
of the Parent Letter, Parent has timely filed all required documents with the
SEC since January 1, 1996 (the "Parent SEC Documents"). As of their respective
dates, the Parent SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and, at the respective times they were filed, none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements (including, in each
case, any notes thereto) of Parent included in the Parent SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto as of their respective dates of filing, were prepared in accordance
with United States generally accepted accounting principles (except, in the
case of the unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented in all
material respects the consolidated financial position of Parent and its
consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein). Except as disclosed in the Parent SEC Documents or as required by
United States generally accepted accounting principles, Parent has not, since
December 31, 1996, made any change in the accounting practices or policies
applied in the preparation of financial statements.
Section 2.7 Absence of Certain Changes or Events. Except as disclosed in
Parent SEC Documents filed with the SEC prior to the date of this Agreement
and except as disclosed in item 2.7 of the Parent Letter, since December 31,
1996: (A) Parent and its Subsidiaries have not incurred any material liability
or obligation (indirect, direct or contingent), or entered into any material
oral or written agreement or other transaction, that is not in the ordinary
course of business or that could reasonably be expected to result in a
Material Adverse Effect on Parent; (B) Parent and its Subsidiaries have not
sustained any loss or interference with their business or properties from
fire, flood, windstorm, accident or other calamity (whether or not covered by
insurance) that has had or that could reasonably be expected to have a
Material Adverse Effect on Parent; (C) there has been no material change in
the indebtedness of Parent or its Subsidiaries and no change in the capital
stock of Parent except for the issuance of shares of Parent Common Stock
pursuant to Parent Stock Options; (D) there has been no event causing a
Material Adverse Effect on the Parent nor any development that could,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on Parent; and (E) during the period from December 31,
1996 through the date of this Agreement, neither Parent nor any of its
Subsidiaries has taken any action that, if taken during the period from the
date of this Agreement through the Effective Time, would constitute a breach
of Section 4.2.
Section 2.8 Permits and Compliance. Each of Parent and its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity necessary for Parent or any of its Subsidiaries to
own, lease and operate its properties or to carry on its business as it is now
being conducted (the "Parent Permits"), except where the failure to have any
of the Parent Permits would not, individually or in the aggregate, have a
Material Adverse Effect on Parent or prevent or materially delay the Merger,
and, as of the date of this Agreement, no suspension or cancellation of any of
the Parent Permits is pending or, to the Knowledge of Parent (as hereinafter
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defined), threatened, except where the suspension or cancellation of any of
the Parent Permits would not, individually or in the aggregate, have a
Material Adverse Effect on Parent or prevent or materially delay the Merger.
Neither Parent nor any of its Subsidiaries is in violation of (A) its Restated
Certificate of Incorporation, By-laws or other comparable organizational
documents, (B) any applicable law, ordinance, administrative or governmental
rule or regulation or (C) any order, decree or judgment of any Governmental
Entity having jurisdiction over Parent or any of its Subsidiaries, except, in
the case of clauses (A), (B) and (C), for any violations that, individually or
in the aggregate, would not have a Material Adverse Effect on Parent or
prevent or materially delay the Merger. Except as set forth in the Parent SEC
Documents or item 2.8 of the Parent Letter, prior to the date of this
Agreement, no event of default or event that, but for the giving of notice or
the lapse of time or both, would constitute an event of default exists or,
upon the consummation by Parent of the transactions contemplated by this
Agreement, will exist under any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money or any lease, contractual license
or other agreement or instrument to which Parent or any of its Subsidiaries is
a party or by which Parent or any such Subsidiary is bound or to which any of
the properties, assets or operations of Parent or any such Subsidiary is
subject, other than any defaults that, individually or in the aggregate, would
not have a Material Adverse Effect on Parent or prevent or materially delay
the Merger. For purposes of this Agreement, "Knowledge of Parent" means the
actual knowledge of the individuals identified in item 2.8 of the Parent
Letter.
Section 2.9 Tax Matters. (a) Except as otherwise set forth in item 2.9(a) of
the Parent Letter, and other than exceptions which would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect,
(i) Parent and each of its Subsidiaries have filed all Tax Returns required to
be filed and have paid all Taxes shown to be due on such Tax Returns; (ii) all
Tax Returns filed by Parent and each Subsidiary are complete and accurate and
disclose all Taxes required to be paid by Parent and each of its Subsidiaries
for the periods covered thereby; (iii) none of Parent or any of its
Subsidiaries has waived in writing or been requested to waive in writing any
statute of limitations in respect of income Taxes which waiver is currently in
effect; (iv) the Tax Returns referred to in clause (i) relating to income or
franchise Taxes have been examined by the appropriate taxing authority or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (v) there is no action, suit, investigation,
audit, claim or assessment pending or proposed or threatened in writing with
respect to Taxes of Parent or any Subsidiary; (vi) all deficiencies asserted
or assessments made as a result of any examination of the Tax Returns referred
to in clause (i) have been paid in full or reserved against on the books of
the Parent and its Subsidiaries; and (vii) all Taxes which Parent or any of
its Subsidiaries are required by law to withhold or to collect for payment
have been duly withheld and collected, and have been paid or accrued, reserved
against and entered on the books of Parent or its Subsidiaries.
(b) Except as set forth in item 2.9(b) of the Parent Letter, no payment or
other benefit, and no acceleration of the vesting of any options, payments or
other benefits, will, as a direct or indirect result of the transactions
contemplated by this Agreement, be (or under Section 280G of the Code and the
Treasury Regulations thereunder be presumed to be) a "parachute payment" to a
"disqualified individual" (as those terms are defined in Section 280G of the
Code and the Treasury Regulations thereunder) with respect to Parent or any of
its Subsidiaries, without regard to whether such payment or acceleration is
reasonable compensation for personal services performed or to be performed in
the future. The approximate aggregate amount of "parachute payments" related
to the matters set forth in such item 2.9(b), assuming the Closing occurs on
October 31, 1997 and termination of all listed individuals without cause on
such date is set forth in such item 2.9(b).
(c) For purposes of this Agreement (i) "Tax" (and, with correlative meaning,
"Taxes") shall mean: (A) any federal, state, local or foreign net income,
gross income, gross receipts, windfall profit, severance, property,
production, sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, value-added, transfer,
stamp, or environmental tax, or any other tax, custom, duty, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
governmental authority; and (B) any liability of Parent, Company or any
Subsidiary for the payment of amounts with respect to payments of a type
described in clause (A) as a result of being a member or an affiliated,
consolidated, combined or unitary group, or as a result
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of any obligation of Parent, Company or any Subsidiary under any Tax Sharing
Arrangement or Tax indemnity arrangement; (ii) "Tax Return" shall mean any
return, report or similar statement required to be filed with respect to any
Tax (including any attached schedules), including, without limitation, any
information return, claim for refund, amended return or declaration of
estimated Tax; and (iii) "Tax Sharing Arrangement" shall mean any written or
unwritten arrangement for the allocation or payment of Tax liabilities or
payment for Tax benefits with respect to a consolidated, combined or unitary
Tax Return which Tax Return includes or has includes Parent, Company or any
Subsidiary.
Section 2.10 Actions and Proceedings. Except as set forth in the Parent SEC
Documents filed prior to the date of this Agreement and except as set forth in
item 2.10 of the Parent Letter, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against or involving
Parent or any of its Subsidiaries, or against or involving any of the present
or former directors, officers, employees, consultants, agents or stockholders
of Parent or any of its Subsidiaries, as such, any of its or their properties,
assets or business or any Parent Benefit Plan (as hereinafter defined) that,
individually or in the aggregate, would have a Material Adverse Effect on
Parent or prevent or materially delay the consummation of the Merger. As of
the date of this Agreement, except as set forth in item 2.10 of the Parent
Letter, there are no actions, suits or claims or legal, administrative or
arbitrative proceedings, labor disputes or investigations pending or, to the
Knowledge of Parent, threatened against or involving Parent or any of its
Subsidiaries or any of its or their present or former directors, officers,
employees, consultants, agents or stockholders, as such, or any of its or
their properties, assets or business or any Parent Benefit Plan that,
individually or in the aggregate, would have a Material Adverse Effect on
Parent, or prevent or materially delay the consummation of the Merger. As of
the date hereof, except as set forth in item 2.10 of the Parent Letter, there
are no actions, suits, labor disputes or other litigation, legal or
administrative proceedings or governmental investigations pending or, to the
Knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries or any of its or their present or former officers, directors,
employees, consultants, agents or stockholders, as such, or any of its or
their properties, assets or business relating to the transactions contemplated
by this Agreement.
Section 2.11 Certain Agreements. (a) Except as disclosed in the Parent SEC
Documents filed prior to the date of this Agreement or as listed in item
2.11(a) of the Parent Letter, as of the date hereof, there is no Contract (as
defined in Section 3.11) to which Parent or any of its Subsidiaries is a party
or is otherwise bound that is material (without regard to dollar value) to
Parent and its Subsidiaries taken as a whole. Item 2.11(a) of the Parent
Letter sets forth a list of the following Contracts to which Parent or any of
its Subsidiaries is a party or otherwise bound: (i) material Contracts of
partnership, joint venture or strategic alliance or with stockholders or a
significant business partner; (ii) Contracts containing covenants of Parent or
any of its Subsidiaries not to compete in any line of business or with any
person in any geographical area; (iii) Contracts relating to any material
acquisition or divestiture, consummated within the last three years, of any
operating business or assets or capital stock of any person; (iv) Contracts
relating to the borrowing of money or guarantee of any payment by a third
party in excess of $10 million; (v) confidentiality Contracts with respect to
information relating to Parent or any of its Subsidiaries (other than such
Contracts entered into in contemplation of a possible business combination);
(vi) any other Contracts pursuant to the terms of which there is either a
current or future obligation or right of Parent or any of its Subsidiaries to
make payment or incur obligations in excess of $5 million or receive payment
or value in excess of $5 million which can be canceled without liability,
premium or penalty only on ninety days or more notice; and (vii) Contracts
with the ten largest client accounts of Parent and its Subsidiaries and any
other Contract which is material (without regard to dollar value) to Parent
and its Subsidiaries taken as a whole (such Contracts required to be listed in
item 2.11(a) of the Parent Letter being referred to herein as the "Parent
Material Contracts").
(b) There have been delivered or made available to the Company true,
complete and correct copies of all Parent Material Contracts which are not
exhibits to Parent SEC Documents filed prior to the date of this Agreement. To
the Knowledge of Parent, all Parent Material Contracts are valid and binding
upon Parent or one of its Subsidiaries, as the case may be, in accordance with
their terms. There exists no event of default by Parent or its Subsidiaries
under any of such Parent Material Contracts or, to the Knowledge of Parent, by
any third party thereto, nor any event which, with notice or lapse of time or
both, would constitute an event of default by
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Parent or any of its Subsidiaries thereunder, except in each case for any
event of default that, individually or in the aggregate, would not have a
Material Adverse Effect on Parent or prevent or materially delay the
consummation of the Merger.
(c) Except as listed in item 2.11(c) of the Parent Letter, neither Parent
nor any of its Subsidiaries is a party to any agreement or plan, including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be paid, increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement. No holder of any option to
purchase shares of Parent Common Stock, or shares of Parent Common Stock
granted in connection with the performance of services for Parent or its
Subsidiaries, is or will be entitled to receive cash from Parent or any
Subsidiary of Parent in lieu of or in exchange for such option or shares as a
result of the transactions contemplated by this Agreement.
(d) Parent has made available to the Company, complete and correct copies of
the Agreement dated May 19, 1997 among Publicis SA and its affiliates, on the
one hand, and Parent and its affiliates, on the other hand, and the principal
related documents (the "Publicis Unwind Agreements"). The Publicis Unwind
Agreements constitute the valid and binding obligations of Parent and Publicis
and their respective affiliates enforceable against each of them in accordance
with their terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is subject to
general principles of equity. There has occurred no event of default (nor any
event which, with notice or lapse of time or both, would constitute an event
of default) by Parent under the Publicis Unwind Agreements, or to the
Knowledge of Parent, by any third parties thereto, except for any event of
default (or any event which, with notice or lapse of time or both, would
constitute an event of default) that, individually or in the aggregate, would
not have a Material Adverse Effect on Parent or prevent or materially delay
the consummation of the Merger. Parent has delivered to the Company a document
entitled "Summary of Publicis Proposal--Impact on Continuing Operations" pro
forma for the twelve months ended March 31, 1997 (accompanied by an "agreed-
upon procedures letter" from Arthur Andersen LLP) showing the effects on net
income and earnings per share of the transactions contemplated by the Publicis
Unwind Agreements as though they had occurred at the beginning of such period.
Section 2.12 Benefit Plans. (a) Item 2.12(a) of the Parent Letter contains a
list of each Parent Benefit Plan (as hereinafter defined). With respect to
each Parent Benefit Plan, Parent has made, or will as soon as practicable
after the date hereof make, available to the Company a true and correct copy
of (i) the most recent annual report (Form 5500 and accompanying schedules)
filed with the Internal Revenue Service (the "IRS") for such plans required to
file such reports, (ii) the plan document for such Parent Benefit Plan,
including any amendments thereto, if such plan is in writing, (iii) each trust
agreement, insurance contract or administration agreement, if any, relating to
such Parent Benefit Plan, (iv) the most recent summary plan description for
each Parent Benefit Plan for which a summary plan description is required, (v)
the most recent actuarial report or valuation relating to a Parent Benefit
Plan subject to Title IV of ERISA, (vi) the most recent determination letter,
if any, issued by the IRS with respect to any Parent Benefit Plan intended to
be qualified under Section 401(a) of the Code, (vii) any request for a
determination currently pending before the IRS and (viii) all correspondence
with the IRS, the Department of Labor or the Pension Benefit Guaranty
Corporation relating to any outstanding controversy or audit. Benefits under
all Parent Benefit Plans are as represented, and subsequent to the date as of
which documents have been made available to the Company no such benefits have
been materially increased and neither Parent nor any Subsidiary of Parent has
entered into, adopted or amended (except as required to maintain the tax-
qualified status of any Parent Benefit Plan intended to be qualified under
Section 401(a) of the Code) any Parent Benefit Plan, and, except as disclosed
in item 2.12(a) of the Parent Letter, does not have any obligation or present
intention to do so. With respect to each employee benefit plan (including,
without limitation, any "employee benefit plan", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
and any material bonus, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, severance, death benefit, insurance or other plan, arrangement or
understanding (whether or not legally binding), in each case maintained
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or contributed to for the benefit of employees of Parent or any of its
Subsidiaries or ERISA Affiliates (as hereinafter defined) (collectively, the
"Parent Benefit Plans"), individually and in the aggregate, no event has
occurred, and to the Knowledge of Parent, there exists no condition or set of
circumstances, in connection with which Parent or any of its Subsidiaries or
ERISA Affiliates could be subject to any liability that, individually or in
the aggregate, would have a Material Adverse Effect on Parent, under the terms
of such Parent Benefit Plans, ERISA, the Code or any other applicable law.
Except as listed on item 2.12(b) of the Parent Letter, all Parent Benefit
Plans that are intended to be qualified under Section 401(a) of the Code have
been determined by the IRS to be so qualified, or a timely application for
such determination is now pending or will be filed on a timely basis and,
except as listed on item 2.12(b) of the Parent Letter, to the Knowledge of
Parent, there is no reason why any Parent Benefit Plan is not so qualified in
operation. Neither Parent nor any of its Subsidiaries has any liability or
obligation under any welfare plan to provide life insurance or medical
benefits after termination of employment to any employee or dependent other
than as disclosed in item 2.12(b) of the Parent Letter or as required by (1)
Part 6 of Title I of ERISA or (2) the laws of a jurisdiction outside the
United States.
(b) With respect to the Parent Benefit Plans, there are no funded benefit
obligations for which contributions have not been made to the extent required
by law or the terms of such plans, as the case may be, or if not yet made
because such contributions are not due under law or the terms of such plans,
properly accrued in accordance with United States generally accepted
accounting principles in the financial statements of Parent and its
Subsidiaries and there are no unfunded benefit obligations as of the date
hereof which have not been accounted for in accordance with generally accepted
accounting principles in the financial statements of the Parent or any of its
Subsidiaries.
(c) (i) Each Parent Benefit Plan is in substantial compliance with ERISA,
the Code and all other applicable statutes and governmental rules and
regulations, (ii) no "reportable event" (within the meaning of Section 4043 of
ERISA) has occurred with respect to any Parent Benefit Plan subject to Title
IV of ERISA which could result in material liability to Parent or its ERISA
Affiliates, (iii) neither Parent nor any of its ERISA Affiliates would be
subject to any withdrawal liability under Part 1 of Subtitle E of Title IV of
ERISA if, as of the Effective Time, Parent or any such ERISA Affiliate were to
engage in a complete withdrawal (as defined in Section 4203 of ERISA) or
partial withdrawal (as defined in Section 4205 of ERISA) from any Parent
Multiemployer Plan (as hereinafter defined), and neither Parent nor any of its
ERISA Affiliates has instituted, or is currently considering taking, any
action to contribute to any "multiemployer plan" (within the meaning of
Section 4001(a)(3) of ERISA) other than a Parent Multiemployer Plan, (iv)
except as set forth in item 2.12(a) of the Parent Letter, no action has been
taken, or is currently being considered to terminate any Parent Benefit Plan
subject to Title IV of ERISA, and (v) neither Parent nor any of its
Subsidiaries has incurred any material liability to the IRS with respect to
any Parent Benefit Plan, including, without limitation, any liability imposed
under Chapter 43 of the Code, and no condition or circumstance has existed
that would give rise to any such liability. As of the date of the most recent
actuarial report or valuation for each Parent Benefit Plan subject to Title IV
of ERISA, the fair value of the assets of each such plan are at least equal to
the accumulated benefit obligation of such plan, based on the actuarial
methods, tables and assumptions set forth in such report or valuation, and, to
the Knowledge of Parent, there has been no change since such date to cause
such accumulated benefit obligation to exceed the current fair value of such
assets.
(d) Item 2.12(d) of the Parent Letter contains a list, as of the date of
this Agreement, of all (i) severance and employment agreements with senior
management of Parent and its Subsidiaries, (ii) severance programs and
policies of Parent or a Subsidiary of Parent with or relating to their
employees and (iii) plans, programs, agreements and other arrangements of
Parent and each of its Subsidiaries with or relating to their employees which
contain change of control or similar provisions. Parent has provided to the
Company a true and complete copy of each of the foregoing, or, with respect to
agreements with officers of Subsidiaries of Parent, will provide such a copy
as soon as practical after the date hereof.
(e) No asset of Parent or any of its Subsidiaries is subject to any lien
arising under ERISA or the Code on account of any Parent Benefit Plan, and no
event has occurred and no condition or circumstance has existed that could
give rise to any such lien. Neither Parent nor any of its Subsidiaries has
been required to provide any
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security under Section 307 of ERISA or Section 401(a)(29) or 412(f) of the
Code, and no event has occurred and no condition or circumstance has existed
that could give rise to any such requirement to provide any such security.
(f) As used herein, "Parent Multiemployer Plan" means a "multiemployer plan"
(as defined in Section 4001(a)(3) of ERISA) to which Parent or any of its
ERISA Affiliates is or has been obligated to contribute or otherwise with
respect to which is subject to any liability.
Section 2.13 Compliance with Certain Laws. The properties, assets and
operations of Parent and its Subsidiaries are in compliance with all
applicable federal, state, local and foreign laws, rules and regulations,
orders, decrees, judgments, permits and licenses relating to public and worker
health and safety (collectively, "Worker Safety Laws") and the protection and
clean-up of the environment and activities or conditions related thereto,
including, without limitation, those relating to the generation, handling,
disposal, transportation or release of hazardous materials (collectively,
"Environmental Laws"), except for any violations that, individually or in the
aggregate, are disclosed in the Parent SEC Documents or would not have a
Material Adverse Effect on Parent or prevent or materially delay the
consummation of the Merger. With respect to such properties, assets and
operations, including any previously owned, leased or operated properties,
assets or operations, there are no past, present or reasonably anticipated
future events, conditions, circumstances, activities, practices, incidents,
actions or plans of Parent or any of its Subsidiaries that may interfere with
or prevent compliance or continued compliance with applicable Worker Safety
Laws and Environmental Laws, other than any such interference or prevention as
would not, individually or in the aggregate with any such other interference
or prevention, have a Material Adverse Effect on Parent.
Section 2.14 Liabilities. Except as set forth in the Parent SEC Documents
filed prior to the date hereof, as of the date hereof, Parent and its
Subsidiaries have no liabilities, absolute or contingent, other than
liabilities that, individually or in the aggregate, would not have a Material
Adverse Effect on Parent.
Section 2.15 Labor Matters. As of the date of this Agreement, neither Parent
nor any of its Subsidiaries is a party to any collective bargaining agreement
or labor contract in the United States, except for the collective bargaining
agreements (i) between R/Greenberg Associates New York and International
Alliance of Theatrical Stage Employees, Local 600 and (ii) with major
commercial talent unions, including Screen Actors Guild and American
Federation of Television and Radio Artists. Neither Parent nor any of its
Subsidiaries has engaged in any unfair labor practice with respect to any
persons employed by or otherwise performing services primarily for Parent or
any of its Subsidiaries in the United States (the "Parent Business
Personnel"), and there is no unfair labor practice complaint against Parent or
any of its Subsidiaries by the National Labor Relations Board or any
comparable state agency pending or threatened in writing with respect to the
Parent Business Personnel, except where such unfair labor practice or
complaint, individually or in the aggregate, would not have a Material Adverse
Effect on Parent. There is no labor strike, dispute, slowdown or stoppage
pending or, to the Knowledge of Parent, threatened against or affecting Parent
or any of its Subsidiaries that may interfere with the respective business
activities of Parent or any of its Subsidiaries, except where such dispute,
strike or work stoppage, individually or in the aggregate, would not have a
Material Adverse Effect on Parent.
Section 2.16 Intellectual Property. Parent and its Subsidiaries have all
patents, patent rights, trademarks, trade names, service marks, trade secrets,
copyrights and other proprietary intellectual property rights (collectively,
"Intellectual Property Rights") as are necessary in connection with the
business of Parent and its Subsidiaries, taken as a whole, except where the
failure to have such Intellectual Property Rights, individually or in the
aggregate, would not have a Material Adverse Effect on Parent. Neither Parent
nor any of its Subsidiaries has infringed any Intellectual Property Rights of
any third party other than any infringements that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent.
Section 2.17 Continuity of Business. To the Knowledge of Parent, except as
described in item 2.17 of the Parent Letter, no client from which Parent and
its Subsidiaries received commission and fee income in the
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year ended December 31, 1996 in excess of $40 million has given notice of its
intent to terminate, materially reduce or put up for review the provision of
services by Parent or any of its Subsidiaries or has indicated that it is
considering such action.
Section 2.18 Company Employees. To the Knowledge of Parent except as
described in item 2.18 of the Parent Letter, since December 31, 1996 no
employee or group of employees of Parent or any of its Subsidiaries who is or
are responsible for a business operation of Parent or any of its Subsidiaries
which is material to Parent and its Subsidiaries, taken as a whole, has or
have delivered any notice of termination or indicated that he or she is
considering such an action.
Section 2.19 Information in Registration Statement. None of the information
to be supplied by Parent or Sub for the purpose of inclusion or incorporation
by reference in the Registration Statement or the joint proxy
statement/prospectus included therein (together with any amendments or
supplements thereto, the "Joint Proxy Statement") relating to the Stockholder
Meetings (as defined in Section 5.1) will, at the time the Registration
Statement is filed with the SEC, at the time it becomes effective under the
Securities Act and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 2.20 Opinion of Financial Advisor. Parent has received the written
opinion of Morgan Stanley & Co. Incorporated, dated the date hereof, to the
effect that, as of the date hereof, the Exchange Ratio is fair to Parent from
a financial point of view, a copy of which opinion has been delivered to the
Company.
Section 2.21 State Takeover Statutes. The Board of Directors of the Parent
has, to the extent such statutes are applicable, (a) taken all action
necessary to exempt Company, its Subsidiaries and affiliates, the Merger, this
Agreement, the Parent Stockholders' Agreement and the transactions
contemplated hereby and thereby from Section 203 of the DGCL or satisfy the
requirements thereof and (b) taken, or prior to the Effective Time will take,
all actions necessary to satisfy the provisions of Section 203 of the DGCL. To
the Knowledge of the Parent, no other state takeover statutes governing Parent
are applicable to the Merger, the Parent Stockholders' Agreement, this
Agreement and the transactions contemplated hereby and thereby.
Section 2.22 Required Vote of Parent Stockholders. The affirmative vote of a
majority of the outstanding shares of Parent Common Stock is required to
approve the Charter Amendment. The affirmative vote of a majority of the votes
cast on the Share Issuance is required to approve the Share Issuance, provided
that the total votes cast on the proposal represent a majority of the
outstanding shares of Parent Common Stock. The affirmative vote of a majority
of the votes cast in the election of directors as provided in Section 5.17 is
required to approve such election. No other vote of the stockholders of Parent
is required by law, the Restated Certificate of Incorporation or By-laws of
Parent or otherwise in order for Parent to consummate the Merger and the
transactions contemplated hereby.
Section 2.23 Pooling of Interests. To the Knowledge of Parent, neither
Parent nor any of its Subsidiaries has taken any action or failed to take any
action which action or failure would (i) jeopardize the treatment of the
Merger as a pooling of interests for accounting purposes or (ii) jeopardize
the treatment of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
Section 2.24 Operations of Sub. Sub is a direct, wholly-owned subsidiary of
Parent, was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
Section 2.25 Brokers. No broker, investment banker or other person, other
than Morgan Stanley & Co. Incorporated, the fees and expenses of which will be
paid by Parent (as reflected in an agreement, a copy of which has been
delivered to the Company), is entitled to any broker's, finder's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization. The Company and each of its Significant
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now being
conducted, except where the failure to be so organized, validly existing or in
good standing would not have a Material Adverse Effect on the Company or
prevent or materially delay the consummation of the Merger. The Company and
each of its Significant Subsidiaries is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing
would not have a Material Adverse Effect on the Company or prevent or
materially delay the consummation of the Merger. The Company has made
available to Parent complete and correct copies of its Restated Certificate of
Incorporation and By-laws and the Certificate of Incorporation and By-laws (or
similar organizational documents) of its Significant Subsidiaries.
Section 3.2 Subsidiaries. Item 3.2(a) of the letter from the Company to
Parent dated the date hereof, which letter relates to this Agreement and is
designated therein as the Company Letter (the "Company Letter"), lists the
name of each Subsidiary of the Company and the jurisdiction of its
organization, the authorized, issued and outstanding number of shares of its
equity securities and the record holder of the shares of its equity
securities.
Section 3.3 Capital Structure. (a) The authorized capital stock of the
Company consists of 12,000,000 shares of Class A Common Stock, 43,000,000
shares of Class B Common Stock, and 103,665 shares of Serial Preferred Stock,
par value $.01 per share ("Company Preferred Stock"). At the close of business
on July 29, 1997, (i) 8,266,959 shares of Class A Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable
and free of preemptive rights, (ii) 26,789,344 shares of Class B Common Stock
were issued and outstanding, all of which were validly issued, fully paid and
nonassessable and free of preemptive rights and (iii) no shares of Company
Preferred Stock were outstanding.
(b) As of the date of this Agreement, except for stock options covering not
in excess of 2,100,000 shares of Company Common Stock under the Company's
stock option plan(s) (collectively, the "Company Stock Options"), and warrants
to purchase not in excess of 1,670,496 shares of Company Common Stock (the
"Warrants") as disclosed in item 3.3(b) of the Company Letter, there are no
options, warrants, calls, rights or agreements to which the Company or except
as disclosed in item 3.3(b) of the Company Letter any of its Subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue or sell, or cause to be issued, delivered or sold,
additional shares of capital stock of the Company or any Subsidiary or
obligating the Company or any of its Subsidiaries to grant, extend or enter
into any such option, warrant, call, right or agreement.
(c) Each of the outstanding shares of capital stock of each of the Company's
Significant Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and is owned by a direct or indirect wholly owned Subsidiary of
the Company, free and clear of all Liens, in each case except as reflected in
item 3.3(c) of the Company Letter.
(d) Except as set forth in item 3.2(d) of the Company Letter, as of the date
of this Agreement, there are no outstanding obligations of the Company or any
of its Subsidiaries (i) to repurchase, redeem or otherwise acquire any shares
of capital stock of the Company or any its Subsidiaries, (ii) to vote or to
dispose of any shares of the capital stock of any of the Company's
Subsidiaries or (iii) to make or pay any dividend, distribution or other
payment in respect of its capital stock or other equity related right of the
Company or any of its Subsidiaries.
(e) Except for shares of Company Common Stock, no voting rights with respect
to the Company are conferred on the holders of any outstanding equity or debt
instruments of the Company.
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Section 3.4 Authority. The Board of Directors of the Company has duly
approved this Agreement, and has resolved to recommend the adoption of this
Agreement by the Company's stockholders and directed that this Agreement be
submitted to the Company's stockholders for approval. The Company has all
corporate power and authority to enter into this Agreement and, subject to
adoption of this Agreement by the stockholders of the Company, to consummate
the transactions contemplated hereby. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company, subject to adoption of
this Agreement by the stockholders of the Company. This Agreement has been
duly executed and delivered by the Company and (assuming the valid
authorization, execution and delivery of this Agreement by Parent and Sub)
constitutes the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of creditors'
rights generally and (ii) is subject to general principles of equity.
Section 3.5 Consent and Approvals; No Violations. Except as set forth in
item 3.5 of the Company Letter, the execution and delivery by the Company of
this Agreement does not, and the consummation by the Company of the
transactions contemplated hereby and compliance by the Company with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or the loss of a
benefit under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries under, (i) the
Certificate of Incorporation, By-laws or comparable organization documents of
the Company or any of its Subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
Subsidiaries or (iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any of its Subsidiaries or any
of their respective properties or assets, other than, in the case of clause
(ii) or (iii), any such violations, defaults, rights, losses or Liens that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company or prevent or materially delay the consummation of the Merger. No
filing or registration with, or authorization, consent or approval of, any
Governmental Entity is required by or with respect to the Company or any of
its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or is necessary for the consummation of the Merger
and the other transactions contemplated by this Agreement, except (i) in
connection, or in compliance, with the provisions of the HSR Act, (ii) the
filing of a Certificate of Merger with the Secretary of State of Delaware in
accordance with the DGCL, (iii) such filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger, (iv)
such filings, authorizations, orders and approvals as may be required by state
takeover laws (the "State Takeover Approvals"), (v) such filings as may be
required in connection with the taxes described in Section 5.11 and such
filings contemplated by Section 5.19, (vi) such filings as may be required
under foreign laws and (vii) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse
Effect on the Company or prevent or materially delay the consummation of the
Merger.
Section 3.6 Company Financial Information. Set forth in item 3.6 of the
Company Letter is a copy of (a) the audited consolidated balance sheet of the
Company and its Subsidiaries as of March 31, 1997 and 1996 (the "Company
Balance Sheet") and (b) the audited consolidated statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries for
the fiscal years ended March 31, 1997 and 1996 (such statements of income,
changes in stockholder's equity and cash flows with the notes thereto,
together with the Company Balance Sheet, the "Company Financial Information").
The Company Financial Information has been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
("GAAP") (except as may be noted therein), and present fairly, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of March 31, 1997 and 1996, and the consolidated statements of
income, stockholder's equity and cash flows of the Company and its
Subsidiaries for the fiscal years ended March 31, 1997 and 1996, subject to
the notes regarding the matters reflected therein.
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Section 3.7 Absence of Certain Changes or Events. Except as disclosed in
item 3.7 of the Company Letter, since March 31, 1997 (A) the Company and its
Subsidiaries have not incurred any material liability or obligation (indirect,
direct or contingent), or entered into any material oral or written agreement
or other transaction, that is not in the ordinary course of business or that
could reasonably be expected to result in a Material Adverse Effect on the
Company; (B) the Company and its Subsidiaries have not sustained any loss or
interference with their business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had
or that could reasonably be expected to have a Material Adverse Effect on the
Company; (C) there has been no material change in the indebtedness of the
Company and its Subsidiaries, no change in the capital stock of the Company
except for the issuance of shares of Company Common Stock pursuant to Company
Stock Options or the Warrants, and no dividend or distribution of any kind
declared, paid or made by the Company on any class of its stock; (D) there has
been no event causing a Material Adverse Effect on the Company, nor any
development that could, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on the Company; and (E) during
the period from March 31, 1997 through the date of this Agreement, except as
disclosed in any item of the Company Letter neither the Company nor any of its
Subsidiaries has taken any action that, if taken during the period from the
date of this Agreement through the Effective Time, would constitute a breach
of Section 4.1.
Section 3.8 Permits and Compliance. Each of the Company and its Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity necessary for the Company or any of its
Subsidiaries to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Company Permits"), except where
the failure to have any of the Company Permits would not, individually or in
the aggregate, have a Material Adverse Effect on the Company or prevent or
materially delay the Merger, and, as of the date of this Agreement, no
suspension or cancellation of any of the Company Permits is pending or, to the
Knowledge of the Company (as hereinafter defined), threatened, except where
the suspension or cancellation of any of the Company Permits would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company or prevent or materially delay the Merger. Neither the Company nor any
of its Subsidiaries is in violation of (A) its Restated Certificate of
Incorporation, By-laws or other comparable organizational documents, (B) any
applicable law, ordinance, administrative or governmental rule or regulation,
or (C) any order, decree or judgment of any Governmental Entity having
jurisdiction over the Company or any of its Subsidiaries, except, in the case
of clauses (A), (B) and (C), for any violations that, individually or in the
aggregate, would not have a Material Adverse Effect on the Company. Except as
set forth in item 3.8 of the Company Letter, prior to the date of this
Agreement, no event of default or event that, but for the giving of notice or
the lapse of time or both, would constitute an event of default, exists or,
upon the consummation by the Company of the transactions contemplated by this
Agreement, will exist under any indenture, mortgage, loan agreement, note or
other agreement or instrument for borrowed money, any guarantee of any
agreement or instrument for borrowed money or any lease, contractual license
or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any such Subsidiary is
bound or to which any of the properties, assets or operations of the Company
or any such Subsidiary is subject, other than any defaults that, individually
or in the aggregate, would not have a Material Adverse Effect on the Company
or prevent or materially delay the Merger. "Knowledge of the Company" means
the actual knowledge of the individuals identified in item 3.8 of the Company
Letter.
Section 3.9 Tax Matters. (a) Except as otherwise set forth in item 3.9(a) of
the Company Letter and other than exceptions which would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect,
(i) the Company and each of its Subsidiaries have filed all Tax Returns
required to be filed and have paid all Taxes shown to be due on such Tax
Returns; (ii) all Tax Returns filed by the Company and each of its
Subsidiaries are complete and accurate and disclose all Taxes required to be
paid by the Company and each of its Subsidiaries for the periods covered
thereby; (iii) none of the Company or any of its Subsidiaries has waived in
writing or been requested to waive in writing any statute of limitations in
respect of Taxes which waiver is currently in effect; (iv) the Tax Returns
referred to in clause (i) related to income or franchise Taxes have been
examined by the appropriate taxing authority or the period for assessment of
the Taxes in respect of
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which such Tax Returns were required to be filed has expired; (v) there is no
action, suit, investigation, audit, claim or assessment pending or proposed or
threatened with respect to Taxes of the Company or any of its Subsidiaries;
(vi) all deficiencies asserted or assessments made as a result of any
examination of the Tax Returns referred to in clause (i) have been paid in
full or reserved against on the books of the Company and its Subsidiaries;
(vii) all Taxes which the Company or any of its Subsidiaries are required by
law to withhold or to collect for payment have been duly withheld and
collected, and have been paid or accrued, reserved against and entered on the
books of the Company; (viii) none of the Company or any of its Subsidiaries
has been a member of any Company Group other than each Company Group of which
it is a member as of the date hereof; and (ix) during the two-year period
prior to the Effective Time, the Company did not make a distribution to which
Section 355 of the Code applies and no Subsidiary distributed stock of one
Subsidiary to the Company or another Subsidiary. For purposes of this
Agreement, "Company Group" shall mean any "affiliated group" (as defined in
Section 1504(a) of the Code without regard to the limitations contained in
Section 1504(b) of the Code) that, at any time on or before the Effective
Date, includes or has included the Company or any of its Subsidiaries or any
predecessor of or successor to the Company or any of its Subsidiaries (or
another such predecessor or successor), or any other group of corporations
that, at any time on or before the Effective Date, files or has filed Tax
Returns on a combined, consolidated or unitary basis with the Company or any
of its Subsidiaries or any predecessor of or successor to the Company or any
of its Subsidiaries (or another such predecessor or successor).
(b) Except as set forth in item 3.9(b) of the Company Letter, no payment or
other benefit, and no acceleration of the vesting of any options, payments or
other benefits, will, as a direct or indirect result of the transactions
contemplated by this Agreement, be (or under Section 280G of the Code and the
Treasury Regulations thereunder be presumed to be) a "parachute payment" to a
"disqualified individual" (as those terms are defined in Section 280G of the
Code and the Treasury Regulations thereunder), with respect to the Company or
any of its Subsidiaries without regard to whether such payment or acceleration
is reasonable compensation for personal services performed or to be performed
in the future. The approximate aggregate amount of "parachute payments"
related to the matters set forth in such item 3.9(b), assuming the Closing
occurs on October 31, 1997 and termination of all listed individuals without
cause on such date, is set forth in such item 3.9(b).
Section 3.10 Actions and Proceedings. Except as set forth in Item 3.10 of
the Company Letter, there are no outstanding orders, judgments, injunctions,
awards or decrees of any Governmental Entity against or involving the Company
or any of its Subsidiaries, or against or involving any of the present or
former directors, officers, employees, consultants, agents or stockholders of
the Company or any of its Subsidiaries, as such, any of its or their
properties, assets or business or any Company Plan (as in Section 3.12(f)
defined) that, individually or in the aggregate, would have a Material Adverse
Effect on the Company or prevent or materially delay the consummation of the
Merger. As of the date of this Agreement, there are no actions, suits or
claims or legal, administrative or arbitrative proceedings or investigations
pending or, to the Knowledge of the Company, threatened against or involving
the Company or any of its Subsidiaries or any of its or their present or
former directors, officers, employees, consultants, agents or stockholders, as
such, or any of its or their properties, assets or business or any Company
Plan that, individually or in the aggregate, would have a Material Adverse
Effect on the Company or prevent or materially delay the consummation of the
Merger. As of the date hereof, there are no actions, suits, labor disputes or
other litigation, legal or administrative proceedings or governmental
investigations pending or, to the Knowledge of the Company, threatened against
or affecting the Company or any of its Subsidiaries or any of its or their
present or former officers, directors, employees, consultants, agents or
stockholders, as such, or any of its or their properties, assets or business
relating to the transactions contemplated by this Agreement.
Section 3.11 Certain Agreements. (a) Item 3.10(a) of the Company Letter sets
forth a list of all of the following contracts, agreements, leases, mortgages,
indentures, notes or other obligations (collectively, "Contracts") to which
the Company or any of it Subsidiaries is a party or otherwise bound: (i)
material Contracts of partnership, joint venture or strategic alliance or with
stockholders or a significant business partner; (ii) Contracts containing
covenants of the Company or any of its Subsidiaries not to compete in any line
of business or with any person in any geographical area; (iii) Contracts
relating to any material acquisition or divestiture, consummated within the
last three years, of any operating business or assets or capital stock of any
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person; (iv) Contracts relating to the borrowing of money or guarantee of any
payment by a third party in excess of $10 million; (v) confidentiality
Contracts with respect to information relating to the Company or any of its
Subsidiaries (other than such Contracts entered into in contemplation of a
possible business combination); (vi) any other Contracts pursuant to the terms
of which there is either a current or future obligation or right of the
Company or any of its Subsidiaries to make payment or incur obligations in
excess of $5 million or receive payment or value in excess of $5 million which
can be canceled without liability, premium or penalty only on ninety days or
more notice; and (vii) Contracts with the ten largest client accounts of the
Company and its Subsidiaries and any other Contract which is material (without
regard to dollar value) to the Company and its Subsidiaries taken as a whole
(such Contracts required to be listed in item 3.11(a) of the Company Letter
being referred to herein as the "Company Material Contracts").
(b) There have been delivered or made available to Parent true, complete and
correct copies of all Company Material Contracts. To the Knowledge of the
Company, all Company Material Contracts are valid and binding upon the Company
or one of its Subsidiaries, as the case may be, in accordance with their
terms. There exists no event of default by the Company or its Subsidiaries
under any of such Company Material Contracts or, to the Knowledge of the
Company, by any third party thereto, nor any event which, with notice or lapse
of time or both, would constitute an event of default by the Company or any of
its Subsidiaries thereunder, except in each case for any event of default
that, individually or in the aggregate, would not have a Material Adverse
Effect on the Company or prevent or materially delay the consummation of the
Merger.
(c) Except as listed in item 3.11(c) of the Company Letter, neither the
Company nor any of its Subsidiaries is a party to any agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. No holder of any option to
purchase shares of Company Common Stock, or shares of Company Common Stock
granted in connection with the performance of services for the Company or its
Subsidiaries, is or will be entitled to receive cash from the Company or any
Subsidiary in lieu of or in exchange for such option or shares as a result of
the transactions contemplated by this Agreement (subject to Section 5.8). Item
3.11(c) of the Company Letter sets forth the estimated amount which would be
payable to each of the top five highest paid officers of the Company and its
Subsidiaries in the United States under (i) any employment, severance,
continuity or similar agreement or (ii) any cancellation and cash-out of
Company Stock Options, in each case assuming the consummation of the Merger
and the termination without cause of such person's employment.
Section 3.12 Benefit Plans. (a) Item 3.12(a) of the Company Letter contains
a list of each Company Plan (as hereinafter defined). With respect to each
Company Plan, the Company has made, or will as soon as practicable after the
date hereof make, available to Parent a true and correct copy of (i) the most
recent annual report (Form 5500 and accompanying Schedules) filed with the IRS
for such plans required to file such reports, (ii) the plan document for such
Company Plan, including any amendments thereto, if such plan is in writing,
(iii) each trust agreement, insurance contract or administration agreement, if
any, relating to such Company Plan, (iv) the most recent summary plan
description for each Company Plan for which a summary plan description is
required, (v) the most recent actuarial report or valuation relating to a
Company Plan subject to Title IV of ERISA, (vi) the most recent determination
letter, if any, issued by the IRS with respect to any Company Plan intended to
be qualified under section 401(a) of the Code, (vii) any request for a
determination currently pending before the IRS and (viii) all correspondence
with the IRS, the Department of Labor or the Pension Benefit Guaranty
Corporation relating to any outstanding controversy or audit. Benefits under
all Company Plans are as represented, and subsequent to the date as of which
documents have been made available to Parent no such benefits have been
materially increased and neither the Company nor any Subsidiary of the Company
has entered into, adopted or amended (except as required to maintain the tax-
qualified status of any Company Plan intended to be qualified under Section
401(a) of the Code) any Company Plan, and does not have any obligation or
present intention to do so. (v) Each Company Plan is in substantial compliance
with ERISA, the Code and all other applicable statutes and governmental rules
and regulations, (w) no "reportable event" (within the meaning of Section 4043
of ERISA) has occurred with respect to any Company Plan subject to Title IV of
ERISA which
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could result in material liability to the Company or its ERISA Affiliates, (x)
neither the Company nor any of its ERISA Affiliates has contributed, or been
obligated to contribute, to a Company Multiemployer Plan (as hereinafter
defined) at any time or has instituted, or is currently considering taking,
any action to do so, (y) no action has been taken, or is currently being
considered, to terminate any Company Plan subject to Title IV of ERISA, and
(z) neither the Company nor any of its Subsidiaries has incurred any material
liability to the IRS with respect to any Company Plan, including, without
limitation, any liability imposed under Chapter 43 of the Code, and no
condition or circumstance has existed that would give rise to any such
liability. As of the date of the most recent actuarial report or valuation for
any Company Plan subject to Title IV of ERISA, the fair value of the assets of
each such plan are at least equal to the accumulated benefit obligation of
such plan, based on the actuarial methods, tables and assumptions set forth in
such report or valuation, and, to the Knowledge of the Company, there has been
no change since such date to cause such accumulated benefit obligation to
exceed the current fair value of such assets.
(b) With respect to the Company Plans, there are no funded benefit
obligations for which contributions have not been made to the extent required
by law or the terms of such plans, as the case may be, or, if not made because
such contributions are not yet due under law or the terms of such plans,
properly accrued in accordance with GAAP in the financial statements of the
Company and its Subsidiaries, and there are no unfunded benefit obligations as
of the date hereof which have not been accounted for in accordance with GAAP
in the financial statements of the Company or any of its Subsidiaries.
(c) With respect to the Company Plans, no event has occurred and, to the
Knowledge of the Company, there exists no condition or set of circumstances in
connection with which the Company or any of its Subsidiaries or ERISA
Affiliates would be subject to any liability under the terms of such Company
Plans that would have a Material Adverse Effect on the Company. Except as
listed on item 3.12(c) of the Company Letter, all Company Plans that are
intended to be qualified under Section 401(a) of the Code have been determined
by the IRS to be so qualified, or a timely application for such determination
is now pending or will be filed on a timely basis and, except as listed on
item 3.12(c) of the Company Letter, to the Knowledge of the Company, there is
no reason why any Company Plan is not so qualified in operation. Neither the
Company nor any of its Subsidiaries has any liability or obligation under any
welfare plan to provide life insurance or medical benefits after termination
of employment to any employee or dependent other than as required by (i) Part
6 of Title I of ERISA or as disclosed in Item 3.12(c) of the Company Letter or
(ii) the laws of a jurisdiction outside the United States.
(d) Item 3.12(d) of the Company Letter contains a list, as of the date of
this Agreement, of all (i) severance and employment agreements with senior
management of the Company and its Subsidiaries, (ii) severance programs and
policies of the Company with or relating to its employees and (iii) plans,
programs, agreements and other arrangements of the Company with or relating to
its employees which contain change of control or similar provisions. The
Company has provided to the Parent a true and complete copy of each of the
foregoing or, with respect to agreements with officers of Subsidiaries of the
Company, will provide such a copy as soon as practical after the date hereof.
(e) No asset of the Company or any of its Subsidiaries is subject to any
lien arising under ERISA or the Code on account of any Company Plan, and no
event has occurred and no condition or circumstance has existed that could
give rise to any such lien. Neither the Company nor any of its Subsidiaries
has been required to provide any security under Section 307 of ERISA or
Section 401(a)(29) or 412(f) of the Code, and no event has occurred and no
condition or circumstance has existed that could give rise to any such
requirement to provide any such security.
(f) As used herein, (i) "Company Plan" means each employee benefit plan
(including, without limitation, any "employee benefit plan", as defined in
Section 3(3) of ERISA), and any material bonus, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, vacation, severance, death benefit, insurance or other
plan, arrangement or understanding (whether or not legally binding), in each
case maintained or contributed to for the benefit of employees of the Company
or any of its Subsidiaries or ERISA Affiliates, (ii) "Company Multiemployer
Plan" means a "multiemployer plan" (as
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defined in Section 4001(a)(3) of ERISA) to which the Company or any of its
ERISA Affiliates is or has been obligated to contribute or otherwise with
respect to which is subject to any liability, and (iii) with respect to any
person, "ERISA Affiliate" means any trade or business (whether or not
incorporated) which is under common control or would be considered a single
employer with such person pursuant to Section 414(b), (c), (m) or (o) of the
Code and the regulations promulgated under those sections or pursuant to
Section 4001(b) of ERISA and the regulations promulgated thereunder.
Section 3.13 Compliance with Certain Laws. The properties, assets and
operations of the Company and its Subsidiaries are in compliance with all
applicable federal, state, local and foreign laws, rules and regulations,
orders, decrees, judgments, permits and licenses relating to Worker Safety
Laws and Environmental Laws, except for any violations that, individually or
in the aggregate, would not have a Material Adverse Effect on the Company or
prevent or materially delay the consummation of the Merger. With respect to
such properties, assets and operations, including any previously owned, leased
or operated properties, assets or operations, there are no past, present or
reasonably anticipated future events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Company or any of its
Subsidiaries that may interfere with or prevent compliance or continued
compliance with applicable Worker Safety Laws and Environmental Laws, other
than any such interference or prevention as would not, individually or in the
aggregate with any such other interference or prevention, have a Material
Adverse Effect on the Company or prevent or materially delay the consummation
of the Merger.
Section 3.14 Liabilities. Except as set forth in the Company Financial
Information or item 3.14 of the Company Letter, as of the date hereof, the
Company and its Subsidiaries have no liabilities, absolute or contingent,
other than liabilities that, individually or in the aggregate, would not have
a Material Adverse Effect on the Company.
Section 3.15 Labor Matters. Except as set forth in Item 3.15 of the Company
Letter, as of the date of this Agreement, neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or labor
contract in the United States. Neither the Company nor any of its Subsidiaries
has engaged in any unfair labor practice with respect to any persons employed
by or otherwise performing services primarily for the Company or any of its
Subsidiaries in the United States (the "Company Business Personnel"), and
there is no unfair labor practice complaint against the Company or any of its
Subsidiaries by the National Labor Relations Board or any comparable state
agency pending or threatened in writing with respect to the Company Business
Personnel, except where such unfair labor practice or complaint, individually
or in the aggregate, would not have a Material Adverse Effect on the Company.
There is no labor strike, dispute, slowdown or stoppage pending or, to the
Knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries that may interfere with the respective business activities
of the Company or any of its Subsidiaries, except where such dispute, strike
or work stoppage would not have a Material Adverse Effect on the Company.
Section 3.16 Intellectual Property. The Company and its Subsidiaries have
all Intellectual Property Rights as are necessary in connection with the
business of the Company and its Subsidiaries, taken as a whole, except where
the failure to have such Intellectual Property Rights, individually or in the
aggregate, would not have a Material Adverse Effect on the Company. Neither
the Company nor any of its Subsidiaries has infringed any Intellectual
Property Rights of any third party other than any infringements that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
Section 3.17 Continuity of Business. To the Knowledge of the Company, except
as described in item 3.17 of the Company Letter, no client from which the
Company and its Subsidiaries received commission and fee income in the fiscal
year ended March 31, 1997 in excess of $40 million has given notice of its
intent to terminate, materially reduce or put up for review the provision of
services by the Company and its Subsidiaries or has indicated that it is
considering such action.
Section 3.18 Company Employees. To the Knowledge of the Company except as
described in item 3.18 of the Company Letter, since December 31, 1996 no
employee or group of employees of the Company or any of
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its Subsidiaries who is or are responsible for a business operation of the
Company or any of its Subsidiaries which is material to the Company and its
Subsidiaries, taken as a whole, has or have delivered any notice of
termination or indicated that he or she is or they are considering such an
action.
Section 3.19 Information in Registration Statement. None of the information
supplied or to be supplied by the Company or any of its Subsidiaries for the
purpose of inclusion or incorporation by reference in the Registration
Statement or the Joint Proxy Statement will, at the time the Registration
Statement is filed with the SEC, at the time it becomes effective under the
Securities Act and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
Section 3.20 Opinion of Financial Advisor. The Company has received the
written opinion of Merrill Lynch & Co., dated the date hereof, to the effect
that, as of the date hereof, the Exchange Ratio is fair to the Company's
stockholders from a financial point of view, a copy of which opinion has been
delivered to Parent.
Section 3.21 State Takeover Statutes. The Board of Directors of the Company
has, to the extent such statutes are applicable, (a) taken all action
necessary to exempt Parent, its Subsidiaries and affiliates, the Merger, this
Agreement, the Company Stockholders' Agreement and the transactions
contemplated hereby and thereby from Section 203 of the DGCL or satisfy the
requirements thereof and (b) taken, or prior to the Effective Time will take,
all actions necessary to satisfy the provisions of Section 203 of the DGCL. To
the Knowledge of the Company, no other state takeover statutes governing the
Company are applicable to the Merger, the Company Stockholders' Agreement,
this Agreement and the transactions contemplated hereby and thereby.
Section 3.22 Required Vote of Company Stockholders. The affirmative vote of
the holders of a majority of the voting power of the outstanding shares of
Company Common Stock is required to adopt this Agreement. No other vote of the
stockholders of the Company is required by law, the Restated Certificate of
Incorporation or By-laws of the Company or otherwise in order for the Company
to consummate the Merger and the transactions contemplated hereby.
Section 3.23 Pooling of Interests. To the Knowledge of the Company, neither
the Company nor any of its Subsidiaries has taken any action or failed to take
any action which action or failure would (i) jeopardize the treatment of the
Merger as a pooling of interests for accounting purposes or (ii) jeopardize
the treatment of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
Section 3.24 Brokers. No broker, investment banker or other person, other
than Merrill Lynch & Co. and Gregory & Hoenemeyer, Inc., the fees and expenses
of which will be paid by the Company (as reflected in agreements between such
firms and the Company, copies of which have been furnished to Parent), is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business by the Company Pending the Merger. Except as
expressly permitted by clauses (a) through (n) of this Section 4.1 and except
as contemplated by the Company Letter, during the period from the date of this
Agreement through the Effective Time, the Company shall, and shall cause each
of its Subsidiaries to, in all material respects carry on its business in the
ordinary course of its business as currently conducted and, to the extent
consistent therewith, use reasonable best efforts to keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers and others having business dealings with it to the
end that its goodwill and ongoing business shall be unimpaired at the
Effective Time. Without limiting the generality of the foregoing, except as
otherwise expressly contemplated by this
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Agreement and subject to Section 4.5 or as set forth in the Company Letter
(with specific reference to the applicable subsection below), the Company
shall not, and shall not permit any of its Subsidiaries to, without the prior
written consent of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than dividends and other distributions by
Subsidiaries), (ii) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (iii)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any Subsidiary or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities other
than in connection with the termination of the Company's employees
undertaken in the ordinary course of business and consistent with past
practices;
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares of capital stock, voting securities,
equity equivalent or convertible securities, other than the issuance of
shares of Class A Common Stock and Class B Common Stock pursuant to Company
Stock Options outstanding on the date of this Agreement in accordance with
their current terms;
(c) amend its Restated Certificate of Incorporation or By-laws or other
comparable organizational documents;
(d) (A) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or
agree to acquire any assets, other than transactions that are in the
ordinary course of business consistent with past practice and which involve
an aggregate consideration paid by the Company and its Subsidiaries
(including the assumption of debt and valuing any non-cash consideration at
its fair market value) not in excess of $5 million or (B) sell, lease or
otherwise dispose of, or agree to sell, lease or otherwise dispose of, any
of its assets, other than transactions that are in the ordinary course of
business consistent with past practice and which involve assets having an
aggregate fair market value or book value not in excess of $5 million;
(e) make any capital expenditures, other than capital expenditures not in
excess of $20,000,000 in the aggregate made in the ordinary course of
business consistent with past practice;
(f) incur any indebtedness for borrowed money, guarantee any such
indebtedness, issue or sell any debt securities, guarantee any debt
securities of others or make any loans, advances or capital contributions
to, or other investments in, any other person, other than (i) indebtedness,
loans, advances, capital contributions and investments between the Company
and any of its wholly-owned Subsidiaries or between any of such wholly-
owned Subsidiaries and (ii) borrowing or guarantees not in excess of $20
million in the aggregate incurred in the ordinary course of business
consistent with past practice;
(g) alter (through merger, liquidation, reorganization, restructuring or
in any other fashion) the corporate structure or ownership of the Company
or any Subsidiary;
(h) enter into or adopt any, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Company Plan or
employment or consulting agreement, other than employment agreements which
each have an future liability of not in excess of $1,000,000 or as required
by law;
(i) except (A) as permitted under Section 4.1(h) or (B) to the extent
required by written employment agreements existing on the date of this
Agreement, (1) increase the compensation payable or to become payable to
its officers or employees, except, in the case of employees who are not
officers, for increases in the ordinary course of business consistent with
past practice, (2) grant any severance or termination pay except in the
ordinary course of business consistent with past practice or (3) establish,
adopt, enter into, or amend or take action to enhance or accelerate any
rights or benefits under, any labor, collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred
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compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of, any director,
officer or employee, except, in each case, as may be required to comply
with applicable law;
(j) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (other than actions required to be taken
by generally accepted accounting principles);
(k) prepare or file any federal, state, local or foreign Tax Return
materially inconsistent with past practice or, on any such Tax Return, take
any position, make any election, or adopt any method that is materially
inconsistent with positions taken, elections made or methods used in
preparing or filing similar Tax Returns in prior periods;
(l) settle or compromise any material federal, state, local or foreign
income tax liability;
(m) violate or fail to perform any material obligation or duty imposed
upon it by any applicable federal, state or local law, rule, regulation,
guideline or ordinance which could be reasonably expected to have a
Material Adverse Effect on the Company or prevent or materially delay the
Merger; or
(n) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
The Company shall promptly advise Parent orally and in writing of any change
or event having, or which could reasonably be expected to have, a Material
Adverse Effect on the Company or which could prevent or materially delay the
consummation of the Merger.
Section 4.2 Conduct of Business by Parent Pending the Merger. Except as
expressly permitted by clauses (a) through (k) of this Section 4.2 and except
as contemplated by the Publicis Unwind Agreements or the Parent Letter, during
the period from the date of this Agreement through the Effective Time, Parent
shall, and shall cause each of its Subsidiaries to, in all material respects
carry on its business in the ordinary course of its business as currently
conducted and, to the extent consistent therewith, use reasonable best efforts
to keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and ongoing business
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, and except as otherwise expressly contemplated by this
Agreement or as set forth in the Parent Letter (with specific reference to the
applicable subsection below), Parent shall not, and shall not permit any of
its Subsidiaries to, without the prior written consent of the Company:
(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to its stockholders in their
capacity as such (other than (A) regular quarterly dividends of not more
than $0.15 per share of Parent Common Stock declared and paid on dates
consistent with past practice and (B) dividends and other distributions by
Subsidiaries), (ii) other than in the case of any Subsidiary, split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of Parent or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities (other than the repurchase of shares of Parent
Common Stock pursuant to any open market repurchase plan or in connection
with any acquisition in which such shares are used as consideration
therefor);
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares of capital stock, voting securities,
equity equivalent or convertible securities, other than the issuance of
shares of Parent Common stock pursuant to Parent Stock Options outstanding
on the date of this Agreement in accordance with their current terms and
other than in connection with an acquisition undertaken pursuant to
Paragraph (d) of this Section 4.2;
(c) amend its Restated Certificate of Incorporation or By-laws or other
comparable organizational documents;
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(d) (A) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or
agree to acquire any assets, other than transactions that are in the
ordinary course of business consistent with past practice and which involve
an aggregate consideration paid by Parent and its Subsidiaries (including
the assumption of debt and valuing any non-cash consideration at its fair
market value) not in excess of $5 million or (B) sell, lease or otherwise
dispose of, or agree to sell, lease or otherwise dispose of, any of its
assets, other than transactions that are in the ordinary course of business
consistent with past practice and which involve assets having an aggregate
fair market value or book value not in excess of $5 million;
(e) make any capital expenditures, other than capital expenditures not in
excess of $20,000,000 in the aggregate made in the ordinary course of
business consistent with past practice;
(f) incur any indebtedness for borrowed money, guarantee any such
indebtedness, issue or sell any debt securities, guarantee any debt
securities of others or make any loans, advances or capital contributions
to, or other investments in, any other person, other than (i) indebtedness,
loans, advances, capital contributions and investments between Parent and
any of its wholly-owned Subsidiaries or between any of such wholly-owned
Subsidiaries and (ii) borrowing or guarantees not in excess of $20 million
in the aggregate incurred in the ordinary course of business consistent
with past practice;
(g) alter (through merger, liquidation, reorganization, restructuring or
in any other fashion) the corporate structure or ownership of Parent or any
Significant Subsidiary;
(h) enter into or adopt any, or amend any existing, severance plan,
agreement or arrangement or enter into or amend any Parent Plan or
employment or consulting agreement, other than employment agreements which
each have a future liability of not in excess of $1,000,000 or as required
by law;
(i) except (A) as permitted under Section 4.2(h) or (B) to the extent
required by written employment agreements existing on the date of this
Agreement, (1) increase the compensation payable or to become payable to
its officers or employees, except, in the case of employees who are not
officers, for increases in the ordinary course of business consistent with
past practice, (2) grant any severance or termination pay except in the
ordinary course of business consistent with past practice or (3) establish,
adopt, enter into, or amend or take action to enhance or accelerate any
rights or benefits under, any labor, collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit
of, any director, officer or employee, except, in each case, as may be
required to comply with applicable law;
(j) violate or fail to perform any material obligation or duty imposed
upon it by any applicable federal, state or local law, rule, regulation,
guideline or ordinance which could be reasonably expected to have a
Material Adverse Effect on Parent or prevent or materially delay the
Merger; or
(k) authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Parent shall promptly advise the Company orally and in writing of any change
or event having, or which could reasonably be expected to have, a Material
Adverse Effect on Parent and its Subsidiaries taken as a whole or which could
prevent or materially delay the consummation of the Merger.
Section 4.3 No Solicitation. (a) From and after the date hereof, the Company
will not, and will not permit any of its or its Subsidiaries' officers,
directors or employees, and the Company will use its reasonable best efforts
to cause all of its and its Subsidiaries' attorneys, financial advisors,
agents and other representatives not to, directly or indirectly, solicit,
initiate or knowingly encourage (including by way of furnishing information)
any Company Takeover Proposal (as hereinafter defined) or engage in or
continue discussions or negotiations relating thereto; provided, however, that
the Company may engage in discussions or negotiations with, or furnish
information concerning the Company and its business, properties or assets to,
any third party which makes a
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Company Takeover Proposal if the Board of Directors of the Company determines,
in its good faith judgment, that such third party may ultimately propose a
Superior Company Takeover Proposal (as hereinafter defined); provided,
further, that nothing in this Section 4.3(a) shall prevent the Company or its
Board from taking, and disclosing to the Company's stockholders, a position
with regard to any Company Takeover Proposal. The Company will promptly notify
Parent of the receipt of any Company Takeover Proposal, including the material
terms and conditions thereof and the identity of the person or group making
such Company Takeover Proposal, and will promptly notify Parent of any
determination by the Company's Board of Directors that a Superior Company
Takeover Proposal may ultimately be made. As used in this Agreement, (i)
"Company Takeover Proposal" shall mean any proposal or offer, other than a
proposal or offer by Parent or any of its Subsidiaries, for a tender or
exchange offer, a merger, consolidation or other business combination
involving the Company or any of its Significant Subsidiaries or any proposal
to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, the Company or any of its Significant Subsidiaries
and (ii) "Superior Company Takeover Proposal" shall mean a bona fide proposal
or offer made by a third party to acquire the Company pursuant to an exchange
offer, a merger, consolidation or other business combination or a sale of all
or substantially all of the assets of the Company and its Subsidiaries in
which the sole consideration to be received by the stockholders of the Company
(other than cash for fractional shares or other consideration which is non-
material in amount) is the common stock of a widely-held public company which,
immediately after the consummation of the transaction, will own (directly or
indirectly) all or substantially all of the equity or assets of the Company on
terms which a majority of the members of the Board of Directors of the
Company, having received the advice of an independent financial advisor,
determines in their good faith reasonable judgment to be more favorable to the
Company's stockholders than the terms of the transactions contemplated hereby.
(b) From and after the date hereof, Parent will not, and will not permit any
of its or its Subsidiaries' officers, directors or employees, and Parent will
use its reasonable best efforts to cause all of its and its Subsidiaries'
attorneys, financial advisors, agents and other representatives not to,
directly or indirectly, solicit, initiate or knowingly encourage (including by
way of furnishing information) any Parent Takeover Proposal (as hereinafter
defined) or engage in or continue discussions or negotiations relating
thereto; provided, however, that Parent may engage in discussions or
negotiations with, or furnish information concerning Parent and its business,
properties or assets to, any third party which makes a Parent Takeover
Proposal if the Board of Directors of Parent determines, in its good faith
judgment, that such third party may ultimately propose a Superior Parent
Takeover Proposal (as hereinafter defined); provided, further, that nothing in
this Section 4.3(b) shall prevent Parent or its Board from taking, and
disclosing to Parent's stockholders, a position with regard to any Parent
Takeover Proposal. Parent will promptly notify the Company of the receipt of
any Parent Takeover Proposal, including the material terms and conditions
thereof and the identity of the person or group making such Takeover Proposal,
and will promptly notify Parent of any determination by Parent's Board of
Directors that a Superior Parent Takeover Proposal may ultimately be made. As
used in this Agreement, (i) "Parent Takeover Proposal" shall mean any proposal
or offer, for a tender or exchange offer, a merger, consolidation or other
business combination involving Parent or any of its Significant Subsidiaries
or any proposal to acquire in any manner a substantial equity interest in, or
a substantial portion of the assets of, Parent or any of its Significant
Subsidiaries and (ii) "Superior Parent Takeover Proposal" shall mean a bona
fide proposal or offer made by a third party to acquire Parent pursuant to an
exchange offer, a merger, consolidation or other business combination or a
sale of all or substantially all of the assets of Parent and its Subsidiaries
in which the sole consideration to be received by the stockholders of Parent
(other than cash for fractional shares or other consideration which is non-
material in amount) is the common stock of a widely-held public company which,
immediately after the consummation of the transaction, will own (directly or
indirectly) all or substantially all of the equity or assets of Parent on
terms which a majority of the members of the Board of Directors of Parent,
having received the advice of an independent financial advisor, determines in
their good faith reasonable judgment to be more favorable to Parent's
stockholders than the terms of the transactions contemplated hereby.
Section 4.4 Third Party Standstill Agreements. (a) During the period from
the date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which the Company or any of its Subsidiaries is a
party (other than any involving Parent).
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(b) During the period from the date of this Agreement through the Effective
Time, Parent shall not terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which Parent or any of its
Subsidiaries is a party (other than any involving the Company).
Section 4.5 Pooling of Interests; Reorganization. During the period from the
date of this Agreement through the Effective Time, unless the other party
shall otherwise agree in writing, none of Parent, the Company or any of their
respective Subsidiaries shall (a) knowingly take or fail to take any action
which action or failure would jeopardize the treatment of the Merger as a
pooling of interests for accounting purposes or (b) knowingly take any action
which action would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code or would cause
any of the representations and warranties set forth in the Company Tax
Certificate attached to the Company Letter or the Parent Tax Certificate
attached to the Parent Letter to be untrue or incorrect in any material
respect. Each of the parties hereto shall use reasonable best efforts to take,
or cause to be taken, all actions reasonably necessary in order that the
Merger may be accounted for as a pooling of interests in accordance with
generally accepted accounting principles.
Section 4.6 Other Actions. Except as expressly contemplated or permitted by
this Agreement or except as set forth in the Company Letter or the Parent
Letter, neither the Company nor Parent shall, nor shall they permit any of
their respective Subsidiaries to, take any action that would, or that could
reasonably be expected to, result in (i) any of its representations and
warranties of the Company set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of its representations and warranties
that are not so qualified becoming untrue in any material respect, or (iii)
any of the conditions to the Merger contained in Section 6.1, 6.2 or 6.3 not
being satisfied (subject to the Company's and Parent's right to take actions
specifically permitted by Sections 4.1 and 4.2, respectively).
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meetings. The Company and Parent each shall call a
meeting of its stockholders (respectively, the "Company Stockholder Meeting"
and the "Parent Stockholder Meeting" and, collectively, the "Stockholder
Meetings") to be held as promptly as practicable after the date hereof for the
purpose of considering the adoption of this Agreement (in the case of the
Company) and the Charter Amendment and the Share Issuance and the election of
directors as provided in Section 5.17 (in the case of Parent). The Company and
Parent will, through their respective Boards of Directors, recommend to their
respective stockholders approval of such matters and shall not withdraw such
recommendation; provided, however, that a Board of Directors shall not be
required to make, and shall be entitled to withdraw, such recommendation if
such Board determines, in its good faith judgment, having received the advice
of independent legal counsel, that the making of, or the failure to withdraw,
such recommendation would constitute a breach of such Board's fiduciary duties
under applicable law. The Company and Parent shall coordinate and cooperate
with respect to the timing of such meetings and shall use their reasonable
best efforts to hold such meetings on the same day.
Section 5.2 Proxy Statement; Filings; Other Actions. (a) As promptly as
practicable after the date hereof, Parent shall promptly prepare and file with
the SEC the Joint Proxy Statement and the Registration Statement, in which the
Joint Proxy Statement will be included as a prospectus. Parent shall use its
reasonable best efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing. As
promptly as practicable after the Registration Statement shall have become
effective, each of Parent and the Company shall mail the Joint Proxy Statement
to its respective stockholders. Parent shall also take any action (other than
qualifying to do business in any jurisdiction in which it is now not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Parent Common Stock in the Merger and upon the
exercise of the Substitute Options (as defined in Section 5.8), and the
Company shall furnish all information concerning the Company and the holders
of Class A Common Stock and Class B Common Stock as may be reasonably
requested in connection with any such action, including information relating
to the number of shares of Parent Common Stock required to be registered.
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(b) Each party hereto agrees, subject to applicable laws relating to the
exchange of information, promptly to furnish the other parties hereto with
copies of written communications (and memoranda setting forth the substance of
all oral communications) received by such party, or any of its subsidiaries,
affiliates or associates (as such terms are defined in Rule 12b-2 under the
Exchange Act as in effect on the date hereof), from, or delivered by any of
the foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby.
(c) Each of the Company and Parent will promptly, and in any event within 10
days after execution and delivery of this Agreement, make all filings or
submissions as are required under the HSR Act. Each of the Company and Parent
will promptly furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submissions which is necessary under the HSR Act. Without limiting
the generality of the foregoing, each of the Company and Parent will promptly
notify the other of the receipt and content of any inquiries or requests for
additional information made by any Governmental Entity in connection therewith
and will promptly (i) comply with any such inquiry or request and (ii) provide
the other with a description of the information provided to any Governmental
Entity with respect to any such inquiry or request. In addition, each of the
Company and Parent will keep the other apprised of the status of any such
inquiry or request. Each of the Company and Parent will use its reasonable
best efforts to obtain any clearance required under the HSR Act for the
consummation of the transactions contemplated hereby.
Section 5.3 Comfort Letters. (a) The Company shall use its reasonable best
efforts to cause to be delivered to Parent "comfort" letters of KPMG Peat
Marwick LLP, the Company's independent public accountants, dated the date on
which the Registration Statement shall become effective and as of the
Effective Time, and addressed to Parent and the Company, in form and substance
reasonably satisfactory to Parent and reasonably customary in scope and
substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
(b) Parent shall use its reasonable best efforts to cause to be delivered to
the Company "comfort" letters of Arthur Andersen LLP, Parent's independent
public accountants, dated the date on which the Registration Statement shall
become effective and as of the Effective Time, and addressed to the Company
and Parent, in form and substance reasonably satisfactory to the Company and
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Agreement.
Section 5.4 Access to Information; Financial Reports. (a) Subject to
currently existing contractual and legal restrictions applicable to Parent or
to the Company or any of their Subsidiaries, each of Parent and the Company
shall, and shall cause each of its Subsidiaries to, afford to the accountants,
counsel, financial advisors and other representatives of the other party
hereto reasonable access to, and permit them to make such inspections as they
may reasonably require of, during normal business hours during the period from
the date of this Agreement through the Effective Time, all their respective
properties, books, Tax Returns, contracts, commitments and records (including,
without limitation, the work papers of independent accountants, if available
and subject to the consent of such independent accountants) and, during such
period, Parent and the Company shall, and shall cause each of its Subsidiaries
to, furnish promptly to the other (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
other information concerning its business, properties and personnel as the
other may reasonably request. No investigation pursuant to this Section 5.4
shall affect any representation or warranty in this Agreement of any party
hereto or any condition to the obligations of the parties hereto.
(b) The Company shall, without cost to Parent, deliver to Parent the
following financial information (such information being herein referred to as
"Supplemental Financial Information"): (i) within 45 days after each fiscal
quarter ending after the date hereof and prior to the Effective Time (other
than the last fiscal quarter of any fiscal year), the unaudited consolidated
balance sheet of the Company and its Subsidiaries as of the end of such
quarter and the unaudited consolidated statements of income, stockholders'
equity and cash flows of the Company and its Subsidiaries for such quarter,
(ii) within 90 days after each fiscal year ending after the date hereof and
prior to the Effective Time, the unaudited consolidated balance sheet of the
Company and its
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Subsidiaries as of the end of such year and the unaudited consolidated
statements of income, stockholders' equity and cash flows of the Company and
its Subsidiaries for such year, in each case prepared in accordance with GAAP
(except as may be noted therein), and (iii) promptly upon the reasonable
request by Parent, such additional financial information as may be required in
connection with any filing by Parent pursuant to the requirements of federal
or state securities laws; and such Supplemental Financial Information
delivered to Parent shall present fairly, in all material respects, the
consolidated financial position of the Company and its Subsidiaries for the
period covered, subject to the notes regarding the matters reflected therein.
(c) All information obtained by Parent or the Company pursuant to this
Section 5.4 (a) and (b) shall be kept confidential in accordance with each of
the Confidentiality Agreements, dated April 1, 1997 between Parent and the
Company.
(d) Parent shall, without cost to the Company, deliver to the Company any
filing made by Parent to the SEC including any Form 10-Q, 8-K or 10-K prior
to, if practicable, or, in any event, not later than the day after the date of
such filing with the SEC.
Section 5.5 Compliance with the Securities Act. (a) Within 30 days following
the date of this Agreement, the Company shall deliver to Parent a list
(reasonably satisfactory to counsel for Parent) identifying all persons who,
at the time of the Company Stockholder Meeting, in the Company's reasonable
judgment may be deemed to be "affiliates" of the Company as that term is used
in paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Rule 145
Affiliates"). The Company shall use its reasonable best efforts to cause each
person who is identified as a Rule 145 Affiliate in such list to deliver to
Parent not less than 30 days prior to the Effective Time a written agreement
in substantially the form of Exhibit 5.5(a) hereto, executed by such person.
(b) Within 30 days following the date of this Agreement, Parent shall
deliver to the Company a list (reasonably satisfactory to counsel for the
Company) identifying those persons who may be, at the time of the Parent
Stockholder Meeting, in Parent's reasonable judgment, may be deemed to be
affiliates of Parent under applicable SEC accounting releases with respect to
pooling of interests accounting treatment. Parent shall use its reasonable
best efforts to enter into a written agreement, not less than 30 days prior to
the Effective Time, in substantially the form of Exhibit 5.5(b) hereto with
each of such persons.
Section 5.6 Stock Exchange Listings. Parent shall use its reasonable best
efforts to list on the NYSE, upon official notice of issuance, the shares of
Parent Common Stock to be issued in connection with the Merger and upon
exercise of the Substitute Options.
Section 5.7 Fees and Expenses. (a) Except as provided in this Section 5.7
and in Section 5.11, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby including, without limitation, the fees and disbursements
of counsel, financial advisors and accountants, shall be paid by the party
incurring such costs and expenses, except that all printing expenses and SEC
filing fees shall be divided equally between Parent and the Company.
(b) The Company shall pay, or cause to be paid, in same day funds, to Parent
$15 million (the "Company Termination Fee") upon demand if: (i) this Agreement
is terminated by the Company pursuant to Section 7.1(d) or by Parent or the
Company pursuant to Section 7.1(f) or 7.1(i) and within six months following
any such termination a Third Party Company Acquisition Event (as hereinafter
defined) occurs; (ii) Parent or the Company terminates this Agreement pursuant
to Section 7.1(h); or (iii) this Agreement is terminated and prior thereto a
Third Party Company Acquisition Event occurred.
A "Third Party Company Acquisition Event" means any of the following events:
(A) any person, corporation, partnership or other entity or group (such
person, corporation, partnership or other entity or group being referred to
hereinafter, singularly or collectively, as a "Person"), other than Parent or
its Subsidiaries, acquires or becomes the beneficial owner of 30% or more of
the outstanding shares of the Company Common Stock; (B) any new group is
formed which, at the time of formation, beneficially owns 30% or more of the
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outstanding shares of the Company Common Stock (other than a group which
includes or may reasonably be deemed to include Parent or any of its
Subsidiaries); (C) the Company enters into an agreement providing for a merger
or other business combination involving the Company or the acquisition of a
substantial interest in, or a substantial portion of the assets, business or
operations of, the Company and its Subsidiaries (other than the transactions
contemplated by this Agreement); or (D) any Person (other than Parent or its
Subsidiaries) is granted any option or right, conditional or otherwise, to
acquire or otherwise become the beneficial owner of shares of the Company
Common Stock that results or would result in such Person being the beneficial
owner of 30% or more of the outstanding shares of the Company Common Stock.
For purposes of this Section 5.7, the terms "group" and "beneficial owner"
shall be defined by reference to Section 13(d) of the Exchange Act.
(c) Parent shall pay, or cause to be paid, in same day funds, to the Company
$15 million (the "Parent Termination Fee") upon demand if: (i) this Agreement
is terminated by Parent pursuant to Section 7.1(d) or by Parent or the Company
pursuant to 7.1(g) and within six months following any such termination a
Third Party Parent Acquisition Event (as hereinafter defined) occurs; (ii)
Parent or the Company terminates this Agreement pursuant to Section 7.1(j); or
(iii) this Agreement is terminated and prior thereto a Third Party Parent
Acquisition Event occurred.
A "Third Party Parent Acquisition Event" means any of the following events:
(A) any Person, other than the Company or its Subsidiaries, acquires or
becomes the beneficial owner of 30% or more of the outstanding shares of
Parent Common Stock; (B) any new group is formed which, at the time of
formation, beneficially owns 30% or more of the outstanding shares of Parent
Common Stock (other than a group which includes or may reasonably be deemed to
include the Company or any of its Subsidiaries); (C) Parent enters into an
agreement providing for a merger or other business combination involving
Parent or the acquisition of a substantial interest in, or a substantial
portion of the assets, business or operations of, Parent and its Subsidiaries
(other than the transactions contemplated by this Agreement); or (D) any
Person (other than the Company or its Subsidiaries) is granted any option or
right, conditional or otherwise, to acquire or otherwise become the beneficial
owner of shares of the Parent Common Stock that results or would result in
such Person being the beneficial owner of 30% or more of the outstanding
shares of Parent Common Stock.
Section 5.8 Company Stock Options. Not later than the Effective Time, each
Company Stock Option which is outstanding immediately prior to the Effective
Time pursuant to the Company's stock option plans in effect on the date hereof
(the "Stock Plans") shall be assumed by Parent and become and represent an
option to purchase the number of shares of Parent Common Stock (a "Substitute
Option") (decreased to the nearest full share) determined by multiplying (i)
the number of shares of Company Common Stock subject to such Company Stock
Option immediately prior to the Effective Time by (ii) the Exchange Ratio,
which options shall have an exercise price per share of Parent Common Stock
(rounded up to the nearest tenth of a cent) equal to the exercise price per
share of Company Common Stock immediately prior to the Effective Time divided
by the Exchange Ratio. Parent shall pay cash to holders of Company Stock
Options in lieu of issuing fractional shares of Parent Common Stock upon the
exercise of Substitute Options for shares of Parent Common Stock, unless in
the judgment of Parent such payment would adversely affect the ability to
account for the Merger under the pooling of interests method. After the
Effective Time, except as provided above in this Section 5.8, each Substitute
Option shall be exercisable upon the same terms and conditions as were
applicable under the related Company Stock Option immediately prior to the
Effective Time. This Section 5.8 shall be subject to any contrary provision in
the applicable Stock Plan or in the option agreement respecting the Company
Stock Options outstanding thereunder, but the Company agrees to use its
reasonable best efforts to obtain any necessary consents of holders of the
Company Stock Options to effect this Section 5.8 and to obtain any necessary
consents of holders of Warrants to effect Section 1.5(d). The Company agrees
that it will not grant any stock appreciation rights or limited stock
appreciation rights and will not permit cash payments to holders of Company
Stock Options in lieu of the substitution therefor of Substitute Options, as
described in this Section 5.8. Parent agrees that it shall take all action
necessary, on or prior to the Effective Time, to authorize and reserve a
number of shares of Parent Common Stock sufficient for issuance upon exercise
of the Substitute Options as contemplated by this Section 5.8.
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Section 5.9 Reasonable Best Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the
other transactions contemplated by this Agreement, including, but not limited
to: (i) the obtaining of all necessary actions or non-actions, waivers,
consents and approvals from all Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities) and the taking of all reasonable steps as may be necessary to obtain
an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity (including those in connection with the HSR Act and State
Takeover Approvals), (ii) the obtaining of all necessary consents, approvals
or waivers from third parties, (iii) the defending of any lawsuits or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby or
thereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and
(iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by this Agreement.
(b) Notwithstanding anything to the contrary contained in this Agreement,
(i) the Company shall not be obligated to use its reasonable best efforts or
to take any action pursuant to this Section 5.9 if the Board of Directors of
the Company shall determine, in its good faith judgment, having received the
advice of independent outside legal counsel to the Company, that such action
would constitute a breach of such Board's fiduciary duties under applicable
law, and (ii) in connection with any filing or submission required or action
to be taken by Parent, the Company or any of its respective Subsidiaries to
consummate the Merger or the other transactions contemplated in this
Agreement, the Company shall not, without Parent's prior consent, and Parent
shall not, without the Company's prior consent, commit to any divestiture of
assets or businesses of the Company and its Subsidiaries if such divested
assets and/or businesses are material to the assets or profitability of the
Company or the Parent and their Subsidiaries taken as a whole, and neither
Parent nor the Company nor any of their Subsidiaries shall be required to
divest any assets or business of Parent or its Subsidiaries or the Company or
its Subsidiaries if such divested assets and/or businesses are material to the
assets or profitability of Parent or its Subsidiaries taken as a whole or the
Company and its Subsidiaries taken as a whole, respectively, or hold separate
or otherwise take or commit to take any action that materially limits its
freedom of action with respect to the Company or any such assets or
businesses.
Section 5.10 Public Announcements. Parent and the Company will not issue any
press release with respect to the transactions contemplated by this Agreement
or otherwise issue any public statements with respect to such transactions
without prior consultation with the other party, except as may be required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange.
Section 5.11 Real Estate Transfer and Gains Tax. Parent and the Company
agree that either the Surviving Corporation or the Company will pay any state
or local tax which is attributable to the transfer of the beneficial ownership
of the Company's or its Subsidiaries' real property, if any (collectively, the
"Transfer Taxes"), and any penalties or interest with respect to the Transfer
Taxes, payable in connection with the consummation of the Merger. The Company
agrees to cooperate with Parent in the filing of any returns with respect to
the Transfer Taxes, including supplying in a timely manner a complete list of
all real property interests held by the Company and its Subsidiaries and any
information with respect to such property that is reasonably necessary to
complete such returns. The portion of the consideration allocable to the real
property of the Company and its Subsidiaries shall be agreed to between Parent
and the Company. The stockholders of the Company shall be deemed to have
agreed to be bound by the allocation established pursuant to this Section 5.11
in the preparation of any return with respect to the Transfer Taxes.
Section 5.12 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute
or regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall use
their reasonable best efforts to grant such approvals and take such actions as
are necessary so that the transactions contemplated hereby may be consummated
as promptly as practicable on the terms contemplated hereby and otherwise act
to minimize the effects of any such statute or regulation on the transactions
contemplated hereby.
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Section 5.13 Indemnification; Directors and Officers Insurance. (a) From and
after the Effective Time, Parent agrees to cause the Surviving Corporation to
exculpate, indemnify and hold harmless all past and present officers and
directors of the Company and its Subsidiaries (the "Indemnified Parties") to
the same extent such persons are currently exculpated and indemnified by the
Company pursuant to the Company's Restated Certificate of Incorporation and
By-laws for acts or omissions occurring at or prior to the Effective Time.
Parent shall cause the Surviving Corporation to provide, for an aggregate
period of not less than six years from the Effective Time, the Company's
current directors and officers an insurance and indemnification policy that
provides coverage for events occurring prior to the Effective Time (the "D&O
Insurance") that is no less favorable than the Company's existing policy or,
if substantially equivalent insurance coverage is unavailable, the best
available coverage; provided, however, that the Surviving Corporation shall
not be required to pay an annual premium for the D&O Insurance in excess of
175 percent of the last annual premium paid prior to the date hereof, but in
such case shall purchase as much coverage as possible for such amount.
(b) Any Indemnified Party wishing to claim indemnification under Section
5.13(a), upon learning of any claim, action, suit, proceeding or investigation
subject to indemnification thereunder, shall promptly notify the Surviving
Corporation thereof. An Indemnified Party may select counsel to represent him
or her in connection with any of the foregoing, which counsel shall be
reasonably acceptable to the Surviving Corporation, and the Surviving
Corporation will cooperate in the defense of any such matter; provided,
however, that the Surviving Corporation shall not be liable for any settlement
effected without its written consent; and provided, further, that the
Surviving Corporation shall not be obligated to pay the fees and disbursements
of more than one counsel for all Indemnified Parties in any single matter
except to the extent that, in the opinion of counsel for the Indemnified
Parties, two or more of such Indemnified Parties have conflicting interests in
the outcome of such matter. The Surviving Corporation shall not have any
obligation hereunder to an Indemnified Party if and when a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
Section 5.14 Notification of Certain Matters. Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to Parent, of:
(i) the occurrence, or non-occurrence, of any event the occurrence, or non-
occurrence, of which it is aware and which would be reasonably likely to cause
(A) any representation or warranty contained in this Agreement that is not
qualified as to materiality to be untrue or inaccurate in any material
respect, (B) any representation or warranty contained in this Agreement that
is qualified as to materiality to be untrue or inaccurate in any respect, or
(C) any covenant, condition or agreement contained in this Agreement not to be
complied with or satisfied; and (ii) any failure of Parent or the Company, as
the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.14 shall not limit
or otherwise affect the remedies available hereunder to the party receiving
such notice.
Section 5.15 Employee Benefit Plans. (a) Parent agrees that no later than
January 1, 1999, a new program of employee benefits that is generally
applicable on identical terms and conditions to all similarly situated Company
Employees and Parent Employees (as defined below) will be adopted by the Board
of Directors of Parent (or a committee thereof) and become effective. For the
period commencing on the Effective Time and continuing until the date such a
new program is effective, Parent will, or will cause its Subsidiaries,
including, without limitation, the Surviving Corporation, to, honor and
continue to maintain and contribute to all Parent Benefit Plans and all
Company Plans, in accordance with the respective terms and conditions of such
plans in effect on the date hereof (and any amendments to, or termination of,
any Parent Benefit Plan approved or authorized by the Board of Directors of
Parent or any committee thereof prior to the date hereof and any amendment
thereafter required to maintain the tax-qualified status of any Parent Benefit
Plan or Company Plan intended to have such status), except (i) that to the
extent that any Company Plan refers to Company Stock, such reference shall,
after the Effective Time, be changed to Parent Stock, adjusted to the extent
appropriate to reflect the Exchange Ratio, or (ii) to the extent that Parent
in good faith after consultation with counsel determines to do so would be
inconsistent with the Employee Retirement Income Security Act of 1974, as
amended, or other applicable law. For purposes of this Section 5.15, Parent
Employee shall include any individual who at the Effective Time is employed by
and on the active payroll of Parent or any of its Subsidiaries and Company
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Employee shall mean any individual who at the Effective Time is employed by
and on the active payroll of the Company or any of its Subsidiaries. An
individual who is not on the active payroll of Parent, the Company or their
Subsidiaries, as the case may be, on account of any approved or legally
required leave of absence shall become a Parent Employee or Company Employee,
as the case may be, upon his or her return to active employment pursuant to
the terms of such leave. Notwithstanding the foregoing, nothing in this
Section 5.15(a) shall entitle any Parent Employee or Company Employee to any
minimum amount of bonus or other incentive compensation (including stock
option grants) pursuant to any Parent Benefit Plan or Company Plan applicable
to executives, key employees or other senior management for any period after
the Effective Time.
Notwithstanding anything herein to the contrary, except as otherwise
required by law or as is necessary for the Bozell, Jacobs, Kenyon & Eckhardt,
Inc. Profit Sharing and Savings Plan (the "Company Profit Sharing Plan") or
the Bozell Inc. Stock Bonus Plan (the "Company Stock Bonus Plan") to satisfy
the qualification requirements of Section 401 of the Code, neither Parent nor
any Subsidiary shall take any action, including, but not limited to, amending,
merging or otherwise altering the Company Profit Sharing Plan or the Company
Stock Bonus Plan, which allows the reallocation of any or all of the assets of
the Company Stock Fund (as such term is currently defined in the Company
Profit Sharing Plan) or the Company Stock Bonus Plan from the account of any
Current Company Plan Participant (as hereinafter defined) to the account of
any individual who is not a Current Company Plan Participant, other than at
the election of the Current Company Plan Participant. For purposes of the
preceding sentence, the term "Current Company Plan Participant" means an
individual who immediately prior to the Effective Time either (i) is a
participant in the Company Profit Sharing Plan who has, as of such time, an
account balance invested in the Company Stock Fund, or (ii) is a participant
in the Company Stock Bonus Plan.
(b) With respect to benefits payable or provided to former employees of the
Company or any Subsidiary of the Company who have retired or otherwise
terminated service before the Effective Time, neither Parent nor any
Subsidiary of Parent (including, without limitation, the Surviving
Corporation) shall take or cause to be taken after the Effective Time any
action to reduce or adversely affect such benefits, including, without
limitation, retiree health, medical and life insurance benefits, from the
level and terms on which any such benefits are provided to such former
employees of the Company or its Subsidiaries on the date hereof except to the
extent that the Company or its Subsidiaries had the authority to do so on the
date hereof, and any such action taken applies generally in an identical
manner to all similarly situated former employees of the Company, Parent and
any of their Subsidiaries then eligible to receive such or similar benefits.
(c) For purposes of eligibility to participate and vesting, and eligibility
for and accrual of benefits under all Parent Benefit Plans (except, with
respect to accrual of benefits under any Parent Benefit Plan that is a defined
benefit pension plan) that may become applicable to any Company Employee, all
service of any Company Employee with the Company or any Subsidiaries of the
Company (or a predecessor of any thereof) prior to the Effective Time shall,
after the Effective Time, be treated as service with the Surviving
Corporation, the Parent or their Subsidiaries (as applicable), to the same
extent that service with the Company or any of its Subsidiaries prior to the
Effective Time is taken into account under the Company Plans. With respect to
participation of Company Employees and their dependents in Parent Benefit
Plans, Parent and its Subsidiaries shall, or shall cause the applicable Parent
Benefit Plans to (x) waive any waiting periods or affiliation periods and any
pre-existing condition and actively-at-work exclusions (or other similar
limitations on participation) otherwise applicable after the Effective Time to
Company Employees or their dependents, (y) waive any evidence of insurability
requirements and (z) provide that all claims and expenses of Company Employees
and their dependents during any plan year within which the Effective Time
occurs shall be taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions (and like
adjustments or limitations on coverage) under such plans.
Section 5.16 Management of Parent. Effective as of the Effective Time,
Richard S. Braddock shall serve as a non-executive Chairman of the Board of
Parent, Bruce Mason shall serve as Chief Executive Officer of Parent and
Charles D. Peebler, Jr. shall serve as President of Parent. The chief
executive officers of Parent's FCB Advertising Entities (as hereinafter
defined) and the Company's Bozell Worldwide Subsidiary shall be J. Brendan
Ryan and David A. Bell, respectively, and both of such chief executive
officers shall report to Bruce
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Mason. The chief executive officers of the Diversified Companies (as
hereinafter defined) shall report to Charles D. Peebler, Jr. The "FCB
Advertising Entities" shall mean FCB/Leber Katz Partners, Foote Cone & Belding
Advertising, Inc., Foote Cone & Belding, Inc., FCB Healthcare, FCB
International, FCB Japan, Inc., Wilkins Group and other related Foote Cone &
Belding agency entities. The "Diversified Companies" shall mean Parent's and
the Company's direct Subsidiaries other than the FCB Advertising Entities and
Bozell Worldwide, and shall include, without limitation, Poppe Tyson, Temerlin
McClain, Bozell Sawyer Miller Group, McCracken Brooks, Bozell Wellness
Worldwide, TN Technologies, Wahlstrom & Company, Tierney & Partners, Borders,
Perrin and Norrander and Market Growth Resources and the separate media buying
companies of Parent and the Company. The chief executive officers of any
direct Subsidiaries acquired after the date hereof shall have reporting
relationships as determined by the Board of Parent. Compensation and other
matters for each of Bruce Mason and Charles D. Peebler, Jr. shall be as set
forth in the Agreements entered into as of the date hereof (but effective as
of the Effective Time) between Parent and each of Bruce Mason and Charles D.
Peebler, Jr., forms of which are attached hereto as Exhibits C and D,
respectively. Bruce Mason and Charles D. Peebler, Jr. shall be responsible for
presenting to the Board of Directors of Parent no later than February 28,
1999, a plan of management succession for each of their respective positions
within Parent. Compensation and other matters for Richard S. Braddock shall be
as set forth in the Agreement attached hereto as Exhibit E.
Section 5.17 Board of Directors of Parent and Committees Thereof. At the
Effective Time, by reason of their election at the Parent Stockholders Meeting
provided for in Section 5.1, the Board of Directors of Parent shall be
comprised of 12 members as follows: six directors selected by Parent board
(Bruce Mason, J. Brendan Ryan and four current non-employee directors of
Parent other than the Publicis Designee (as defined)); five directors selected
by the Company board (Charles D. Peebler, Jr., Leo-Arthur Kelmenson and David
A. Bell and two non-employees); and only for so long as Publicis shall be
entitled to cause its designee to serve as a director on the Board of Parent
under the Publicis Unwind Agreements (the "Publicis Designee"), the Publicis
Designee shall be a twelfth director. The initial composition of the
committees of the Board of Directors of Parent following the Effective Time
shall be as described on Schedule 2.
Section 5.18 Certain Litigation. The Company and Parent shall not settle any
litigation commenced after the date hereof against the Company, Parent or any
of other directors by any stockholder of either party relating to the Merger
or this Agreement without the prior written consent of the other party (which
shall not be unreasonably withheld).
Section 5.19 FIRPTA Certificate. The Company shall deliver to Parent, not
more than 20 days prior to the Effective Time, a statement in accordance with
Treas. Reg. (S)(S) 1.1445-2(c) (3) and 1.897-2(h) certifying that the Company
is not, and has not been during the past five years, a "United States real
property holding corporation" for purposes of Sections 897 and 1445 of the
Code, and Parent shall have no actual knowledge that such statement is false
or receive a notice that the statement is false pursuant to Treas. Reg. (S)
1.1445- 4. In addition, the Company shall have delivered to Parent at the
Effective Time the notification to the Internal Revenue Service, in accordance
with the requirements pursuant to Treas. Reg. (S) 1.897-2(h)(2), of delivery
of the statement referred to in the preceding sentence, signed by a
responsible corporate officer of the Company. The Company acknowledges that
Parent may cause the Company to file such notification with the Internal
Revenue Service on or after the Effective Time.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved by
the requisite vote of stockholders of the Company in accordance with
applicable law and the Restated Certificate of Incorporation and By-laws of
the Company, and the Charter Amendment, the Share Issuance and the
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election of directors shall have been duly approved by the requisite vote
of the stockholders of Parent in accordance with applicable rules of the
NYSE, applicable law and the Restated Certificate of Incorporation and By-
laws of Parent.
(b) Stock Exchange Listings. The Parent Common Stock issuable in the
Merger and pursuant to Substitute Options shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
(c) HSR and Other Approvals. (i) The waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(ii) All authorizations, consents, orders, declarations or approvals of,
or filings with, or terminations or expirations of waiting periods imposed
by, any Governmental Entity, which the failure to obtain, make or occur
would have the effect of making the Merger or any of the transactions
contemplated hereby illegal or would have a Material Adverse Effect on
Parent (assuming the Merger had taken place), shall have been obtained,
shall have been made or shall have occurred.
(d) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall have been
initiated or, to the Knowledge of Parent or the Company, threatened by the
SEC. All necessary state securities or blue sky authorizations shall have
been received.
(e) No Order. No court or other Governmental Entity having jurisdiction
over the Company or Parent, or any of their respective Subsidiaries, shall
(after the date of this Agreement) have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the Merger or any of
the transactions contemplated hereby illegal.
(f) Accounting. Each of Parent and the Company shall have received at the
Effective Time an opinion of Arthur Andersen LLP, in form and substance
reasonably satisfactory to Parent and the Company, that the Merger will
qualify for pooling of interests accounting treatment under Accounting
Principles Board Opinion No. 16 if closed and consummated in accordance
with this Agreement. Each of Parent and the Company shall have delivered
all affiliate letters from their respective affiliates to the extent
reasonably necessary to protect the pooling of interests accounting
treatment of the Merger.
Section 6.2 Conditions to Obligation of the Company to Effect the Merger.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. Each of
Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of Parent
and Sub contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters only as of a certain
date which shall be true and correct in all material respects as of such
certain date), in each case except as contemplated or permitted by this
Agreement, and the Company shall have received certificates signed on
behalf of each of Parent and Sub by its Chief Executive Officer and its
Chief Financial Officer to such effect.
(b) Tax Opinion. The Company shall have received an opinion of White &
Case, in form and substance reasonably satisfactory to the Company, dated
the Effective Time, substantially to the effect that for federal income tax
purposes:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Sub and Parent will
each be a party to that reorganization within the meaning of Section
368(b) of the Code;
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(ii) no gain or loss will be recognized by Parent or the Company as a
result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of the
Company upon the conversion of their shares of Company Common Stock
into shares of Parent Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock;
(iv) the aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including a fractional share of Parent Common Stock for which
cash is paid) will be the same as the aggregate tax basis of such
shares of Company Common Stock;
(v) the holding period for shares of Parent Common Stock received in
exchange for shares of Company Common Stock pursuant to the Merger will
include the holder's holding period for such shares of Company Common
Stock, provided such shares of Company Common Stock were held as
capital assets by the holder at the Effective Time; and
(vi) a stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in
the fractional share (determined under clause (iv) above) and the
amount of cash received.
In rendering such opinion, White & Case may rely upon, among other things,
the representations contained herein, representations from Parent
substantially similar to the representations in the Parent Tax Certificate
attached to the Parent Letter, representations from the Company
substantially similar to the representations in the Company Tax Certificate
attached to the Company Letter and representations from certain
stockholders of the Company. This condition precedent shall be satisfied
even if such opinion does not express an opinion as to the tax consequences
of a conversion in the Merger of Company Common Stock that is received upon
the exercise of Warrants prior to the Effective Time in contemplation of
the Merger.
(c) Consent Under Agreements. Parent shall have obtained the consent or
approval of each person that is not a Governmental Entity whose consent or
approval shall be required in connection with the transactions contemplated
hereby under any loan or credit agreement, note, mortgage, indenture, lease
or other agreement or instrument, except as to which the failure to obtain
such consents and approvals would not, in the reasonable opinion of the
Company, individually or in the aggregate, have a Material Adverse Effect
on Parent or upon the consummation of the transactions contemplated in this
Agreement.
(d) Material Adverse Effect. Since the date of this Agreement, there
shall not have been any events, changes or developments that, individually
or in the aggregate, would have a Material Adverse Effect on Parent, other
than (i) general advertising industry conditions and (ii) matters described
in the Parent Letter. The Company shall have received a certificate of the
Chief Executive Officer and the Chief Financial Officer of Parent to such
effect.
(e) Litigation. There shall not be pending any suit, action or proceeding
before any Governmental Entity as a result of this Agreement or any of the
transactions contemplated herein which would have a Material Adverse Effect
on Parent (assuming the Merger had taken place).
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of the
Company contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct as of such
certain date) and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date (other than
representations and warranties which address matters
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only as of a certain date which shall be true and correct in all material
respects as of such certain date), in each case except as contemplated or
permitted by this Agreement, and Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and its
Chief Financial Officer to such effect.
(b) Tax Opinion. Parent shall have received an opinion of Sidley &
Austin, in form and substance reasonably satisfactory to Parent, dated the
Effective Time, substantially to the effect that for federal income tax
purposes:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Sub and Parent will
each be a party to that reorganization within the meaning of Section
368(b) of the Code;
(ii) no gain or loss will be recognized by Parent or the Company as a
result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of the
Company upon the conversion of their shares of Company Common Stock
into shares of Parent Common Stock pursuant to the Merger, except with
respect to cash, if any, received in lieu of fractional shares of
Parent Common Stock;
(iv) the aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including a fractional share of Parent Common Stock for which
cash is paid) will be the same as the aggregate tax basis of such
shares of Company Common Stock;
(v) the holding period for shares of Parent Common Stock received in
exchange for shares of Company Common Stock pursuant to the Merger will
include the holder's holding period for such shares of Company Common
Stock, provided such shares of Company Common Stock were held as
capital assets by the holder at the Effective Time; and
(vi) a stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in
the fractional share (determined under clause (iv) above) and the
amount of cash received.
In rendering such opinion, Sidley & Austin may rely upon, among other
things, representations contained herein, representations from Parent
substantially similar to the representations in the Parent Tax Certificate
attached to the Parent Letter, representations from the Company
substantially similar to the representations in the Company Tax Certificate
attached to the Company Letter, and representations from certain
stockholders of the Company. This condition precedent shall be satisfied
even if such opinion does not express an opinion as to the tax consequences
of a conversion in the Merger of Company Common Stock that is received upon
the exercise of Warrants prior to the Effective Time in contemplation of
the Merger.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each person that is not a Governmental Entity whose
consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument, except as to which the
failure to obtain such consents and approvals would not, in the reasonable
opinion of Parent, individually or in the aggregate, have a Material
Adverse Effect on the Company or upon the consummation of the transactions
contemplated in this Agreement.
(d) Material Adverse Effect. Since the date of this Agreement, there
shall not have been any events, changes or developments that, individually
or in the aggregate, would have a Material Adverse Effect on the Company,
other than (i) general advertising industry conditions and (ii) matters
described in the Company Letter. Parent shall have received a certificate
of the Chief Executive Officer and the Chief Financial Officer of the
Company to such effect.
(e) Litigation. There shall not be pending any suit, action or proceeding
before any Governmental Entity as a result of this Agreement or any of the
transactions contemplated herein which would have a Material Adverse Effect
on Parent (assuming the Merger had taken place).
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(f) FIRPTA Certificates. Parent shall have received from the Company the
statement and notification referred to in, and in accordance with the
provisions of, Section 5.19.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after any approval of the matters
presented in connection with the Merger by the stockholders of the Company or
Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the other party shall have failed
to comply in any material respect with any of its covenants or agreements
contained in this Agreement required to be complied with prior to the date
of such termination, which failure to comply has not been cured within 10
business days following receipt by such other party of written notice of
such failure to comply;
(c) by either Parent or the Company if there has been (i) a breach by the
other party (in the case of Parent, including any material breach by Sub)
of any representation or warranty that is not qualified as to materiality
which has the effect of making such representation or warranty not true and
correct in all material respects or (ii) a breach by the other party (in
the case of Parent, including any material breach by Sub) of any
representation or warranty that is qualified as to materiality which has
the effect of making such representation or warranty not true and correct,
in each case which breach has not been cured within 10 business days
following receipt by the breaching party of written notice of the breach;
(d) by either Parent or the Company if the Merger has not been effected
on or prior to the close of business on December 31, 1997; provided,
however, that the right to terminate this Agreement pursuant to this
Section 7.1(d) shall not be available to any party whose failure to fulfill
any of its obligations contained in this Agreement has been the cause of,
or resulted in, the failure of the Merger to have occurred on or prior to
the aforesaid date;
(e) by either Parent or the Company if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and nonappealable; provided, however, that
Parent shall, if necessary to prevent any such issuance or the taking of
such action, offer to accept an order to divest such of the Company's or
Parent's assets and businesses as may be necessary to forestall such
injunction or order and to hold separate such assets and business pending
such divestiture, but only if the amount of such assets and businesses is
not material to the assets or profitability of the Company and its
Subsidiaries taken as a whole or Parent and its Subsidiaries taken as a
whole, respectively;
(f) by either Parent or the Company if the stockholders of the Company do
not adopt this Agreement at the Company Stockholder Meeting or at any
adjournment or postponement thereof;
(g) by either Parent or the Company if the stockholders of Parent do not
approve the Charter Amendment and the Share Issuance and the election of
directors at the Parent Stockholder Meeting or at any adjournment or
postponement thereof;
(h) by either Parent or the Company if (i) the Board of Directors of the
Company reasonably determines that a Company Takeover Proposal constitutes
a Superior Company Takeover Proposal; provided, however, that the Company
may not terminate this Agreement pursuant to this Section 7.1(h)(i) unless
and until five business days have elapsed following delivery to Parent of a
written notice of such determination by the Board of Directors of the
Company; or (ii) a tender offer or exchange offer for 30% or more of the
outstanding shares of Company Common Stock is commenced, and the Board of
Directors of the Company fails within ten business days following such
commencement to recommend against acceptance of such tender offer or
exchange offer by its stockholders (including by taking no position with
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respect to the acceptance of such tender offer or exchange offer by its
stockholders); provided, however, that the Company may not terminate this
Agreement pursuant to clause (i) or (ii) of this Section 7.1(h) unless it
is in full compliance with its obligations under Section 4.3(a) and 5.1
and, further, unless simultaneously with such termination the Company pays
to Parent the amount specified under Section 5.7(b); and provided, further,
that any termination by Parent pursuant to clause (i) or (ii) of this
Section 7.1(h) shall in no way constitute an admission that the Company
complied with the provisions of Section 4.3(a) or any other provisions
hereof;
(i) by either Parent or the Company if the Board of Directors of the
Company shall not have recommended, or shall have resolved not to
recommend, or shall have modified or withdrawn its recommendation of the
Merger or determination that the Merger is fair to and in the best interest
of the Company and its stockholders, or shall have resolved to do so; or
(j) by either Parent or the Company if (i) the Board of Directors of
Parent reasonably determines that a Parent Takeover Proposal constitutes a
Superior Parent Takeover Proposal; provided however, that Parent may not
terminate this Agreement pursuant to this Section 7.1(j)(i) unless and
until five business days have elapsed following delivery to the Company of
a written notice of such determination by the board of Directors of Parent;
or (ii) a tender offer or exchange offer for 30% or more of the outstanding
shares of Parent is commenced and the Board of Directors of Parent fails
within ten business days following such commencement to recommend against
acceptance of such tender offer or exchange offer by its stockholders
(including by taking no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders); provided, however,
that Parent may not terminate this Agreement pursuant to clause (i) or (ii)
of this Section 7.1(j) unless it is in full compliance with its obligations
under Section 4.3(b) and 5.1 and, further unless simultaneously with such
termination Parent pays to the Company the amount specified under Section
5.7(c); and provided, further, that any termination by the Company pursuant
to clause (i) or (ii) of this Section 7.1(j) shall in no way constitute an
admission that Parent complied with the provisions of Section 4.3(b) or any
other provisions hereof.
The right of any party hereto to terminate this Agreement pursuant to this
Section 7.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability
hereunder on the part of the Company, Parent, Sub or their respective officers
or directors (except for Sections 5.4(c), 5.7 and 5.10 and this Section 7.2,
which shall survive the termination); provided, however, that nothing
contained in this Section 7.2 shall relieve any party hereto from any
liability for any breach hereof.
Section 7.3 Amendment. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Parent and the Company, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein which may legally be waived. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of
those rights.
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ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement (other than representations made in
connection with the opinions described in Sections 6.2(b) and 6.3(b), which
shall terminate five years after the Effective Time) shall terminate at the
Effective Time.
Section 8.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when telecopied (with a
confirmatory copy sent by overnight courier) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to
True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611
Attention: Chief Executive Officer
Facsimile No.: 312/440-6615
with copies to:
Attention: Theodore J. Theophilos
General Counsel
Facsimile No.: 312/425-6354
and
Thomas A. Cole, Esq.
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Facsimile No.: 312/853-7036
(b) if to the Company, to
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
40 West 23rd Street
New York, New York 10010
Attention: Chief Executive Officer
Facsimile No.: 212/727-5420
with copy to:
Kevin Keogh, Esq.
White & Case
1155 Avenue of the Americas
New York, New York 10036
Facsimile No.: (212) 354-8113
Section 8.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
Section 8.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties.
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Section 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
except as provided in Section 5.4(c), constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof. This Agreement,
except for the provisions of Section 5.13, is not intended to confer upon any
person other than the parties hereto any rights or remedies hereunder.
Section 8.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
Section 8.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this
Agreement may be consummated as originally contemplated to the fullest extent
possible.
Section 8.9 Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific wording or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, such remedy being in
addition to any other remedy to which any party is entitled at law or in
equity.
Section 8.10 Obligations of Subsidiaries. Whenever this Agreement requires
any Subsidiary of Parent (including Sub) or of the Company to take any action,
such requirement shall be deemed to include an understanding on the part of
Parent or the Company, as the case may be, to cause such Subsidiary to take
such action.
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<PAGE>
In Witness Whereof, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
True North Communications Inc.
/s/ Bruce Mason
By: _________________________________
Name: Bruce Mason
Title: Chairman and Chief
Executive Officer
Attest:
/s/ Theodore J. Theophilos
- -------------------------------------
Name: Theodore J. Theophilos
Title: Executive Vice President and
General Counsel
Cherokee Acquisition Corporation
/s/ Bruce Mason
By: _________________________________
Name: Bruce Mason
Title: Chairman and President
Attest:
/s/ Theodore J. Theophilos
- -------------------------------------
Name: Theodore J. Theophilos
Title: Vice President and Secretary
Bozell, Jacobs, Kenyon & Eckhardt,
Inc.
/s/ Charles D. Peebler, Jr.
By: _________________________________
Name: Charles D. Peebler, Jr.
Title: President and Chief
Executive Officer
Attest:
/s/ Valentine J. Zammit
- -------------------------------------
Name: Valentine J. Zammit
Title: Chief Financial Officer
I-42
<PAGE>
ANNEX II
MORGAN STANLEY & CO.
INCORPORATED
ONE FINANCIAL PLACE
440 SOUTH LA SALLE
STREET
CHICAGO, IL 60605
(312) 706-4000
July 30, 1997
Board of Directors
True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611-2897
Members of the Board:
We understand that Bozell, Jacobs, Kenyon & Eckhardt, Inc. (the "Company"),
True North Communications Inc. ("True North") and Cherokee Acquisition
Corporation, a wholly-owned subsidiary of True North ("Sub") have entered into
an Agreement and Plan of Merger, dated as of July 30, 1997 (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Sub with and into the Company. Pursuant to the Merger, the Company will
become a wholly-owned subsidiary of True North and each outstanding share of
Class A Common Stock, par value $.001 per share of the Company (the "Class A
Common Stock") and Class B Common Stock, par value $.001 per share of the
Company (the "Class B Common Stock" and together with the "Class A Common
Stock", the "Company Common Stock") of the Company, other than shares held in
treasury or as to which dissenters' rights have been perfected, will be
converted into the right to receive .51 shares (the "Exchange Ratio") of
common stock, par value $.33 1/3 per share, of True North (the "True North
Common Stock"). The terms and conditions of the Merger are more fully set
forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to True North.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company and True North, respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company and True North prepared by the
managements of the Company and True North, respectively;
(iii) analyzed certain financial projections for the Company and True
North prepared by the managements of the Company and True North,
respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company and True North with senior executives of
the Company and True North, respectively;
(v) reviewed the pro forma impact of the Merger on True North's earnings
per share and consolidated capitalization;
(vi) reviewed the reported prices and trading activity for the True North
Common Stock;
(vii) compared the financial performance of the Company and True North
and the prices and trading activity of True North Common Stock with that of
certain other comparable publicly-traded companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
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<PAGE>
(ix) discussed with senior executives of the Company and True North their
views of the strategic rationale for the Merger and their estimates of the
synergies and the cost savings and other benefits expected to be derived
from the Merger;
(x) participated in discussions and negotiations among representatives of
the Company and True North and their financial and legal advisors;
(xi) reviewed the Merger Agreement and certain related documents;
(xii) considered the due diligence report by management of True North in
connection with its meeting with the Company's largest account; and
(xiii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, including
estimates of the synergies, cost savings and other benefits expected to be
derived from the Merger, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of the Company and True North.
We have assumed that the Merger will be accounted for as a "pooling-of-
interests" business combination in accordance with U.S. Generally Accepted
Accounting Principles. We have also assumed that the Merger will be
consummated in accordance with the terms set forth in the Merger Agreement. We
have not made any independent valuation or appraisal of the assets or
liabilities of the Company or True North, nor have we been furnished with any
such appraisals. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to True North in connection with this
transaction and will receive a fee for our services. In the past, Morgan
Stanley & Co. Incorporated and its affiliates have provided financial advisory
services to True North and have received fees for the rendering of these
services.
It is understood that this letter is for the information of the Board of
Directors of True North and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its
entirety in any filing made by True North with the Securities and Exchange
Commission in connection with the Merger. In addition, we express no opinion
or recommendation as to how the holders of True North Common Stock should vote
at the shareholder's meeting held in connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to True North.
Very truly yours,
Morgan Stanley & Co. Incorporated
/s/ William H. Strong
By: _________________________________
William H. Strong
Managing Director
II-2
<PAGE>
ANNEX III
Investment Banking
Corporate and
Institutional
Client Group
World Financial
Center
North Tower
New York, New York
10281-1330
212 449 1000
MERRILL LYNCH LOGO
July 30, 1997
Board of Directors
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
40 West 23rd Street
New York, NY 10010
Members of the Board of Directors:
Bozell, Jacobs, Kenyon & Eckhardt, Inc. (the "Company"), True North
Communications Inc. (the "Acquiror") and a wholly owned subsidiary of the
Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and Plan
of Merger (the "Agreement") pursuant to which the Acquisition Sub will be
merged with the Company in a transaction (the "Merger") in which each
outstanding share of the Company's Class A Common Stock, par value $.001 per
share, and Class B Common Stock, par value $.001 per share (collectively, the
"Company Shares"), not owned directly by the Company or the Acquiror, will be
converted into the right to receive 0.510 shares (the "Exchange Ratio") of the
common stock of the Acquiror, par value $.33 1/3 per share (the "Acquiror
Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair from a
financial point of view to the holders of the Company Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Acquiror that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and the Acquiror, as well as the amount and
timing of the cost savings and related expenses and synergies
expected to result from the Merger (the "Expected Synergies"),
furnished to us by the Company and the Acquiror, respectively;
(3) Reviewed certain information, including financial forecasts, relating
to Publicis FCB Europe B.V., Publicis Communication and Publicis S.A.
furnished to us by the Company and the Acquiror;
(4) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1, 2 and 3 above, as well as their respective
businesses and prospects before and after giving effect to the Merger
and the Expected Synergies;
(5) Reviewed the market prices and valuation multiples for the Acquiror
Shares and compared them with those of certain publicly traded
companies that we deemed to be relevant;
(6) Reviewed the results of operations of the Company and the Acquiror and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(7) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(8) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial
and legal advisors;
(9) Reviewed the potential pro forma impact of the Merger;
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<PAGE>
(10) Reviewed a draft dated July 29, 1997 of the Agreement; and
(11) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct, nor have we conducted, any physical inspection of the properties or
facilities of the Company or the Acquiror. With respect to the financial
forecast information and the Expected Synergies furnished to or discussed with
us by the Company or the Acquiror, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the Company's or the Acquiror's management as to the expected
future financial performance of the Company or the Acquiror, as the case may
be, and the Expected Synergies. We have further assumed that the Merger will
be accounted for as a pooling of interests under generally accepted accounting
principles and that it will qualify as a tax-free reorganization for U.S.
federal income tax purposes. We have also assumed that the final form of the
Agreement will be substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or
any part of the Company.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities
arising out of our engagement. In the past we have provided financial advisory
and financing services to the Company and/or its affiliates and may continue
to do so and have received, and may receive, fees for the rendering of such
services. In addition, in the ordinary course of our business, we may actively
trade the Acquiror Shares and other securities of the Acquiror for our own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation
to any shareholder of the Company as to how such shareholder should vote on
the proposed Merger.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair from a financial point of view
to the holders of the Company Shares.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
III-2
<PAGE>
ANNEX IV
TRUE NORTH COMMUNICATIONS INC.
(FORMERLY, FOOTE, CONE & BELDING COMMUNICATIONS, INC.)
----------------
STOCK OPTION PLAN
1. Purpose. This Plan is an amendment and restatement, adopted by the Board
of Directors on , 1997, of the stock option plan initially adopted
by FOOTE, CONE & BELDING COMMUNICATIONS, INC. (the "Corporation") on the 24th
day of October, 1968, in order that employees of, and certain other key
individuals who perform services for, the Corporation or its subsidiaries may
be given an inducement to acquire a proprietary interest in the Corporation
and an added incentive to advance the interests of the Corporation in the form
of an option to purchase common stock of the Corporation.
II. Stockholders. This Plan has been approved by the stockholders of the
Corporation.
III. Stock. The Corporation may, by action of its Compensation Committee,
grant options under this Plan to purchase up to but not exceeding 12,114,000
shares of the Corporation's common stock. For the purposes of complying with
(S)162(m) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder, the maximum number of shares of the Corporation's
common stock with respect to which options may be granted during any calendar
year to any person shall be 300,000. Upon the expiration or termination of any
option under the Plan which has not been fully exercised, the number of shares
as to which such option has not been exercised shall become available for
future options under the Plan. Upon the expiration or termination of any
option under the Plan which has not been fully exercised, the number of shares
as to which such option has been exercised shall become available for future
options under the Plan. Upon exercise of any option, the Corporation may honor
such option by issuing shares of the Corporation's authorized but unissued
common stock or by transferring and delivering shares of the Corporation's
treasury stock, as the Corporation may determine.
IV. Eligibility for Participation. All employees of, and other individuals
(other than directors who are not employees of the Corporation) who perform
services for, the Corporation or any subsidiary corporation shall be eligible
to participate in this Plan. The term "subsidiary corporation" means any
corporation in which this Corporation has a direct or indirect interest equal
to 20%, or more of the total combined voting power of all classes of stock of
such corporation. The Corporation and the foregoing subsidiary corporations
are hereinafter collectively called the "Companies" and individually a
"Company."
Anything to the contrary notwithstanding, no option shall be granted under
this Plan to an otherwise eligible participant if, immediately after the
option is granted, he owns (including the stock under option) directly or
indirectly five (5) percent or more of the total combined voting power or
value of all classes of stock of the Corporation.
V. Date of Grant. Unless the Compensation Committee shall by resolution
otherwise expressly provide, the date upon which such Board or such Committee
acts to grant an option shall, for all purposes of this Plan or of the option
agreement entered into pursuant to such action, be deemed the date upon which
such option is granted. From and after such date the participant to whom such
action is granted shall have all rights of an option holder as provided in
this Plan, without regard to the date upon which a formal written agreement
evidencing the grant shall be executed and delivered. Whenever an option is
granted under the Plan to a participant, written notice of such grant shall be
forthwith given to him, pursuant to Article IX hereof.
VI. Price. The price of the common stock of the Corporation offered to any
participant under this Plan by the grant of an option to him to purchase such
stock shall be such amount as the Compensation Committee shall determine;
provided, however, that such price shall be in no event less than 100 percent
of the fair market value of such stock on the date of the grant of the option.
<PAGE>
VII. Time of Exercise. Except as hereinafter specified, each option granted
under this Plan shall be exercisable at such time as the Compensation
Committee shall determine when granting such option; provided however, that
each such option shall become exercisable upon a "change in control" (as
defined below) of the Corporation. "Change in control" shall mean (i) an
acquisition (other than directly from the Corporation) of 15% or more of the
beneficial interest in the voting stock of the Corporation by a party other
than the Corporation or a Corporation-sponsored benefit plan, or (ii) a change
in the Board of Directors as a result of which the current directors (together
with the successors they nominate or approve for nomination) cease to be a
majority of the Board of Directors.
VIII. Expiration of Options. Shares with respect to which a stock option is
granted shall not be available for grant of a subsequent stock option to the
same participant by cancellation or surrender of such prior stock option. Any
stock option granted under this Plan shall by its terms expire no later than
ten (10) years after the date of its grant, and anything herein to the
contrary notwithstanding, no exercise as to any shares covered by such option
shall be honored on or after the tenth anniversary of the date of grant.
IX. Notice of Grant. When any grant of any option under this Plan is made to
any participant by the Compensation Committee of the Corporation, the
participant shall be promptly notified of such grant. As soon thereafter as
practicable a formal option agreement shall be executed by and between the
Corporation and the participant in substantially the same form and subject to
the same conditions and limitations as this Plan.
X. Action to Prevent Dilution. If any change is made in the stock subject to
this Plan by reason of stock dividends or by a stock split-up, appropriate
actions shall be taken by the Board of Directors of the Corporation as to the
number of shares and price per share of the stock subject to this Plan or to
any option granted hereunder and to the maximum number of shares of the
Corporation's common stock with respect to which options may be granted under
this Plan during any calendar year to any person in order to prevent dilution.
XI. Termination of Employment and Death. In the event that a participant
shall cease to be employed by or to perform services for any of the Companies
(i) by reason of his (a) death or (b) permanent incapacity to render services
to such Company of the general nature for which he is employed by or engaged
to perform for such Company (which incapacity shall be deemed to exist only
upon a duly licensed physician's written certification of it) or (ii) for any
other reason other than termination of such relationship by a Company for
cause, the option granted to him hereunder shall expire and become null and
void at a time as shall be determined by the Compensation Committee when
granting such option, but in no event shall such time of expiration be later
than (x) one (1) year after the date of death with respect to clause (i)(a)
above, (y) the maximum period for an option under this Plan with respect to
clause (i)(b) above and (z) ninety (90) days after the date of termination of
employment or services with respect to clause (ii) above; and within such
period the participant or his executor, administrator, legal representative,
designated beneficiary or similar person ("personal representative"), as the
case may be, may exercise the option to the extent the option is exercisable
at the date of termination of employment or death. In the event that a
participant shall cease to be employed by or to perform services for any of
the Companies by reason of the termination of such relationship by a Company
for cause, the option granted to him hereunder shall expire and become null
and void on the date of such termination of employment or services.
XII. Manner of Exercise. Each exercise of an option granted hereunder shall
be made by the delivery by the participant (or his personal representative, as
the case may be) of written notice of such election to the Corporation, at
such office as it may designate by agreement with the participant, stating the
number of shares with respect to which the option is being exercised. No
shares shall be issued until full payment therefor shall have been made as
provided below. Delivery of the shares may be made at the office of the
Corporation or at the office of a transfer agent appointed for the transfer of
shares of the Corporation, as the Corporation shall determine. Shares shall be
registered in the name of the participant or his personal representative, as
the
case may be. Neither a participant nor his personal representative shall have
any of the rights of a stockholder as to the shares with respect to which the
option is being exercised, until the shares are issued as herein provided. In
the event of any failure to take and pay for the number of shares specified in
the notice of election on the date
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<PAGE>
stated therein, the option shall terminate as to such number of shares, but
shall continue with respect to any remaining shares subject to the option as
to which exercise has not yet been made. Anything herein to the contrary
notwithstanding, if any law or regulation of the Securities and Exchange
Commission or of any other body having jurisdiction shall require the
Corporation or a participant to take any action in connection with the shares
specified in a notice of election before such shares can be delivered to such
participant, then the date stated therein for the delivery of the shares shall
he postponed until the fifth business day next following the completion of
such action.
(a) Payment in Cash. If the shares as to which the option is being
exercised are to be paid for entirely in cash, such notice shall specify a
date, not less than ten (10) nor more than fifteen (15) days after the date
of the mailing of such notice, on which the shares will be taken and
payment made therefor. On the date specified in the notice of election, the
Corporation shall deliver, or cause to be delivered, to participant stock
certificates for the number of shares with respect to which the option is
being exercised, against payment therefor and (if applicable) delivery to
the Corporation of the certification described in Article XIII below.
(b) Request to Make Payment in Shares of the Corporation. As to each
participant, if requested by such participant or his personal
representative and approved by the Corporation, payment may be made by
transfer to the Corporation of previously owned whole shares of the
Corporation (which the participant has held for at least six months prior
to the delivery of such shares [or which the participant purchased on the
open market] and in each case for which the participant has good title,
free and clear of all liens and encumbrances) or any combination of cash
and such shares of the Corporation, having a fair market value, determined
as of the close of business on the day preceding the transfer, equal to,
but not exceeding, the full option price of the shares with respect to
which the option is being exercised. Each request to exercise the payment
alternative provided for hereunder shall be made by the delivery by the
participant (or his personal representative, as the case may be) of written
notice of such request to the Corporation, at such office as it may
designate by agreement with the participant, stating the number of shares
with respect to which the option is being exercised and that the
participant desires to make payment by reason of such exercise in the
shares of common stock or, if a combination of common stock and cash, the
proportions thereof. The Corporation shall respond promptly to any such
request. In no event will the denial of a participant's request to make
payment of all or a portion of the option price in shares of the
Corporation abridge the participant's rights to make payment as specified
in Article XII(a) above.
(c) Withholding Requirements. At the request of a participant or his
personal representative, and subject to approval by the Corporation, the
Corporation may satisfy any tax withholding obligations arising upon the
exercise of an option under Federal or state income tax laws by withholding
from the number of shares to be delivered to the participant that number of
shares (based on the then fair market value of the shares) equal to the
amount of such tax to be withheld. In the alternative, and subject to
approval by the Corporation as specified above, the participant may deliver
to the Corporation in whole or partial satisfaction of such tax withholding
requirements, previously owned whole shares to which the participant has
good title, free and clear of all liens and encumbrances which shall be
valued for such purpose at the then fair market value of such shares.
XIII. Securities Registration. In the event that at any time the Plan is not
registered by the Corporation under the Securities Act of 1933, as amended,
the issuance of shares under said Plan shall be subject to the following
provision: on the date stated in the notice of election for the payment and
delivery of the shares specified in such notice, a participant shall certify
to the Corporation in such form as it shall require that he will receive and
hold such shares for investment and not with a view to resale or distribution
thereof to the public.
XIII-A. Stock Appreciation Rights. The Corporation may, be action of the
Compensation Committee, grant stock appreciation rights in connection with all
or part of any option granted under this Plan, either concurrently with the
grant of such option or at any time thereafter prior to the exercise or
expiration of such option. Such stock appreciation rights shall be evidenced
by stock appreciation rights agreements not inconsistent with and subject to
the same conditions and limitations as this Plan. A stock appreciation right
shall be exercisable at such time as the Compensation Committee shall
determine when granting such right, but shall not be exercisable with
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<PAGE>
respect to any shares before the time the participant could exercise his
option to purchase such shares under his related stock option. The stock
appreciation right shall entitle the participant, in the event of his exercise
of such right, to receive, without payment to the Corporation (other than
applicable withholding taxes) the excess of the fair market value, on the date
of such exercise, of the shares as to which the right is exercised over the
option price of such shares. Such excess shall be paid (i) in shares of common
stock by the transfer and delivery to the participant of that number of shares
having an aggregate fair market value on the date of such exercise equal to
such excess, or (ii) if requested by the participant and approved by the
Compensation Committee, in cash or partially in cash and partially in shares.
The stock appreciation right shall expire if and to the extent that the stock
option issued in connection with it is exercised. Upon exercise of a stock
appreciation right the shares covered by the related option shall not be
available for the grant of further options under this Plan. Each exercise of a
stock appreciation right shall be made by the delivery by the participant (or
his personal representative, as the case may be) of written notice of such
election to the Compensation Committee, in care of the Secretary of the
Corporation, 101 East Erie Street, Chicago, Illinois 60611, identifying the
related stock option, stating the number of shares with respect to which the
stock appreciation right is being exercised and stating whether the
participant desires to receive by reason of such exercise shares of common
stock or cash or, if a combination of both, the proportions thereof. For
purposes of this Plan, the date of exercise shall be the date when such notice
of election is received. As soon as practical after the date of such receipt,
the Corporation shall deliver or cause to be delivered to such participant,
upon the participant's payment of the applicable withholding taxes, stock
certificates for the number of shares requested in the notice of exercise, or
if requested by the participant and approved by the Compensation Committee,
cash or cash and stock certificates for shares as so approved.
XIV. Employment Obligations. The grant of an option or stock appreciation
right under this Plan shall not impose any obligation on any of the Companies
to continue the employment of any participant. Participation in this Plan
shall not affect the eligibility of any participant for any profit sharing,
bonus, insurance, pension, or other extra compensation plan which any of the
Companies may have heretofore adopted or may at any time hereafter adopt for
any employees and other key individuals who perform services therefor.
XV. Assignment and Designation of Beneficiary. Any option or stock
appreciation right granted under the Plan shall, by its terms, be exercisable
during the lifetime of the participant only by the participant. It shall not
be assigned, pledged or hypothecated in any way, shall not be subject to
execution, and shall not be transferable by the participant otherwise than by
will or the laws of descent and distribution or to be designated beneficiary
in the event of the participant's death. Any attempt at assignment, transfer,
pledge, hypothecation or other disposition of any option or stock appreciation
right granted hereunder contrary to the provisions hereof, and the levy of any
attachment or similar proceedings upon any option or stock appreciation right,
shall be null and void. A participant may file with the Corporation a written
designation of one or more persons as such participant's beneficiary or
beneficiaries (both primary and contingent) in the event of the participant's
death. To the extent an outstanding option granted hereunder is exercisable,
such beneficiary or beneficiaries shall be entitled to exercise such option.
Each beneficiary designation shall become effective only when filed in
writing with the Corporation during the participant's lifetime on a form
prescribed by the Corporation. The spouse of a married participant domiciled
in a community property jurisdiction shall join in any designation of a
beneficiary other than such spouse. The filing with the Corporation of a new
beneficiary designation shall cancel all previously filed beneficiary
designations. If a participant fails to designate a beneficiary, or if all
designated beneficiaries of a participant predecease the participant, then
each outstanding option hereunder held by such participant, to the extent
exercisable, may be exercised by such participant's executor, administrator,
legal representative or similar person.
XVI. Liquidation. Upon the complete liquidation of the Corporation, any
unexercised options and stock appreciation rights heretofore granted under
this Plan shall be deemed cancelled. In the event of the complete liquidation
of the Company (other than the Corporation) employing the participant or for
which he performs services or in the event such Company ceases to be a
subsidiary of the Corporation, any unexercised part of any
IV-4
<PAGE>
option and stock appreciation rights granted hereunder shall be deemed
cancelled unless the participant shall become employed by or commences to
render services to another Company (including the Corporation) concurrently
with such event.
XVII. Governing Law. Options and stock appreciation rights granted under
this Plan shall be construed and shall take effect in accordance with the laws
of the State of Delaware.
XVIII. Amendment and Construction. The Board of Directors may supplement,
amend, suspend or discontinue this Plan at any time for any reason whatsoever;
provided, however, unless the Board of Directors specifically otherwise
provides, any revision or amendment that would cause this Plan to fail to
comply with any applicable law or regulation if such revision or amendment
were not approved by the stockholders of the Corporation shall not become
effective unless and until the approval of the stockholders of the Corporation
is obtained; and provided, further, however, that no unexercised option or
stock appreciation right granted under this Plan may be altered or cancelled,
except in accordance with its terms, without the written consent of the
participant to whom such option or stock appreciation right was granted. The
Compensation Committee of the Board of Directors shall have the exclusive
authority to construe the terms of this Plan and any option granted under it.
XIX. Term of the Plan. No stock option or stock appreciation right shall be
granted hereunder after the expiration of ten (10) years from November 17,
1991.
IV-5
<PAGE>
ANNEX V
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS: (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) 1 of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b., and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
V-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
V-2
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation
V-3
<PAGE>
of the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the cvorporation, then the right of such stockholder
to an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
V-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, True North has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
True North's Bylaws also provide that True North will indemnify its directors,
officers, employees and other agents to the fullest extent not prohibited by
Delaware law.
The True North Charter provides for the elimination of liability for
monetary damages for breach of the directors' fiduciary duty of care to True
North or its stockholders. These provisions do not eliminate the directors'
duty of care and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to True North or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, or for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
Furthermore, True North has secured insurance covering True North and its
directors and officers and those of its principal subsidiaries against certain
liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The following is a list of Exhibits included as part of this
Registration Statement. Items marked with an asterisk are filed
herewith.
<TABLE>
<CAPTION>
<C> <S>
2.1 Agreement and Plan of Merger dated as of July 30, 1997 among
True North, Cherokee Acquisition Corporation and Bozell, Jacobs,
Kenyon & Eckhardt, Inc. (included as Annex I to the Joint Proxy
Statement/Prospectus). Schedules to the Agreement and Plan of
Merger are omitted pursuant to Item 601(b)(2) of Regulation S-K.
True North hereby agrees to furnish copies of such Schedules to
the SEC upon request.
4.1 Restated Certificate of Incorporation, as amended, of True North
(incorporated by reference to Exhibit 3(i) to True North's An-
nual Report on Form 10-K for the year ended December 31, 1994).
4.2 Certificate of Ownership and Merger changing True North's name
to True North Communications Inc. (incorporated by reference to
Exhibit (3)(i) to True North's Current Report on Form 8-K dated
December 9, 1994).
4.3 Bylaws, as amended, of True North (incorporated by reference to
Exhibit 4(d) to True North's Registration Statement on Form S-8,
No. 33-54279, filed on June 24, 1994).
4.4 Rights Agreement dated as of November 16, 1988 between True
North and Harris Trust and Savings Bank, as Rights Agent (incor-
porated by reference to Exhibit 1 to True North's Registration
Statement on Form 8-A filed with the SEC on November 18, 1988).
*5.1 Opinion of Sidley & Austin.
*8.1 Opinion of Sidley & Austin as to certain United States federal
income tax consequences of the Merger.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
*8.2 Opinion of White & Case as to certain United States federal in-
come tax consequences of the Merger.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Sidley & Austin (included in Exhibits 5.1 and 8.1).
23.4 Consent of White & Case (included in Exhibit 8.2).
*23.5 Consent of Morgan Stanley & Co. Incorporated.
*23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
*23.7 Consent of Mazars & Guerard
24 Powers of Attorney (included in the Signature page of this Reg-
istration Statement).
*99.1 Form of proxy card to be mailed to holders of True North Common
Stock.
*99.2 Form of proxy card to be mailed to holders of Bozell Common
Stock.
*99.3 Letter of Arthur Andersen LLP
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required to be included pursuant to this
Item are not included herein because they are not applicable or the
required information is shown in the financial information included or
incorporated by reference herein.
(c) REPORTS, OPINIONS OR APPRAISALS
The opinions of Morgan Stanley & Co. Incorporated and Merrill Lynch,
Pierce, Fenner & Smith Incorporated are included as Annexes II and III,
respectively, to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
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, the 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.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any
II-2
<PAGE>
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) do not apply if
the Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
SEC by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(d) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(e) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (d) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS, ON NOVEMBER 26, 1997.
True North Communications Inc.
/s/ Bruce Mason
By: _________________________________
Bruce Mason
Chairman and Chief Executive
Officer
KNOW ALL BY THESE BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS BRUCE MASON, DONALD L. SEELEY AND
THEODORE J. THEOPHILOS, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, IN ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS
(INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO
FILE THE SAME WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS FULL POWER AND AUTHORITY TO DO AND PERFORM EACH
AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR COULD DO
IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR THEIR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Bruce Mason Chairman, Chief Executive November 26, 1997
____________________________________ Officer and Director
Bruce Mason (principal executive
officer)
/s/ Donald L. Seeley Executive Vice President and November 26, 1997
____________________________________ Chief Financial Officer
Donald L. Seeley (principal financial
officer)
/s/ John J. Rezich Vice President and November 26, 1997
____________________________________ Controller (principal
John J. Rezich accounting officer)
/s/ Gregory W. Blaine Director November 26, 1997
____________________________________
Gregory W. Blaine
/s/ Richard S. Braddock Director November 26, 1997
____________________________________
Richard S. Braddock
/s/ Laurel Cutler Director November 26, 1997
____________________________________
Laurel Cutler
/s/ Richard P. Mayer Director November 26, 1997
____________________________________
Richard P. Mayer
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael E. Murphy Director November 26, 1997
____________________________________
Michael E. Murphy
/s/ J. Brendan Ryan Director November 26, 1997
____________________________________
J. Brendan Ryan
/s/ Stephen T. Vehslage Director November 26, 1997
____________________________________
Stephen T. Vehslage
Director
____________________________________
Ali Wambold
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated as of July 30, 1997
among True North, Cherokee Acquisition Corporation and
Bozell, Jacobs, Kenyon & Eckhardt, Inc. (included as
Annex I to the Joint Proxy Statement/Prospectus).
Schedules to the Agreement and Plan of Merger are omit-
ted pursuant to Item 601(b)(2) of Regulation S-K. True
North hereby agrees to furnish copies of such Schedules
to the SEC upon request.
4.1 Restated Certificate of Incorporation, as amended, of
True North (incorporated by reference to Exhibit 3(i)
to True North's Annual Report on Form 10-K for the year
ended December, 31, 1994).
4.2 Certificate of Ownership and Merger changing True
North's name to True North Communications Inc. (incor-
porated by reference to Exhibit (3)(i) to True North's
Current Report on Form 8-K dated December 9, 1994).
4.3 Bylaws, as amended, of True North (incorporated by ref-
erence to Exhibit 4(d) to True North's Registration
Statement on Form S-8, No. 33-54279, filed on June 24,
1997).
4.4 Rights Agreement dated as of November 16, 1988 between
True North and Harris Trust and Savings Bank, as Rights
Agent (incorporated by reference to Exhibit 1 to True
North's Registration Statement on Form 8-A filed with
the SEC on November 18, 1988).
*5.1 Opinion of Sidley & Austin.
*8.1 Opinion of Sidley & Austin as to certain United States
federal income tax consequences of the Merger.
*8.2 Opinion of White & Case as to certain United States
federal income tax consequences of the Merger.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Sidley & Austin (included in Exhibits 5.1
and 8.1).
23.4 Consent of White & Case (included in Exhibit 8.2).
*23.5 Consent of Morgan Stanley & Co. Incorporated.
*23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith Incor-
porated.
*23.7 Consent of Mazars & Guerard
24 Powers of Attorney (included in the Signature page of
this Registration Statement).
*99.1 Form of proxy card to be mailed to holders of True
North Common Stock.
*99.2 Form of proxy card to be mailed to holders of Bozell
Common Stock.
*99.3 Letter of Arthur Andersen LLP
</TABLE>
- --------
* Filed herewith.
II-6
<PAGE>
EXHIBIT 5.1
[SIDLEY & AUSTIN LETTERHEAD]
November 26, 1997
True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611
Re: True North Communications Inc.
Registration Statement on Form S-4
-----------------------------------
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-4 (the "Registration
Statement") being filed by True North Communications Inc., a Delaware
corporation (the "Company") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of 19,693,041 shares of common stock, par value $.33 1/3 per share,
of the Company ("Company Common Stock"), together with 19,693,041 Series A
Junior Participating Preferred Stock Purchase Rights (the "Rights") associated
therewith, to be issued (the "Share Issuance") pursuant to the Agreement and
Plan of Merger dated as of July 30, 1997 (the "Merger Agreement") among the
Company, Cherokee Acquisition Corporation, a Delaware corporation and wholly
owned subsidiary of the Company ("CAC"), and Bozell, Jacobs, Kenyon & Eckhardt,
Inc., a Delaware corporation ("Bozell"), which provides for the merger (the
"Merger") of CAC with and into Bozell, with Bozell surviving as a wholly owned
subsidiary of the Company. Subject to the terms and conditions of the Merger
Agreement, (i) each share of Bozell's Class A Common Stock, par value $.001 per
share, and Class B Common Stock, par value $.001 per share (collectively, the
"Bozell Common Stock"), outstanding immediately prior to the effective time of
the Merger (other than shares owned directly or indirectly by the Company or
Bozell, which will be cancelled, and other than Dissenting Shares) will be
converted into 0.51 of a share of Company Common Stock (the shares of Company
Common Stock to be issued in the Merger being hereinafter referred to as the
"Merger Shares") together with the corresponding percentage of a Right and (ii)
each option to purchase Bozell Common Stock granted pursuant to any Bozell Stock
Plan (as defined in the Merger Agreement) which is outstanding immediately prior
to the effective time of the Merger will become an option (a "Substitute
Option") to purchase shares of Company Common Stock (the "Stock Option Shares")
together with the corresponding percentage of a Right. The Merger Shares and the
Stock Option Shares are hereinafter sometimes referred to collectively as the
"New Shares".
<PAGE>
Sidley & Austin Chicago
True North Communications Inc.
November 21, 1997
Page 2
Capitalized terms not defined herein have the respective meanings specified in
the Registration Statement.
The terms of the Rights are set forth in the Rights Agreement dated as
of November 16, 1988 (the "Rights Agreement"), between the Company and Harris
Trust and Savings Bank, as Rights Agent.
For purposes of rendering the opinions expressed below, we have
reviewed the Merger Agreement, the Registration Statement and the Exhibits to
the latter. We have also examined the originals, or copies of originals
certified or otherwise identified to our satisfaction, of the corporate records
of the Company and of such other agreements, documents, instruments and
certificates of public officials, officers and representatives of the Company
and other persons, have examined such questions of law and have satisfied
ourselves as to such matters of fact as we have deemed relevant and necessary as
a basis for the opinions expressed below. We have assumed the authenticity of
all documents submitted to us as originals, the genuineness of all signatures,
the legal capacity of all natural persons and the conformity with the original
documents of any copies thereof submitted to us for our examination.
We understand that all Warrants to purchase Bozell Common Stock have
been converted into Bozell Common Stock prior to the date hereof.
Based on the foregoing, we are of the opinion that:
1. The Company is duly incorporated and validly existing under the
laws of the State of Delaware.
2. Each Merger Share will be legally issued, fully paid and non-
assessable when (i) the Registration Statement, as finally amended, shall have
become effective under the Securities Act; (ii) an amendment to the Restated
Certificate of Incorporation, as amended, of the Company, increasing the number
of authorized shares of Company Common Stock from 50,000,000 to 90,000,000 (the
"Charter Amendment"), shall have been duly adopted by the stockholders of the
Company and shall have been duly filed with the Secretary of State of the State
of Delaware; (iii) the Share Issuance shall have been duly approved by the
stockholders of the Company; and (iv) the Merger shall have become effective
under the General Corporation Law of the State of Delaware.
3. Each Stock Option Share will be legally issued, fully paid and
non-assessable when: (i) the Registration Statement, as finally amended, shall
have become effective under the Securities Act; (ii) the Charter Amendment shall
have been duly adopted by the stockholders of the Company and shall have been
duly filed with the Secretary of State of the State of Delaware; (iii) the Share
Issuance shall have been duly approved by the stockholders of the Company; (iv)
the Merger shall have become effective under the General Corporation Law of the
State of Delaware, and (v) a certificate representing such Stock Option Share
shall have been duly executed, countersigned and registered and duly delivered
upon receipt of the agreed
<PAGE>
Sidley & Austin Chicago
True North Communications Inc.
November 21, 1997
Page 3
consideration therefor (not less than the par value thereof) determined in
accordance with the terms of the written agreement applicable to the related
Substitute Option.
4. Each Right associated with a New Share will be legally issued
when: (i) such Right shall have been duly issued in accordance with the terms of
the Rights Agreement; and (ii) the associated Merger Share or Stock Option Share
shall have been duly issued as set forth in paragraph 2 or 3, respectively.
The opinions expressed above are limited to the General Corporation
Law of the State of Delaware and the federal laws of the United States of
America.
We do not find it necessary for the purposes of this opinion to cover,
and accordingly we express no opinion as to, the application of the securities
or blue sky laws of the various states to the issuance of the New Shares.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement.
Very truly yours,
/s/ Sidley & Austin
<PAGE>
Exhibit 8.1
[SIDLEY & AUSTIN LETTERHEAD]
November 26, 1997
True North Communications Inc.
101 East Erie Street
Chicago, IL 60611
Ladies and Gentlemen:
We refer to the Agreement and Plan of Merger dated as of July 30, 1997 (the
"Agreement") among True North Communications Inc., a Delaware Corporation
("Parent"), Cherokee Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Parent ("Sub"), and Bozell, Jacobs, Kenyon &
Eckhardt, Inc., a Delaware corporation (the "Company"), which provides for the
merger (the "Merger") of Sub with and into the Company on the terms and
conditions therein set forth, the time at which the Merger becomes effective
being hereinafter referred to as the "Effective Time." Capitalized terms used
but not defined herein have the meanings specified in the Agreement.
As provided in the Agreement, at the Effective Time, by reason of the
Merger: (i) all outstanding shares of Company Common Stock then held in the
treasury of the Company and any shares of Company Common Stock owned by Parent
or by any wholly owned subsidiary of Parent will be canceled, and no capital
stock of Parent, cash or other consideration will be delivered in exchange
therefor; (ii) each then issued and outstanding share of capital stock, par
value $0.01 per share, of Sub will be converted into one validly issued, fully
paid and nonassessable share of Common Stock, no par value per share, of the
Company, as the Surviving Corporation; (iii) subject to the right of holders of
Company Common Stock to dissent from the Merger, each then outstanding share of
Company Common Stock will be converted into 0.51 validly issued, fully paid and
nonassessable shares of Parent Common Stock; (iv) each then outstanding Warrant
will be converted into a specified number of validly issued, fully paid and
nonassessable shares of Parent Common Stock, as more fully set forth in the
Agreement; (v) and each then outstanding Company stock option or other right to
purchase shares of Company Common Stock (excluding the Warrants) will remain
outstanding after the Effective Time and shall be converted into and become the
right to purchase a number of shares of Parent Common Stock, as
<PAGE>
more fully set forth in the Agreement. Cash will be paid in lieu of fractional
shares of Parent Common Stock.
The Merger and the Agreement are more fully described in Parent's
Registration Statement on Form S-4 (the "Registration Statement"), relating to
the registration of shares of Parent Common Stock, to which this opinion is an
exhibit, which is being filed by Parent with the Securities and Exchange
Commission pursuant to the Securities Act of l933, as amended. The Registration
Statement includes the Proxy Statement/Prospectus (the "Prospectus") of Parent
and the Company.
In rendering the opinions expressed below, we have relied upon the accuracy
of the facts, information and representations and the completeness of the
covenants contained in the Agreement, the Prospectus and such other documents as
we have deemed relevant and necessary. Such opinions are conditioned, among
other things, not only upon such accuracy and completeness as of the date
hereof, but also the continuing accuracy and completeness thereof as of the
Effective Time. Moreover, we have assumed the absence of any change to any of
such instruments between the date hereof and the Effective Time.
We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of all natural
persons and the conformity with original documents of all copies submitted to us
for our examination. We have further assumed that: (i) the transactions related
to the Merger or contemplated by the Agreement will be consummated (A) in
accordance with the Agreement and (B) as described in the Prospectus; (ii) the
Merger will qualify as a statutory merger under the laws of the State of
Delaware; and (iii) as of the date hereof, and as of the Effective Time (as if
made as of the Effective Time), the written statements made by executives of
Parent and the Company contained in the Parent Tax Certificate and the Company
Tax Certificate, respectively, and written statements made by certain
shareholders of the Company and Warrant holders, in each case will be accurate
in all respects.
In rendering the opinions expressed below, we have considered the
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Regulations promulgated thereunder by the United States Treasury
Department (the "Regulations"), pertinent judicial authorities, rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant. It should be noted that the Code, the Regulations and such judicial
authorities, rulings and other authorities are subject to change at any time
and, in some circumstances, with retroactive effect; and any such change could
affect the opinions stated herein. Furthermore, the opinions expressed below
might not be applicable to Company stockholders who, for federal income tax
purposes, are nonresident alien individuals, foreign corporations, foreign
partnerships, foreign trusts or foreign estates, or who acquired their Company
<PAGE>
Common Stock pursuant to the exercise of employee stock options or otherwise as
compensation.
Based upon and subject to the foregoing, it is our opinion, as counsel
for Parent, that for federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and the Company, Sub and Parent will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code;
(ii) no gain or loss will be recognized by Parent or the Company as a
result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of the
Company upon the conversion of their shares of Company Common Stock into
shares of Parent Common Stock pursuant to the Merger, except with respect
to cash, if any, received in lieu of fractional shares of Parent Common
Stock;
(iv) the aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including a fractional share of Parent Common Stock for which cash
is paid) will be the same as the aggregate tax basis of such shares of
Company Common Stock;
(v) the holding period for shares of Parent Common Stock received in
exchange for shares of Company Common Stock pursuant to the Merger will
include the holder's holding period for such shares of Company Common
Stock, provided such shares of Company Common Stock were held as capital
assets by the holder at the Effective Time; and
(vi) a stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss equal
to the difference, if any, between such stockholder's basis in the
fractional share (determined under clause (iv) above) and the amount of
cash received.
Notwithstanding the foregoing, no advice was requested regarding, and
the opinions described above do not address, the tax consequences of a
conversion in the Merger of Company Common Stock received upon the exercise of
Warrants prior to the Effective Time in contemplation of the Merger.
<PAGE>
Except as expressly set forth in paragraphs (i) through (vi),
inclusive, you have not requested, and we do not herein express, any opinion
concerning the tax consequences of, or any other matters related to, the Merger.
We assume no obligation to update or supplement this letter to reflect
any facts or circumstances which might hereafter come to our attention with
respect to the opinions expressed above, including any changes in applicable law
or fact which may hereafter occur.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission relating to the Merger.
Very truly yours,
/s/ Sidley & Austin
<PAGE>
Exhibit 8.2
[LETTERHEAD OF WHITE & CASE]
November 25, 1997
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
40 West 23rd Street
New York, New York 10010
Ladies and Gentlemen:
We are acting as counsel to Bozell, Jacobs, Kenyon & Eckhardt, Inc., a
Delaware corporation (the "Company"), in connection with the proposed merger
(the "Merger") of Cherokee Acquisition Corporation ("Sub"), a Delaware
corporation and a wholly-owned subsidiary of True North Communications Inc., a
Delaware corporation ("Parent"), with and into the Company, upon the terms and
conditions set forth in the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of July 30, 1997, by and among Parent, Sub and the
Company. At your request, we are rendering our opinion concerning the material
U.S. federal income tax consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of the Company upon the accuracy and completeness of the statements and
representations contained, respectively, in the certificates of the officers of
Parent and the Company and we have assumed that such certificates will be
complete and accurate as of the Effective Time. Any capitalized term used and
not defined herein has the meaning given to such term in the Merger Agreement,
or if not defined therein, in the Joint Proxy Statement/Prospectus of Parent and
the Company which is part of the Registration Statement on Form S-4 of Parent
relating to the proposed Merger (the "Joint Proxy Statement/Prospectus").
We have also assumed, with your consent, that (i) the transactions
contemplated by the Merger Agreement will be consummated in accordance with the
provisions of the Merger Agreement and as described in the Joint Proxy
Statement/Prospectus, (ii) the representations and warranties set forth in the
Merger Agreement will be true and correct at the Effective Time, (iii) the
Merger will be
<PAGE>
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
Page 2
approved as required by law or stock exchange policy by stockholders of Parent
and the Company, and (iv) the Merger will qualify as a merger under the
applicable laws of the State of Delaware.
Based upon and subject to the foregoing, and upon our analysis of the
Internal Revenue Code of 1986, as amended (the "Code"), and the decisions,
regulations and rulings thereunder in effect and available on the date hereof
(all of which are subject to change which may be retroactive), we are of the
opinion that, for U.S. federal income tax purposes:
i. The Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code and Parent, Sub and the Company will each be
a party to that reorganization within the meaning of Section 368(b) of the
Code;
ii. No gain or loss will be recognized by Parent or the Company as a
result of the Merger;
iii. No gain or loss will be recognized by the stockholders of the
Company upon the conversion of their shares of Company Common Stock into
shares of Parent Common Stock pursuant to the Merger, except with respect
to cash, if any, received in lieu of fractional shares of Parent Common
Stock;
iv. The aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including a fractional share of Parent Common Stock for which cash
is paid) will be the same as the aggregate tax basis of such shares of
Company Common Stock;
v. The holding period for shares of Parent Common Stock received in
exchange for shares of Company Common Stock pursuant to the Merger will
include the holder's holding period for such shares of Company Common
Stock, provided such shares of Company Common Stock were held as capital
assets by the holder at the Effective Time; and
vi. A stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss equal
to the difference, if any, between such stockholder's basis in the
fractional share (determined under clause (iv) above) and the amount of
cash received.
This opinion does not address the tax consequences of a conversion in
the Merger of Company Common Stock received upon the exercise of Warrants
<PAGE>
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
Page 3
prior to the Effective Time in contemplation of the Merger. Further, this
opinion does not address the various state, local and foreign tax consequences
that may result from the Merger. In addition, no opinion is expressed as to any
U.S. federal income tax consequences of the Merger except as specifically set
forth herein, and this opinion may not be relied upon except with respect to the
consequences specifically discussed herein.
We hereby consent to the references to this firm under the headings
"SUMMARY - The Merger - Certain Federal Income Tax Consequences" and "THE
MERGER -Certain Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus and to the filing of this opinion as an exhibit to the
related Registration Statement on Form S-4 filed with the Securities and
Exchange Commission. In giving this consent, we do not hereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ White & Case
<PAGE>
Exhibit 23.1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
November 24, 1997
<PAGE>
Exhibit 23.2
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
ACCOUNTANTS' CONSENT
The Board of Directors
Bozell, Jacobs, Kenyon & Eckhardt, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Omaha, Nebraska
November 21, 1997
<PAGE>
Exhibit 23.5
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
November 20, 1997
True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of True
North Communications Inc. ("True North") on Form S-4, relating to the proposed
merger among True North, Cherokee Acquisition Corporation, a wholly-owned
subsidiary of True North, and Bozell, Jacobs, Kenyon & Eckhardt, Inc. of our
opinion letter appearing as Annex II to the Joint Proxy Statement/Prospectus
which is a part of the Registration Statement, and to the references of our
firm's name therein. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations adopted by
the Securities and Exchange Commission thereunder nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ William H. Strong
------------------------------------
William H. Strong
Managing Director
<PAGE>
Exhibit 23.6
Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
-------------------------------------------------------------
We hereby consent to the use of our opinion letter dated July 30, 1997
to the Board of Directors of Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Bozell")
included as Annex III to the Proxy Statement/Prospectus which forms a part of
the Registration Statement on Form S-4 filed by True North Communications Inc.
("True North") relating to the proposed merger of Cherokee Acquisition
Corporation, a wholly owned subsidiary of True North, with and into Bozell and
to the references to such opinion in such Proxy Statement/Prospectus under the
captions "Summary -- The Merger", "The Merger -- Bozell's Reasons for the
Merger; Recommendation of its Board of Directors" and "The Merger -- Opinion of
Bozell's Financial Advisor".
In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
November 20, 1997
<PAGE>
[Letterhead of Mazars & Guerard] Exhibit 23.7
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated March 17, 1997 and April 22, 1996 on the
consolidated financial statements of Publicis Communication incorporated by
reference into this Registration Statement.
/s/ F. Allilaire
- ------------------
Frederic Allilaire
Mazars & Guerard
Paris, France
November 20, 1997
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 30, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of True North Communications Inc. ("True North")
does hereby acknowledge receipt of Notice of said Special Meeting and the
accompanying Joint Proxy Statement/Prospectus and does hereby constitute and
appoint Bruce Mason, Donald L. Seeley and Theodore J. Theophilos, or any of
them, with full power of substitution, to vote all shares of Common Stock of
True North that the undersigned is entitled to vote, as fully as the
undersigned could do if personally present, at the Special Meeting of
Stockholders of True North to be held on Tuesday, December 30, 1997 at 9:00,
a.m., local time, at the Omni Chicago Hotel, Chagall Ballroom--Third Floor--
Salon A, 676 North Michigan Avenue, Chicago, Illinois, and at any adjournment
or postponement thereof. This card also constitutes voting instructions by the
undersigned to the trustee of the trust maintained under the True North
Communications Inc. Stock Purchase Plan (the "Plan") for all shares votable by
the undersigned and held of record by such trustee, if any. If there are any
shares for which voting instructions are not timely received, and as respects
the unallocated shares held under the Plan, the trustee will cause all such
shares to be voted in the same proportion as the trustee votes shares for which
timely instructions are received.
P R O X Y
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE MERGER AGREEMENT AND THE MERGER (AS DEFINED BELOW) IN PROPOSAL 1; FOR THE
SHARE ISSUANCE (AS DEFINED BELOW) IN PROPOSAL 2; FOR PROPOSAL 3 TO AMEND TRUE
NORTH'S RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED; FOR THE NOMINEES FOR
DIRECTOR LISTED IN PROPOSAL 4; AND FOR PROPOSAL 5 TO APPROVE THE TRUE NORTH
STOCK OPTION PLAN, AS AMENDED AND RESTATED. IF OTHER BUSINESS IS PRESENTED AT
SAID SPECIAL MEETING, THIS PROXY WILL BE VOTED ON THOSE MATTERS IN ACCORDANCE
WITH THE BEST JUDGMENT OF THE NAMED PROXIES.
SEE REVERSE
SIDE
2739
----
Please mark your votes as in this example.
[X]
1. Proposal to approve the Agreement and Plan of Merger dated as of July 30,
1997 (the "Merger Agreement") among True North, Cherokee Acquisition
Corporation, a wholly-owned subsidiary of True North ("CAC"), and Bozell,
Jacobs, Kenyon & Eckhardt, Inc. ("Bozell"), and to approve the merger of CAC
with and into Bozell (the "Merger"), all as described in detail in the
accompanying Joint Proxy Statement/Prospectus:
FOR AGAINST ABSTAIN
[_] [_] [_]
2. Proposal to approve the issuance of True North Common Stock (the "Share
Issuance") in connection with the Merger Agreement:
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Proposal to amend True North's Restated Certificate of Incorporation, as
amended:
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Proposal to elect twelve (12) directors (contingent upon consummation of the
Merger): Bruce Mason, Charles D. Peebler, Jr., Richard S. Braddock, David A.
Bell, Donald M. Elliman, Jr., W. Grant Gregory, Leo-Arthur Kelmenson, Richard
P. Mayer, Michael E. Murphy, J. Brendan Ryan, Stephen T. Vehslage, Ali Wambold
INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike
that nominee's name from the names listed above.
FOR WITHHELD
[_] [_]
5. Proposal to approve the True North Stock Option Plan, as amended and
restated:
FOR AGAINST ABSTAIN
[_] [_] [_]
When signing the proxy, please take care to have the signature conform to the
stockholder's name as it appears on this side of the proxy. If shares are
registered in the names of two or more persons, each person should sign.
Executors, administrators, trustees and guardians should so indicate when
signing. Corporations and partnerships should sign in their full corporate or
partnership names by a duly authorized person.
Dated: _____________ , 1997
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature if held jointly
YOU ARE URGED TO MARK, SIGN, DATE AND RETURN YOUR PROXY WITHOUT DELAY IN THE
RETURN ENVELOPE PROVIDED FOR THAT PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES.
<PAGE>
Please Vote
Your vote is important!
Please mark, sign, date and return your
proxy without delay
<PAGE>
PROXY PROXY
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 30, 1997
THIS PROXY IS SOLICITED ON BEHALF ON THE BOARD OF DIRECTORS
The undersigned stockholder of Bozell, Jacobs, Kenyon & Eckhardt, Inc.
("Bozell") does hereby acknowledge receipt of Notice of said Special Meeting
and the accompanying Joint Proxy Statement/Prospectus and does hereby
constitute and appoint Charles D. Peebler, Jr. and Valentine J. Zammit, or
either of them with full power of substitution, to vote all shares of Common
Stock of Bozell that the undersigned is entitled to vote, as fully as the
undersigned could do if personally present, at the Special Meeting of
Stockholders of Bozell, to be held in the Second Floor Staircase Room at
Bozell's offices at 40 West 23rd Street, New York, New York on Tuesday,
December 30, 1997, at 10:00 a.m., New York time, and at any adjournment or
postponement thereof as follows:
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE MERGER AGREEMENT (AS DEFINED BELOW) IN PROPOSAL I AND THE MERGER REFERRED
TO THEREIN. IF OTHER BUSINESS IS PRESENTED AT SAID SPECIAL MEETING, THIS PROXY
WILL BE VOTED ON THOSE MATTERS IN ACCORDANCE WITH THE BEST JUDGMENT OF THE
NAMED PROXIES.
This proxy card is also a voting instruction by the undersigned to the
trustees of the Bozell Profit Sharing and Savings Plan and the Bozell Stock
Bonus Plan with respect to all shares held of record by such trustees for the
account of the undersigned in either or both of such Plans.
PLEASE MARK BOX [_] OR [X]
1. Proposal to approve and adopt the Agreement and Plan of Merger dated as of
July 30, 1997 (the "Merger Agreement") among Bozell, True North
Communications Inc. ("True North") and Cherokee Acquisition Corporation, a
wholly-owned subsidiary of True North ("CAC"), and to approve the merger of
CAC with and into Bozell, all as described in detail in the accompanying
Joint Proxy Statement/Prospectus:
[_] FOR[_] AGAINST[_] ABSTAIN
You are urged to mark, sign, date and return your proxy without delay in the
return envelope provided for that purpose, which requires no postage if mailed
in the United States.
When signing the proxy, please take care to have the signature conform to the
stockholder's name as it appears on this side of the proxy. If shares are
registered in the names of two or more persons, each person should sign.
Executors, administrations, trustees and guardians should so indicate when
signing. Corporations and partnerships should sign in their full corporate or
partnership names by a duly authorized person.
Dated , 1997
----------------------------
Signature
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Signature if held jointly
<PAGE>
Exhibit 99.3
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: True North Communications Inc.
File No. 1-5029
Mazars & Guerard has represented to us that the application of international
generally accepted auditing standards to its audits of the 1994-96 consolidated
financial statements of Publicis Communication did not differ substantially from
applying U.S. generally accepted auditing standards. Further, in the performance
of their audits, Mazars & Guerard applied the Guidance Sections of the
International Auditing Standards where applicable.
/s/ Arthur Andersen LLP
Chicago, Illinois
November 20, 1997
