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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No. 1-5029
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TRUE NORTH COMMUNICATIONS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-1088161
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
101 EAST ERIE STREET, CHICAGO, 60611-2897
ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER: (312) 425-6500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, par value 33
1/3 cents per share New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference or included in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value of Common Stock, 33 1/3 cents par value, held by
non-affiliates of the Registrant, as of March 24, 1998 was $1,165,614,129.
There were 44,247,831 shares of Registrant's 33 1/3 cents per share par
value Common Stock outstanding as of March 24, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to shareholders for the year
ended December 31, 1997 are incorporated by reference into Parts I and II of
this Form 10-K.
Portions of the Registrant's Proxy Statement relating to its annual meeting
of stockholders scheduled to be held on May 13, 1998 are incorporated by
reference into Part III of this Form 10-K.
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CERTAIN STATEMENTS CONTAINED IN REGISTRANT'S 1997 ANNUAL REPORT TO
SHAREHOLDERS UNDER THE CAPTIONS "ABOUT TRUE NORTH" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
21E(I)(1) OF THE SECURITIES EXCHANGE ACT OF 1934. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULTS OF THE COMPANY 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 THE COMPANY'S SERVICES, CHANGES IN
COMPETITION, THE ABILITY OF THE COMPANY TO INTEGRATE ACQUISITIONS OR COMPLETE
FUTURE ACQUISITIONS, INTEREST RATE FLUCTUATIONS, DEPENDENCE UPON AND
AVAILABILITY OF QUALIFIED PERSONNEL, AND CHANGES IN GOVERNMENT REGULATION. IN
LIGHT OF THESE AND OTHER UNCERTAINTIES, THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS DOCUMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE
COMPANY THAT THE COMPANY'S PLANS AND OBJECTIVES WILL BE ACHIEVED.
PART I
ITEM 1. BUSINESS:
General--Response to this item is incorporated by reference to the Financial
Report portion of the Registrant's Annual Report to shareholders for fiscal
year ended December 31, 1997 (the "1997 Annual Report") on pages 1 and 2.
Revenues--Response to this item is incorporated by reference to page 2 of
the 1997 Annual Report.
Clients--The Registrant and its subsidiaries (the "Company") consider their
relations with their clients to be satisfactory. Due to the nature of the
business, however, any client could at some time in the future reduce its
advertising budget, or transfer to another agency all or part of its
advertising presently placed through the Company. Representation of a client
does not necessarily mean that all advertising for that client is handled by
the Company exclusively. In many cases, the Company handles the advertising of
only a portion of a client's products or services or only the advertising in
particular geographic areas.
Competition--The advertising agency business is highly competitive, with
agencies of all sizes competing primarily on the basis of quality of service
to attract and retain clients and personnel. Advertisers are able to move from
one agency to another with relative ease, in part because accounts are
terminable on short notice, usually 90-180 days. Competition for clients by
large agencies is limited somewhat because many advertisers prefer not to be
represented by an agency which handles competing products or services for
other advertisers.
Regulation--Federal, state and local governments and governmental agencies
in recent years have adopted statutes and regulations affecting the
advertising activities of advertising agencies and their clients. For example,
statutes and regulations have prohibited television advertising for certain
products and have regulated the form and content of certain types of
advertising for many consumer products. The Federal Trade Commission ("FTC")
and various State Attorneys General have also required proof of accuracy of
advertising claims with respect to various products and, in its enforcement
policies, are seeking to establish more stringent standards with respect to
advertising practices. The FTC and State Attorneys General have the authority
to investigate and to institute proceedings against advertisers and their
advertising agencies for deceptive advertising. Proposals have also been made
for the adoption of additional statutes and regulations which would further
restrict the advertising activities of advertising agencies and their clients.
The effect on the advertising business of future application of existing
statutes or regulations, or the extent, nature or effect of future legislation
or regulatory activity with respect to advertising, cannot be predicted.
Financial Information about Foreign and Domestic Operations--Response to
this item is incorporated by reference to pages 2 and 21 of the 1997 Annual
Report.
2
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ITEM 2. PROPERTIES
Virtually all of the Company's operations are conducted in leased premises.
The Company's physical property consists primarily of leasehold improvements,
furniture, fixtures and equipment. However, the Company does own office
buildings in Puerto Rico and the Dominican Republic, neither of which is
material to the Company's consolidated financial statements.
Further information regarding the Company's leased premises, which it
considers to be adequate for its current operations, is incorporated by
reference to note 12 of Registrant's consolidated financial statements on page
24 of the 1997 Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Response to this item is incorporated by reference to note 7 of Registrant's
consolidated financial statements on page 19 of the 1997 Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 30, 1997 Registrant held a Special Meeting of Stockholders to
consider and vote upon the following matters:
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<CAPTION>
VOTES AGAINST
MATTER VOTES FOR OR WITHHELD ABSTENTIONS
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<S> <C> <C> <C>
To approve the Agreement and Plan of
Merger dated as of July 30, 1997 between
Registrant and Bozell, Jacobs, Kenyon &
Eckhardt, Inc. and the merger
contemplated thereby..................... 16,151,611 4,622,444 260,462
To approve the issuance of Registrant's
Common Stock in connection with the
merger and pursuant to the terms of the
Agreement and Plan of Merger............. 16,145,979 4,604,839 283,699
To approve an amendment to the Restated
Certificate of Incorporation of
Registrant to increase the number of
authorized shares of Common Stock from
50,000,000 to 90,000,000................. 15,953,706 4,792,265 288,546
Election of Directors:
David A. Bell........................... 16,070,426 4,964,091
Richard S. Braddock..................... 16,082,067 4,952,450
Donald M. Elliman, Jr................... 16,081,340 4,953,177
W. Grant Gregory........................ 16,082,020 4,952,497
Leo-Arthur Kelmenson.................... 16,070,266 4,964,251
Bruce Mason............................. 16,078,104 4,956,413
Richard P. Mayer........................ 16,083,420 4,951,097
Michael E. Murphy....................... 16,081,220 4,953,297
Charles D. Peebler, Jr.................. 16,070,782 4,963,735
J. Brendan Ryan......................... 16,080,371 4,954,146
Stephen S. Vehslage..................... 16,083,420 4,951,097
Ali Wambold............................. 16,072,378 4,962,139
To approve Registrant's Stock Option Plan,
as amended............................... 14,779,472 5,842,231 412,814
</TABLE>
3
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Response to this item is incorporated by reference to page 2 of the 1997
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Response to this item is incorporated by reference to page 3 of the 1997
Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Response to this item is incorporated by reference to pages 3 through 8 of
the 1997 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Response to this item is incorporated by reference to page 7 of the 1997
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Response to this item is incorporated by reference to pages 3 and 9 through
28 of the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Directors of the Registrant contained under
the heading "Proposal 1--Election of Directors" in the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 13, 1998
(the "Proxy Statement") is incorporated herein by reference. Information with
respect to executive officers of the Registrant who are not also Directors or
nominees to the Board of Directors is included below.
Theodore J. Theophilos (44)--Executive Vice President, General Counsel
Donald L. Seeley (54)--Executive Vice President, Chief Financial Officer
Dale F. Perona (52)--Senior Vice President, Corporate Development/Secretary
Kenneth J. Ashley (55)--Vice President, Treasurer
John J. Rezich (42)--Vice President, Controller
Laura J. Caffrey (48)--Chief Financial Officer--FCB Worldwide L.L.C.
Valentine J. Zammit (50)--Executive Vice President of Operations--True
North Diversified Companies
Mr. Theophilos joined the Company and became an executive officer during
1996. Previous to that time, Mr. Theophilos was Senior Vice President and
General Counsel of A.C. Nielsen Company from 1995 to 1996, and a partner of
Sidley & Austin (a law firm) from 1986 to 1995.
Mr. Seeley joined the Company and became an executive officer during 1997.
Previous to that time, Mr. Seeley was Chief Executive Officer of The Alexander
Consulting Group from 1993 to 1997.
Mr. Ashley joined the Company and became an officer during 1997. Previous to
that time, Mr. Ashley was Chief Investment Officer and Treasurer of Thorndale
Farm L.L.C., a private investment company, from 1996 to 1998 and Treasurer of
CCH Incorporated from 1993 to 1996.
4
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Ms. Caffrey joined the Company in April 1992 as Chief Financial Officer of
FCB New York. In April 1996 Ms. Caffrey became Chief Financial Officer of FCB
Worldwide L.L.C.
Mr. Zammit held the position of Chief Financial Officer of Bozell, Jacobs,
Kenyon & Eckhardt, Inc. from February 1980 until the date of its merger with
the Company. At that date, Mr. Zammit became Executive Vice President of True
North Diversified Companies.
There are no family relationships between any of Registrant's executive
officers. Except as disclosed above or otherwise disclosed in the Proxy
Statement, all executive officers have been executive officers of the
Registrant or have held senior executive positions with the Registrant for the
past five years.
ITEM 11. EXECUTIVE COMPENSATION
Except for information referred to in Item 402(a)(8) of Regulation S-K, the
information contained under the headings "Executive Compensation" and
"Compensation of Directors" in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of
Directors, Executive Officers & 5% Holders" in the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Executive Compensation--Certain
Relationships and Related Transactions" in the Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item 14(a)(1)--List of Financial Statements: The following consolidated
financial statements of the Registrant and the Independent Public Accountant's
Report covering these financial statements, appearing in the 1997 Annual
Report on pages 9 through 28, are incorporated herein by reference in Item 8:
Consolidated Balance Sheets--December 31, 1996 and 1997
Consolidated Statements of Income--Years ended December 31, 1995, 1996 and
1997
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1995, 1996 and 1997
Consolidated Statements of Cash Flows--Years ended December 31, 1995, 1996
and 1997
Notes to Consolidated Financial Statements--December 31, 1997
Reports of Independent Public Accountants
The audited financial statements of Publicis Communication, a 50% or less
owned foreign affiliate of the Registrant, were not available at the time this
Form 10-K was filed. Registrant will file these financial statements by
amendment to this Form 10-K by no later than June 30, 1998.
Item 14(a)(2)--Schedules: Are not submitted because they are not required or
because the required information is included in the financial statements or
notes thereto.
Item 14(a)(3)--Index of Exhibits: The index of exhibits immediately precedes
the exhibits filed with the Securities and Exchange Commission.
Item 14(b)--Reports on Form 8-K: Registrant filed Current Reports on Form 8-
K dated November 17, 1997, November 17, 1997, December 1, 1997, December 3,
1997, December 10, 1997, December 15, 1997, December 23, 1997, December 29,
1997 and December 30, 1997 reporting matters under Item 5, Other Events.
5
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Date: March 30, 1998
True North Communications Inc.
/s/ Bruce Mason
By: _________________________________
Bruce Mason
Chief Executive Officer
(Principal Executive Officer)
/s/ Donald Seeley
By: _________________________________
Donald Seeley
Executive Vice President,
Chief Financial Officer
/s/ John J. Rezich
By: _________________________________
John J. Rezich
Vice President, Controller
(Chief Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934 AND
TO THE POWER OF ATTORNEY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS (CONSTITUTING A
MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS OF THE REGISTRANT) ON BEHALF
OF THE REGISTRANT.
SIGNATURE AND TITLE SIGNATURE AND TITLE
David A. Bell* Richard P. Mayer*
_____________________________________ _____________________________________
David A. Bell Richard P. Mayer
Richard S. Braddock* Michael E. Murphy*
_____________________________________ _____________________________________
Richard S. Braddock Michael E. Murphy
Donald M. Elliman, Jr.* Charles D. Peebler, Jr.*
_____________________________________ _____________________________________
Donald M. Elliman, Jr. Charles D. Peebler, Jr.
W. Grant Gregory* J. Brendan Ryan*
_____________________________________ _____________________________________
W. Grant Gregory J. Brendan Ryan
Leo-Arthur Kelmenson* Stephen S. Vehslage*
_____________________________________ _____________________________________
Leo-Arthur Kelmenson Stephen S. Vehslage
/s/ Bruce Mason
_____________________________________
Bruce Mason
/s/ Theodore J. Theophilos
*By: ________________________________
Theodore J. Theophilos
as Attorney-in-Fact
Date: March 30, 1998
6
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
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4.1 Registrant's Restated Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3(i) to Registrant's Form 10-K
for the year ended December 31, 1994).
4.2 Certificate of Ownership and Merger changing Registrant's name to True
North Communications Inc. (incorporated by reference to Exhibit (3)(i)
to Registrant's Current Report on Form 8-K filed December 9, 1994).
4.3 Certificate of Correction to Correct a Certain Error in the Restated
Certificate of Incorporation, filed December 3, 1996 (incorporated by
reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K
dated June 10, 1997).
4.4 Registrant's By-laws, as restated on March 4, 1998 (incorporated by
reference to Exhibit 4.4 to Registrant's Post-Effective Amendment No.
1 on Form S-8 dated March 17, 1998 to Registrant's Registration
Statement on Form S-4, filed November 26, 1997).
4.5* Certificate of Increase of Shares Designated as Series A Junior
Participating Preferred Stock, filed on December 3, 1997.
<PAGE>
4.6* Certificate of Amendment of Restated Certificate of Incorporation,
filed December 30, 1997.
4.7 Rights Agreement dated as of November 16, 1988 between Registrant and
Harris Trust and Savings Bank, as Rights Agent (incorporated by
reference to Exhibit 1 to the Registrant's Registration Statement on
Form 8-A under the Securities Exchange Act of 1934 filed on November
18, 1988).
10.1*# Registrant's Stock Option Plan, amended and restated on December 30,
1997.
10.2# The Bozell, Jacobs, Kenyon & Eckhardt, Inc. Stock Option Plan,
established effective March 30, 1992, as amended (incorporated by
reference to Exhibit 4.5 to Registrant's Post-Effective Amendment No.
1 on Form S-8 dated March 17, 1998 to Registrant's Registration
Statement on Form S-4, filed November 26, 1997).
10.3# Registrant's Outside Directors Stock Option Plan (incorporated by
reference to Appendix A to Registrant's Definitive Proxy Statement for
its Annual Meeting of Stockholders held on May 30, 1992).
10.4*# Employment Agreement between Bruce Mason and Registrant, dated as of
July 30, 1997.
10.5# Employment Agreement between J. Brendan Ryan and Registrant, dated as
of December 31, 1996 (incorporated by reference to Exhibit 10.4 to
Registrant's Current Report on Form 8-K dated June 10, 1997).
<PAGE>
10.6# Employment Agreement between Theodore J. Theophilos and Registrant,
effective as of October 15, 1996 (incorporated by reference to Exhibit
10.9 to Registrant's Annual Report on Form 10- K for the year ended
December 31, 1996).
10.7# Asset Protection Plan between Bruce Mason and Registrant, dated June
4, 1996 (incorporated by reference to Exhibit 10.10 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.8# Asset Protection Plan between J. Brendan Ryan and Registrant, dated
June 5, 1996 (incorporated by reference to Exhibit 10.11 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996.
10.9# Asset Protection Plan between Theodore J. Theophilos and Registrant,
dated October 18, 1996 (incorporated by reference to Exhibit 10.15 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996).
10.10# Employment Agreement between Donald L. Seeley and Registrant, dated
June 20, 1997 (incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
<PAGE>
10.11# Asset Protection Plan between Donald L. Seeley and Registrant, dated
July 1, 1997 (incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997).
10.12*# Employment Agreement between Charles D. Peebler, Jr. and Registrant,
dated as of July 30, 1997.
10.13*# Employment Agreement between Richard S. Braddock and Registrant, dated
as of July 30, 1997.
10.14*# Employment Agreement between Valentine J. Zammit and Registrant, dated
June 26, 1997, as amended on July 25, 1997.
10.15*# Employment Agreement between Leo-Arthur Kelmenson and Registrant, dated
March 30, 1992 as amended as of July 13, 1992, June 30, 1993,
February 3, 1995 and July 30, 1997.
10.16*# Employment Agreement between David A. Bell and Registrant, dated
September 13, 1985, as amended on February 8, 1988, June 1992, May
1996 and July 30, 1997.
10.17 Agreement dated as of May 19, 1997 among Publicis S.A., a societe
anonyme organized and existing under the laws of France, Publicis
Communication, a societe anonyme organized and existing under the laws
of France and Publicis FCB Europe B.V., a company organized under the
laws of the Netherlands, on the one hand, and Registrant, FCB
International, Inc., a Delaware
<PAGE>
corporation and True North Holdings Netherlands B.V., a company
organized under the laws of the Netherlands, on the other hand
(incorporated by reference to Exhibit 10.1 to Registrant's Current
Report on Form 8-K dated May 19, 1997).
10.18 Pooling Agreement dated as of May 19, 1997 among Publicis S.A., a
societe anonyme organized and existing under the laws of France,
Publicis Communication, a societe anonyme organized and existing under
the laws of France and Registrant (incorporated by reference to
Exhibit 10.2 to Registrant's Current Report on Form 8-K dated May 19,
1997).
10.19 Share Repurchase and Share Exchange Agreement dated May 19, 1997 among
FCB International, Inc., a Delaware corporation, Registrant, True
North Holding B.V., a company organized under the laws of the
Netherlands, Publicis Communication, a societe anonyme organized and
existing under the laws of France, and Publicis FCB Europe B.V., a
company organized under the laws of the Netherlands (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K
dated June 10, 1997).
10.20* Registration Rights Agreement between Registrant and The Northwestern
Mutual Life Insurance Company, dated as of July 30, 1997.
11.1* Statement re Computation of Per Share Earnings.
<PAGE>
13.1* Portions of Registrant's Annual Report to Shareholders incorporated by
reference into this Report on Form 10-K.
18.1* Letter re change in accounting principles.
21.1* Subsidiaries of Registrant.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of KPMG Peat Marwick LLP.
24.1* Power of Attorney.
27.1* Financial Data Schedule.
* Filed herewith.
# Management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 4.5
CERTIFICATE OF INCREASE
OF
SHARES DESIGNATED
AS
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
TRUE NORTH COMMUNICATIONS INC., a corporation organized and
existing under the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That the Certificate of Incorporation of said corporation was
filed in the office of the Secretary of State of Delaware on December 29, 1942
and a Certificate of the Designations of Series A Junior Participating
Preferred Stock, was filed in said office of the Secretary of State on
November 22, 1988.
That the Board of Directors of said corporation at a meeting
held on November 12, 1997 duly adopted a resolution authorizing and directing
an increase in the number of shares designated as Series A Junior
Participating Preferred Stock of the corporation from 30,000 to 45,000 shares,
in accordance with the provisions of section 151 of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, said True North Communications Inc. has
caused this consent to be executed by its Executive Vice President this 3rd
day of December, 1997.
TRUE NORTH COMMUNICATIONS INC.
By: /s/ Theodore J. Theophilos
-------------------------------
Theodore J. Theophilos,
Executive Vice President
<PAGE>
EXHIBIT 4.6
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
****
True North Communications Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of True North
Communications Inc. (the "Corporation") held on July 30, 1997 resolutions were
duly adopted setting forth a proposed amendment to the Restated Certificate of
Incorporation of the Corporation, filed with the Delaware Secretary of State
on August 27, 1991, declaring said amendment to be advisable and calling a
special meeting of the stockholders of the Corporation for consideration
thereof. The resolution setting forth the proposed amendment stated as
follows:
Resolved, that the first paragraph of Article Fourth of the Restated
Certificate of Incorporation of the Corporation 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 1/3 cents) per share and shall
be designated as Common Stock."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of the Corporation was duly
called, and held on December 30, 1997, at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, said True North Communications Inc. has caused
this Certificate of Amendment to be signed by its Executive Vice President and
attested by its Secretary, this 30th day of December, 1997.
TRUE NORTH COMMUNICATIONS INC.
By: /s/ Theodore J. Theophilos
------------------------------
Theodore J. Theophilos
Executive Vice President
Attest:
/s/Dale F. Perona
- -----------------------------
Dale F. Perona
Secretary
<PAGE>
EXHIBIT 10.1
TRUE NORTH COMMUNICATIONS INC.
(FORMERLY, FOOTE, CONE & BELDING COMMUNICATIONS, INC.)
-----------------
STOCK OPTION PLAN
I. 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 Section 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
<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, by 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
<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 the 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
<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.
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (this "Agreement") dated as of July 30, 1997
between True North Communications Inc., a Delaware corporation (the
"Company"), and Bruce Mason (the "Executive").
WHEREAS, the Company is a global communications holding company which
owns companies engaged in the advertising agency business, the multimedia
production business, the business of planning and buying of media time and
space and related businesses.
WHEREAS, the Executive currently serves as Chairman and Chief
Executive Officer of the Company pursuant to an Employment Agreement dated as
of July 17, 1996 (the "Existing Employment Agreement").
WHEREAS, pursuant to the Existing Employment Agreement, the Executive
currently has the right to terminate the Full-Time Employment Period
thereunder and to receive compensation and benefits until December 31, 1999
and thereafter under the Company's Directors Part-Time Employment Agreement.
WHEREAS, the Company desires that the Executive continue to serve as
the Chief Executive Officer of the Company.
WHEREAS, the Company and the Executive desire to replace the Existing
Employment Agreement (insofar as it relates to periods from and after the
Effective Date as hereinafter defined) with this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the
Executive hereby agrees to be employed by the Company upon the terms and
subject to the conditions contained in this Agreement. The term of full-time
employment of the Executive by the Company pursuant to this Agreement (the
"Full-Time Employment Period") shall commence on the Effective Date and,
unless extended by mutual agreement of the Company and the Executive or
earlier terminated pursuant to Section 4, shall end
<PAGE>
fifteen months thereafter.
2. Position and Duties; Responsibilities.
(a) Position and Duties. The Company shall employ the Executive
during the Full-Time Employment Period as its principal executive officer,
with the title of Chief Executive Officer. During the Full-Time Employment
Period, the Executive shall perform faithfully and loyally and to the best of
his abilities the duties assigned to him hereunder, shall devote his full
business time, attention and effort to the affairs of the Company and shall
use his reasonable best efforts to promote the interests of the Company.
Notwithstanding the foregoing, the Executive may engage in charitable, civic
or community activities and, with the prior approval of the Board of Directors
of the Company (the "Board"), may serve as a director of any business
corporation, provided that such activities or service do not violate the terms
of any of the covenants contained in Section 10 or Section 11.
(b) Responsibilities. The Executive shall report directly to the
Board. Subject to the powers, authority and responsibilities vested in the
Board and in duly constituted committees of the Board, the Executive shall
have all the authority and responsibility of the principal executive officer
of a corporation, including without limitation authority and responsibility
for the formulation and execution of the corporate policy of the Company.
Accordingly, the chief executive of each company owned by the Company that is
engaged in the global advertising agency business shall report directly to the
Executive. The Executive shall also perform such other duties (not
inconsistent with the position of principal executive officer) on behalf of
the Company and its subsidiaries as may from time to time be authorized or
directed by the Board and as are customarily exercisable by a chief executive
officer. Notwithstanding any other provision of this Agreement, the Executive
shall be permitted to express to the Board and to the stockholders of the
Company his views on any matter presented to, considered by or raised by the
Board or such stockholders.
3. Compensation.
(a) Salary, VIC and DVIC. With respect to the Full-Time
Employment Period, the Company shall pay to the Executive a salary at the
annual rate of $600,000 and variable incentive compensation ("VIC") and
deferred variable incentive compensation ("DVIC") in accordance with the
Company's Performance Program, provided that the aggregate amount of such
salary, VIC and DVIC for the remainder of calendar year 1997 and for each
subsequent calendar year or portion thereof during the Full-Time Employment
Period shall be not less than the greater of (i) the amount for such period
based on an annual rate of not less than $1,350,000 and (ii) the aggregate
<PAGE>
amount of salary and bonus for such period paid to the President of the
Company (such greater amount, annualized if for a period of less than a full
calendar year, being referred to as the "Calendar Year Minimum Compensation")
and that any payment required to be made by this proviso shall be deemed to be
VIC.
(b) Stock Options. During the Full-Time Employment Period, the
Executive shall be entitled to receive variable incentive stock options in
accordance with the Company's variable incentive stock option program, and in
any event shall be entitled to receive variable incentive stock options at
least equivalent to options received by the Company's President. In addition,
the Company covenants that the Compensation Committee shall take such actions
as may be necessary, including approval of stock option agreements with
respect to the future grant of stock options to the Executive, so that upon
the termination of the Full-Time Employment Period all of the stock options
theretofore granted to the Executive by the Company then held by the Executive
shall be fully exercisable until the end of the term thereof. The Company
assumes no responsibility for any liability of the Executive under Section 16
of the Securities Exchange Act of 1934 relating in any manner, directly or
indirectly, to the amendment of such stock options.
(c) Other Benefits. During the Full-Time Employment Period, the
Executive shall be entitled to participate in the Company's employee benefit
plans generally available to senior executives of the Company, including group
health, life, short-term disability, long-term disability, pension, profit
sharing, profit-sharing integration, stock purchase, stock purchase
integration and nonqualified deferred compensation and retirement plans and
the plans or programs for the allowance for or the reimbursement of automobile
expenses, financial planning expenses and club dues and any other plans of
general application to employees on the date hereof and such plans and
programs adopted hereafter for the benefit of senior executives of the Company
(all such benefits being hereinafter referred to as the "Employee Benefits"),
in the case of plans or programs in effect on the date hereof on terms no less
favorable than their terms on the date hereof; provided that all retirement
benefits shall be based upon plans in effect on the date hereof, subject to
modifications of general application to all employees. The Executive shall be
entitled to take time off for vacation or illness in accordance with the
Company's policy for senior executives and to receive all other fringe
benefits as are from time to time made generally available to senior
executives of the Company.
(d) Expense Reimbursement. During the Full-Time Employment
Period, the Company shall reimburse the Executive for all
<PAGE>
proper expenses incurred by him in the performance of his duties hereunder in
accordance with the Company's policies and procedures.
4. Termination of Full-Time Employment Period;
Suspension.
(a) Termination. The Full-Time Employment Period shall be
terminated upon the first to occur of (i) the expiration thereof pursuant to
Section 1,(ii) termination by the Company at any time without Cause (as such
term is defined in Section 4(b)) upon written notice given to the Executive at
least 30 days prior to such termination, (iii) termination by the Company at
any time for Cause upon written notice given to the Executive at least 10 days
prior to such termination, (iv) termination by the Company on account of the
Executive's having become unable (as determined by the Board in good faith and
certified by a physician chosen by the Company and acceptable to the
Executive) to regularly perform his duties hereunder by reason of illness or
incapacity for a period of more than six consecutive months ("Termination for
Disability"), or (v) the Executive's death. Upon termination of the Full-Time
Employment Period, the Executive shall automatically and without further
action on his part be deemed to have resigned from all offices and
directorships with the Company and its subsidiaries and affiliates.
(b) Definition of Cause. For purposes of this Agreement, "Cause"
shall mean (i) the commission of a felony, (ii) the commission of any act
which involves both dishonesty with respect to the Company or any of its
subsidiaries and moral turpitude and causes the Company to be viewed in a
materially unfavorable light by its customers, employees or investors, (iii)
material willful misconduct with respect to the Company or any of its
subsidiaries, provided that if it reasonably could be concluded that such
alleged material willful misconduct did not occur or was not material or
willful or misconduct and if such alleged material willful misconduct is
curable, the Executive shall have 30 days following written notice thereof to
the Executive to cure such alleged material willful misconduct unless the
Company, in its good faith judgment, determines that such cure period must be
shorter to avoid harm to the Company, in which case such cure period shall be
such lesser number of days as shall be determined in good faith by the Company
and set forth in such written notice to the Executive, commencing upon such
written notice to the Executive, or (iv) breach of any provision of Section
10, 11 or 12.
(c) Suspension. If the Company shall determine that the Executive
has committed any act or acts which constitute Cause and shall notify the
Executive thereof in writing and if the Executive shall deny that he committed
such act or acts or that such act or
<PAGE>
acts constitute Cause and shall notify the Company of such denial in writing
within seven days following the Company's written notice to the Executive, the
Board may, in its sole and absolute discretion, suspend the Executive with
full compensation and benefits during the pendency of any investigation or
arbitration with respect thereto.
5. Consequences of Termination of Full-Time Employment
Period.
(a) Expiration or Termination Without Cause. If the Full-Time
Employment Period terminates for a reason set forth in clause (i) or (ii) of
Section 4(a), the commencement of the Company's Directors Part-Time Employment
Agreement shall be deferred until the end of the Initial Part-Time Employment
Period (as such term is defined in Section 6(a)) or until the end of the
Vested Period (as such term is defined in Section 5(a)(iv)), respectively, and
in lieu of any severance amounts which otherwise would be payable to the
Executive:
(i) the Executive shall be entitled to receive (A) all
salary payable with respect to the period through the date of such
termination, (B) unpaid VIC and DVIC for the prior calendar year, (C)
VIC and DVIC for the then current calendar year, prorated through the
date of such termination based on actual results of operations for
such full calendar year and (D) reimbursement of expenses incurred
through the date of such termination; provided, that in determining
the aggregate amount of the salary payable pursuant to clause (A) of
this Section 5(a)(i) and the VIC and DVIC payable pursuant to clause
(C) of this Section 5(a)(i), the Calendar Year Minimum Compensation
shall be prorated through the date of such termination;
(ii) each stock option theretofore granted to the Executive
by the Company then held by the Executive shall, on the date of such
termination, be exercisable for the full term of such option in
accordance with the applicable stock option agreement in effect at the
time of such termination (giving effect to this provision);
(iii) if the Full-Time Employment Period terminates for a
reason set forth in clause (i) of Section 4(a), the Executive shall
become a part-time employee of the Company entitled to the
compensation and benefits payable during the Initial Part-Time
Employment Period in accordance with Section 6(c); and
<PAGE>
(iv) if the Full-Time Employment Period terminates for a
reason set forth in clause (ii) of Section 4(a), (A) during the period
of two and one-half years following the termination of the Full-Time
Employment Period (the "Vested Period"), the Executive (or, in the
event of his disability, his legal representative, as applicable)
shall receive the compensation and benefits described in Section
6(c)(i) and Section 6(c)(ii) as if the Vested Period were the Initial
Part-Time Employment Period and such Initial Part-Time Employment
Period could neither be terminated early nor suspended and (B)
following the Vested Period, the Executive shall be entitled to the
compensation and benefits set forth in the Company's Directors
Part-Time Employment Agreement upon the terms set forth therein on the
date hereof, but 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 such Agreement) regardless of
actual service, and payments thereunder shall be made for the period
commencing on the day following the expiration of the Vested Period.
In the event of the Executive's death during the Vested Period, his
executor shall be entitled to the compensation set forth in clause (A)
of the previous sentence until the expiration of the Vested Period and
the Executive's spouse shall be entitled to the continuation of
medical insurance coverage on the same basis as theretofore provided
to the Executive until the expiration of the Vested Period and
following the Vested Period the compensation and benefits set forth in
the Company's Directors Part-Time Employment Agreement shall become
payable upon the terms set forth therein on the date hereof, but 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 such Agreement) regardless of actual
service, and payments thereunder shall be made for the period
commencing on the day following the expiration of the Vested Period.
(b) Termination for Cause. If the Full-Time Employment Period
terminates for any reason set forth in clause (iii) of Section 4(a), the
Executive shall be entitled to receive (i) all salary payable with respect to
the period through the date of such termination, (ii) unpaid VIC and DVIC for
the prior calendar year, (iii) VIC and DVIC for the then current calendar
year, prorated through the date of such termination based on actual results of
operations for such full calendar year, (iv) reimbursement of expenses
incurred through the date of such termination and (v) any
<PAGE>
other benefits accrued through the date of such termination; provided that in
determining the aggregate amount of the salary payable pursuant to clause (i)
of this Section 5(b) and the VIC and DVIC payable pursuant to clause (iii) of
this Section 5(b), the Calendar Year Minimum Compensation shall be prorated
through the date of such termination. In addition, (A) during the Vested
Period, the Executive (or, in the event of his disability, his legal
representative, as applicable) shall receive the compensation and benefits
described in Section 6(c)(i) and Section 6(c)(ii) as if the Vested Period were
the Initial Part-Time Employment Period and such Initial Part-Time Employment
Period could neither be terminated early nor suspended and (B) following the
Vested Period, unless the Cause that gave rise to such termination would have
permitted the Company to terminate the Initial Part-Time Employment Period had
it occurred during the Initial Part-Time Employment Period, the Executive
shall be entitled to the compensation and benefits set forth in the Company's
Directors Part-Time Employment Agreement upon the terms set forth therein on
the date hereof, but as if such termination had been without cause and 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
such Agreement) regardless of actual service, and payments thereunder shall be
made for the period commencing on the day following the expiration of the
Vested Period. In the event of the Executive's death during the Vested
Period, his executor shall be entitled to the compensation set forth in clause
(A) of the previous sentence until the expiration of the Vested Period and the
Executive's spouse shall be entitled to the continuation of medical insurance
coverage on the same basis as theretofore provided to the Executive until the
expiration of the Vested Period and following the Vested Period, unless the
Cause that gave rise to the termination of the Full-Time Employment Period
would have permitted the Company to terminate the Initial Part-Time Employment
Period had it occurred during the Initial Part-Time Employment Period, the
compensation and benefits set forth in the Company's Directors Part-Time
Employment Agreement shall become payable upon the terms set forth therein on
the date hereof, but as if the termination of the Full-Time Employment Period
had been without cause and 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 such Agreement) regardless of actual
service, and payments thereunder shall be made for the period commencing on
the day following the expiration of the Vested Period. Except as provided
above in this Section 6(b), the Executive shall not be entitled to any
compensation or benefits under the Company's Directors Part-Time Employment
Agreement or any other severance payments.
<PAGE>
(c) Disability or Death. If the Full-Time Employment Period
terminates for a reason set forth in clause (iv) or (v) of Section 4(a),
commencement of the Company's Directors Part-Time Employment Agreement shall
be deferred until the end of the Vested Period and in lieu of any severance
amounts which otherwise would be payable to the Executive the Executive or his
executor, administrator or other legal representative, as the case may be,
shall be entitled to the payments and benefits set forth in Section 5(a)(i)
and Section 5(a)(ii) and during the Vested Period the Executive or his
executor, administrator or other legal representative, as the case may be,
shall be entitled to the compensation set forth in Section 6(c)(i), and (A) in
the case of Termination for Disability, the Executive shall be entitled to the
benefits set forth in Section 6(c)(ii) (and in the event the Executive dies
prior to the end of the Vested Period, the Executive's spouse shall be
entitled to the continuation of medical insurance coverage on the same basis
as theretofore provided to the Executive until the end of the Vested Period)
or (B) in the case of termination on account of the Executive's death, the
Executive's spouse shall be entitled to the continuation of medical insurance
coverage on the same basis as theretofore provided to the Executive until the
end of the Vested Period and, in either case, the compensation and benefits
set forth in the Company's Directors Part-Time Employment Agreement shall
become payable upon the terms set forth therein on the date hereof, but 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
such Agreement) regardless of actual service, for the period commencing on the
day following the expiration of the Vested Period.
6. Initial Part-Time Employment Period.
(a) Commencement. If the Full-Time Employment Period terminates
for a reason set forth in clause (i) of Section 4(a), the Executive shall
become a part-time employee of the Company for the period commencing upon
termination of the Full-Time Employment Period and ending on August 31, 2001
(the "Initial Part-Time Employment Period").
(b) Position and Duties. During the Initial Part-Time Employment
Period the Executive shall be a part-time employee of the Company and shall
make himself available, upon reasonable notice (reasonableness to include, but
not be limited to, a good faith effort to accommodate the schedules and time
needs of the parties), to perform services for the Company which (i) shall be
related to such projects and matters as the Board or the Chief Executive
Officer of the Company may designate from time to time, (ii) are commensurate
with the Executive's years of experience and
<PAGE>
level of skill and (iii) are similar to the services rendered by the Executive
prior to the termination of the Full-Time Employment Period, including, but
not limited to, the duties set forth in Section 12. The Executive shall not
be required to devote more than 10 days during any calendar quarter to the
performance of such services.
(c) Compensation. As compensation for the services to be
performed by the Executive during the Initial Part-Time Employment Period,
the Executive shall receive the following compensation and benefits in
accordance with the Company's normal payroll policies:
(i) cash compensation shall be paid to the Executive
during the Initial Part-Time Employment Period at the rate of
$1,350,000 per year;
(ii) the Employee Benefits shall continue to be paid to the
Executive during the Initial Part-Time Employment Period, in the case
of Employee Benefits in effect on the date hereof on terms no less
favorable than their terms on the date hereof; provided that coverage
for the Executive under the Company's long-term disability insurance
plan shall cease upon termination of the Full-Time Employment Period;
provided further that all retirement benefits shall be based upon
plans in effect on the date hereof, subject to modifications of
general application to all employees; and provided further that for
the year in which the Full-Time Employment Period terminates
contributions shall be made to a supplemental retirement plan for the
benefit of the Executive in an amount which, together with any
contributions made for such year for the benefit of the Executive
under the Company's Profit Sharing Retirement Plan, Profit Sharing
Integration Plan, Stock Purchase Plan and Stock Purchase Integration
Plan, is equal to the contributions which would have been made for
such year for the benefit of the Executive under such plans based upon
compensation received by the Executive during such year
notwithstanding the hours of service conditions of such plans; and
(iii) the Company shall reimburse the Executive in
accordance with the Company's policies and procedures for all proper
expenses incurred by him in the performance of his duties during the
Initial Part-Time Employment Period.
<PAGE>
7. Termination of Initial Part-Time Employment Period;
Suspension.
(a) Termination. The Initial Part-Time Employment Period shall be
terminated on the first to occur, after the termination of the Full-Time
Employment Period, of (i) August 31, 2001, (ii) termination thereof by the
Company at any time for Cause upon written notice given to the Executive at
least 10 days prior to such termination, (iii) Termination for Disability or
(iv) the Executive's death.
(b) Suspension. If the Company shall determine that the Executive
has committed any act or acts which constitute Cause and shall notify the
Executive thereof in writing and if the Executive shall deny that he committed
such act or acts or that such act or acts constitute Cause and shall notify
the Company of such denial in writing within seven days following the
Company's written notice to the Executive, the Board may, in its sole and
absolute discretion, suspend the Executive with full compensation and benefits
during the pendency of any investigation or arbitration with respect thereto.
8. Consequences of Termination of Initial Part-Time Employment
Period.
(a) Expiration. If the Initial Part-Time Employment Period
terminates on August 31, 2001, in lieu of any severance amounts which
otherwise would be payable to the Executive, the Executive shall thereafter be
entitled to the compensation and benefits set forth in the Company's Directors
Part-Time Employment Agreement upon the terms set forth therein on the date
hereof, but 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 such Agreement) regardless of actual service, and
payments thereunder shall be made for the period commencing on September 1,
2001.
(b) Termination for Cause. If the Initial Part-Time Employment
Period is terminated by the Company for Cause, during the remainder of the
Vested Period the Executive (or, in the event of his disability, his legal
representative, as applicable) shall receive the compensation and benefits
described in Section 6(c)(i) and Section 6(c)(ii) as if the Initial Part-Time
Employment Period had not been terminated, but the Executive shall not be
entitled to any compensation or benefits under the Company's Directors Part-
Time Employment Agreement or any other severance payments. In the event of
the Executive's death during the Vested Period, his executor shall be entitled
to such compensation until the expiration of the Vested Period and the
Executive's spouse shall be
<PAGE>
entitled to the continuation of medical insurance coverage on the same basis
as theretofore provided to the Executive until the end of the Vested Period.
(c) Disability or Death. If the Initial Part-Time Employment
Period terminates as a result of a Termination for Disability or the
Executive's death, in lieu of any severance amounts which otherwise would be
payable to the Executive, the Executive or his executor, administrator or
other legal representative, as the case may be, shall be entitled to the
compensation set forth in Section 6(c)(i) until August 31, 2001 and (i) in
the case of Termination for Disability, the Executive shall be entitled to the
benefits set forth in Section 6(c)(ii) until August 31, 2001 (and, in the
event the Executive dies prior to August 31, 2001, the Executive's spouse
shall be entitled to the continuation of medical insurance coverage on the
same basis as theretofore provided to the Executive until August 31, 2001) or
(ii) in the case of termination on account of the Executive's death, the
Executive's spouse shall be entitled to the continuation of medical insurance
coverage on the same basis as theretofore provided to the Executive until
August 31, 2001 and, in either case, the compensation and benefits set forth
in the Company's Directors Part-Time Employment Agreement shall become payable
upon the terms set forth therein on the date hereof, but 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 such
Agreement) regardless of actual service, for the period commencing on
September 1, 2001.
9. Federal and State Withholding. The Company shall deduct from
the amounts payable to the Executive pursuant to this Agreement the amount of
all required federal and state withholding taxes in accordance with the
Executive's Form W-4 on file with the Company and all applicable social
security taxes.
10. Noncompetition; Nonsolicitation. (a) The Executive
acknowledges that in the course of his employment with the Company pursuant to
this Agreement he will become familiar, and during the course of his
employment with the Company or any of its subsidiaries prior to the date of
this Agreement he has become familiar, with trade secrets and customer lists
of, and other confidential information concerning, the Company and its
subsidiaries, affiliates and clients and that his services have been and will
be of special, unique and extraordinary value to the Company.
(b) The Executive agrees that during the Full-Time Employment
Period and for a period of five years thereafter (the "Noncompetition Period")
he shall not in any manner, directly or
<PAGE>
indirectly, through any person, firm or corporation, alone or as a member of a
partnership or as an officer, director, stockholder, investor or employee of
or consultant to any other corporation or enterprise or otherwise, engage or
be engaged, or assist any other person, firm, corporation or enterprise in
engaging or being engaged, in any business being conducted by the Company or
any of its subsidiaries as of the termination of the Full-Time Employment
Period in any geographic area in which the Company or any of its subsidiaries
is then conducting such business. Within seven days following the termination
of the Full-Time Employment Period, the Company shall deliver to the Executive
a written description of the businesses being conducted by the Company and its
subsidiaries as of the date of such termination and the respective geographic
areas in which such businesses are then being conducted; provided, however,
that if the Company shall fail to deliver such written description within such
seven-day period, the Executive may deliver to the Company a written demand
therefor and the Company shall have seven days following the delivery of such
written demand to deliver such written description to the Executive. The
Executive shall have no liability for any breach of the covenant contained in
this Section 10(b) which may occur during the period commencing on the
termination of the Full-Time Employment Period and ending on the date of the
delivery of such written description to the Executive, provided that the
Executive shall have attempted in good faith to comply with such covenant
during such period. Notwithstanding the foregoing, subsequent to the
termination of the Full-Time Employment Period the Executive may engage or be
engaged, or assist any other person, firm, corporation or enterprise in
engaging or being engaged, in any business activity which is competitive with
a business activity being conducted by the Company or any of its subsidiaries
at the time of termination of the Full-Time Employment Period only if, at
least 60 days prior to the commencement of such competitive activity, the
Executive delivers to the Company a written release, in form and substance
satisfactory to the Company, releasing the Company from all further
obligations to the Executive pursuant to this Agreement, pursuant to the
Company's Directors Part-Time Employment Agreement, pursuant to any other
agreement or arrangement with the Company or any subsidiary of the Company or
otherwise, other than the right of the Executive to receive benefits under any
retirement plan of the Company; and provided further, that nothing contained
in this Section 10(b) shall release or otherwise affect the obligations of the
Executive contained in Section 11 of this Agreement.
(c) The Executive further agrees that during the Non-competition
Period he shall not (i) in any manner, directly or indirectly, induce or
attempt to induce any employee of the Company or any of its subsidiaries or
affiliates to terminate or abandon his or her employment for any purpose
whatsoever, or (ii) in
<PAGE>
connection with any business to which Section 10(b) applies, call on, service,
solicit or otherwise do business with any client of the Company or any of its
subsidiaries; provided, however, that the restriction contained in clause (i)
of this Section 10(c) shall not apply to, or interfere with, the proper
performance by the Executive of his duties pursuant to Section 2 of this
Agreement.
(d) Nothing in this Section 10 shall prohibit the Executive from
being (i) a stockholder in a mutual fund or a diversified investment company
or (ii) a passive owner of not more than two percent of the outstanding stock
of any class of a corporation so long as the Executive has no active
participation in the business of such corporation.
(e) If, at any time of enforcement of this Section 10, a court or
an arbitrator holds that the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum period,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
period, scope and area permitted by law.
11. Confidentiality. The Executive shall not, at any time during
the Full-Time Employment Period, the Initial Part-Time Employment Period, the
duration of the Company's Directors Part-Time Employment Agreement or
thereafter, make use of or disclose, directly or indirectly, any (i) trade
secret or other confidential or secret information of the Company or of any of
its subsidiaries, affiliates or clients or (ii) other technical, business,
proprietary or financial information of the Company or of any of its
subsidiaries, affiliates or clients not available to the public generally or
to the competitors of the Company or to the competitors of any of its
subsidiaries or affiliates, in each case that the Executive obtained as a
result of his employment by the Company or any of its subsidiaries
("Confidential Information"), except to the extent that such Confidential
Information (a) is used by the Executive during the Full-Time Employment
Period in the proper performance of his duties pursuant to this Agreement, (b)
is disclosed by the Executive to his legal counsel in connection with legal
services performed by such counsel for the Executive, provided that such
disclosure is made on a confidential basis, (c) becomes a matter of public
record or is published in a newspaper, magazine or other periodical available
to the general public, other than as a result of any act or omission of the
Executive outside the proper performance of his duties pursuant to this
Agreement, or (d) is required to be disclosed by any law, regulation or order
of any court or regulatory commission, department or agency. Promptly
following the termination of the
<PAGE>
Full-Time Employment Period, the Executive shall surrender to the Company all
records, memoranda, notes, plans, reports, computer tapes and software and
other documents and data which constitute Confidential Information which he
may then possess or have under his control (together with all copies thereof);
provided, however, that the Executive may retain copies of such documents as
are necessary for the preparation of his federal or state income tax returns;
and provided further that if the Company believes that not all Confidential
Information which the Executive may then possess or have under his control has
been surrendered to the Company, the Company shall request with specificity
the Confidential Information to be surrendered by the Executive. The
Executive shall have a reasonable period of time following such request to
surrender such Confidential Information which in no event shall be less than
15 or more than 30 days following such request and, if the Executive makes a
good faith effort to comply with such request, his failure to surrender any
Confidential Information shall not constitute Cause for purposes of Section
4(b)(iv) hereof.
12. Nondisparagement; Cooperation. (a) The Executive shall not, at
any time during the Full-Time Employment Period, the Initial Part-Time
Employment Period or the duration of the Company's Directors Part-Time
Employment Agreement or thereafter, make any statement, publicly or privately,
which would disparage the Company, its business or any director or officer of
the Company or would have a deleterious effect upon the interests of the
Company's business or its stockholders; provided, however, that the Executive
shall not be in breach of this restriction if such statements consist solely
of (i) private statements made to any officers, directors or employees of the
Company by the Executive in the course of carrying out his duties pursuant to
this Agreement or (ii) private statements made to persons other than clients
or competitors of the Company or any of its subsidiaries or its affiliates (or
their representatives) or members of the press or the financial community that
do not have a material adverse effect upon the Company; and provided further
that nothing contained in this Section 12(a) or in any other provision of this
Agreement shall preclude the Executive from making any statement in good faith
which is required by law, regulation or order of any court or regulatory
commission, department or agency. During the Full-Time Employment Period, the
Initial Part-Time Employment Period and the duration of the Company's
Directors Part-Time Employment Agreement and upon reasonable notice and at the
expense of the Company, the Executive shall take such actions as the Company
shall reasonably request (reasonableness to include, but not be limited to, a
good faith effort to accommodate the schedules and time needs of the parties)
in furtherance of the client relationships of the Company and its
subsidiaries. Upon the termination of the Full-Time Employment Period, the
Executive shall urge the clients of the
<PAGE>
Company and its subsidiaries to maintain their relationships with the Company
and its subsidiaries, which action, together with any other actions required
under this Agreement, shall not require the Executive to perform services (i)
during the Initial Part-Time Employment Period in excess of the limit of 10
days of service during any calendar quarter set forth in Section 6(b) or (ii)
during the duration of the Company's Directors Part-Time Employment Agreement
in excess of 10 days during any calendar quarter.
(b) The Company shall not, at any time during the Full-Time
Employment Period, the Initial Part-Time Employment Period or the duration of
the Company's Directors Part-Time Employment Agreement or thereafter,
authorize any person to make or allow, nor shall the Company condone the
making of, any statement, publicly or privately, which would disparage the
Executive; provided, however, that the Company shall not be in breach of this
restriction if such statements consist solely of (i) private statements made
to any officers, directors or employees of the Company or (ii) private
statements made to persons other than clients or competitors of the Company or
any of its subsidiaries or affiliates (or their representatives) or members of
the press or the financial community that do not have a materially adverse
effect upon the Executive; and provided further that nothing contained in this
Section 12(b) shall preclude any officer, director, employee, agent or other
representative of the Company from making any statement in good faith which is
required by any law, regulation or order of any court or regulatory
commission, department or agency.
13. Enforcement. The parties hereto agree that the Company would
be damaged irreparably in the event that any provision of section 10, 11, or
12 of this Agreement were not performed in accordance with its terms or were
otherwise breached and that money damages would be an inadequate remedy for
any such nonperformance or breach. Accordingly, the Company and its suc-
cessors or permitted assigns shall be entitled, in addition to other rights
and remedies existing in their favor, to an injunction or injunctions to
prevent any breach or threatened breach of any of such provisions and to
enforce such provisions specifically (without posting a bond or other
security). Each of the parties agrees that he or it will submit himself or
itself to the personal jurisdiction of the courts of the State of Illinois in
any action by the other party to enforce an arbitration award against him or
it or to obtain interim injunctive or other relief pending an arbitration
decision.
14. Survival. Sections 10, 11, 12 and 13 of this Agreement shall
survive and continue in full force and effect in accordance with their
respective terms, notwithstanding any termination
<PAGE>
of the Full-Time Employment Period, the Initial Part-Time Employment Period or
the duration of the Company's Directors Part-Time Employment Agreement.
15. Arbitration; Certain Costs. Any dispute or controversy
between the Company and the Executive, whether arising out of or relating to
this Agreement, the breach of this Agreement, or otherwise, shall be settled
by arbitration administered by the American Arbitration Association in
accordance with its Commercial Rules then in effect and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall have the authority to award any remedy or relief
that a court of competent jurisdiction could order or grant, including,
without limitation, the issuance of an injunction. However, either party may,
without inconsistency with this arbitration provision, apply to any court
having jurisdiction over such dispute or controversy and seek interim
provisional, injunctive or other equitable relief until the arbitration award
is rendered or the controversy is otherwise resolved. The Company shall
reimburse the Executive, upon demand, for all costs and expenses (including
without limitation attorneys' fees) reasonably incurred by the Executive in
good faith in connection with this arbitration provision, including without
limitation in connection with any such application undertaken by the Executive
in good faith, as well as for all such costs and expenses reasonably incurred
by the Executive in connection with entering and/or enforcing the award
rendered by the arbitrator. Except as necessary in court proceedings to
enforce this arbitration provision or an award rendered hereunder, or to
obtain interim relief, neither a party nor an arbitrator may disclose the
existence, content or results of any arbitration hereunder without the prior
written consent of the Company and the Executive. The Company and the
Executive acknowledge that this Agreement evidences a transaction involving
interstate commerce. Notwithstanding any choice of law provision included in
this Agreement, the United States Federal Arbitration Act shall govern the
interpretation and enforcement of this arbitration provision.
16. Expenses of this Agreement. The Company shall pay the
Executive's legal fees and expenses incurred in connection with this
Agreement, in an amount not to exceed $30,000, promptly upon submission to the
Company of a detailed statement therefor, subject to approval of the Company's
General Counsel.
17. Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed given when (a)
delivered personally or by overnight courier to the following addresses of the
other party hereto and his or its counsel (or such other address for such
party or his or its counsel
<PAGE>
as shall be specified by notice given pursuant to this Section 17) or (b) sent
by facsimile to the following facsimile numbers of the other party hereto and
his or its counsel (or such other facsimile number for such party or his or
its counsel as shall be specified by notice given pursuant to this Section
17), with the confirmatory copy delivered by overnight courier to the
addresses of such party and his or its counsel pursuant to this Section 17:
(a) if to the Company, to:
Chief Human Resources Officer
True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611-2897
Facsimile No.: 312-425-6350
with a copy to:
Thomas A. Cole
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Facsimile No.: 312-853-7036
(b) if to the Executive, to:
Bruce Mason
618 Dock Drive
Barrington, Illinois 60010
Facsimile No.: 847-381-8416
with a copy to:
Melvin S. Adess
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Facsimile No.: 312-861-2200
18. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under applicable law or rule
in any jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of this
Agreement or the validity, legality or enforceability of such provision in any
other jurisdiction, but this Agreement shall be reformed, construed and
enforced in such jurisdiction as if such
<PAGE>
invalid, illegal or unenforceable provision had never been contained herein.
19. Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes and preempts any prior understanding, agreements
or representations by or between the parties, written or oral, which may have
related in any manner to the subject matter hereof; it being understood that
this Agreement relates to the terms of the Executive's employment from and
after the Effective Date and nothing herein supersedes or preempts the
Existing Employment Agreement insofar as it applies to periods prior to the
Effective Date.
20. Merger. The Company, a subsidiary of the Company and Bozell,
Jacobs, Kenyon & Eckhardt, Inc. ("Bozell") are parties to an Agreement and
Plan of Merger dated as of July 30, 1997 pursuant to which Bozell will become
a wholly-owned subsidiary of the Company (such transaction being hereinafter
referred to as the "Merger"). Provided the Merger is consummated prior to the
close of business on December 31, 1997, the "Effective Date" shall be December
1, 1997. In the event the Merger is not so consummated, this Agreement shall
be of no force or effect.
21. Successors and Assigns. This Agreement shall be enforceable
by the Executive and his heirs, executors, administrators and legal
representatives, and by the Company and its successors and permitted assigns.
Any successor of the Company shall assume the liabilities of the Company
hereunder. This Agreement shall not be assigned by the Company other than to
a successor pursuant to a merger, consolidation or transfer of all or
substantially all of the capital stock or assets of the Company. The
Executive's rights pursuant to this Agreement shall continue notwithstanding
any change in control (as defined in the Directors Part-Time Employment
Agreement).
22. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to principles of conflict of laws.
23. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
24. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and
<PAGE>
both of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
TRUE NORTH COMMUNICATIONS INC.
By: /s/ Stephen T. Vehslage
-------------------------------
Stephen T. Vehslage
Chairman of the Compensation
Committee of the Board of
Directors
/s/ Richard P. Mayer
-------------------------------
Richard P. Mayer
a Member of the Compensation
Committee of the Board of
Directors
/s/ Bruce Mason
-------------------------------
Bruce Mason
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (this "Agreement") dated as of July 30, 1997, by
and between TRUE NORTH COMMUNICATIONS INC., a Delaware corporation (the
"Company"), and CHARLES D. PEEBLER, JR. (the "Executive").
WITNESSETH:
----------
WHEREAS, the Company is a global communications holding company which
owns companies engaged in the advertising agency business, the multimedia
production business, the business of planning and buying of media time and
space and related businesses;
WHEREAS, the Executive currently serves as President and Chief
Executive Officer of Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Bozell"),
pursuant to an Employment Agreement dated as of April 1, 1992, between the
Executive and Bozell (the "Existing Employment Agreement");
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of
July 30, 1997, among the Company, Cherokee Acquisition Corporation and Bozell
(the "Merger Agreement"), Bozell will become a wholly-owned subsidiary of the
Company (the "Merger");
WHEREAS, the Company has determined that it will further the long-term
strategy of the Company and Bozell, following the Merger, and is in the best
interest of the Company's stockholders, to secure the services of the Executive
pursuant to the terms and conditions hereof, and in order to induce the
Executive to provide such services and to secure the benefits that accrue from
his performance hereunder, the Company is willing to undertake its obligations
set forth herein; and
WHEREAS, the Company and the Executive desire to enter into this
Agreement, pursuant to which, effective upon the Effective Time (as such term
is defined in Section 1.2 of the Merger Agreement) the Executive will commence
employment with the Company upon the terms and conditions hereinafter set
forth, and, as of such commencement, to terminate the Existing Employment
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1. EMPLOYMENT; POSITION AND DUTIES; RESPONSIBILITIES.
1.1 Employment; Position and Duties. The Company hereby agrees to
employ the Executive, and the Executive hereby agrees to accept employment by
the Company, upon the terms and subject to the conditions contained in this
Agreement, as the Company's President, and as Chairman and Chief Executive
Officer of the True North Diversified Companies (hereinafter, the "True North
Diversified Companies"), comprising each of the Company's current direct
subsidiaries, or any successor to any thereof, other than the FCB Advertising
Entities (as hereinafter defined) and Bozell Worldwide, Inc., which direct
subsidiaries 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 the Company and Bozell, or such superior position to which the Executive
may be elected or appointed. 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 advertising agency entities. The
Executive, in his capacity as Chairman and Chief Executive Officer of the True
North Diversified Companies, shall report directly to the Board of Directors
of the Company (the "Board") and shall not be required to report and shall not
be directly responsible to any other person, entity, or committee. The
Executive's services hereunder shall be performed at the Company's offices
located in New York City except for travel reasonably required to perform such
services. During the Term of Employment (as hereinafter defined), the
Executive shall devote substantially all of his business time and efforts
during the Company's normal business hours to the performance of his duties
and responsibilities on behalf of the Company in accordance with this
Agreement, except for vacations, holidays and sickness; provided, however,
that it shall not be a violation of this Agreement for the Executive to manage
his personal finances, investments and business affairs, or to engage in or
serve such civic, community, charitable, educational, religious and similar
type activities and organizations as he may select, or to serve as a director
of a reasonable number of business corporations, so long as no such service as
a director is inconsistent with his positions and duties hereunder.
1.2 Responsibilities. Subject to the powers, authority and
responsibilities vested in the Board and the Chief Executive Officer of the
Company and in duly constituted committees of the Board, the Executive shall
have the authority and responsibility for the formulation and execution of the
corporate policy of the True North Diversified Companies and the Company. The
individual heads of the various business units which comprise the True North
Diversified Companies shall report directly to the Executive. The Executive
shall perform such duties (not inconsistent with the position of principal
executive officer of the True North Diversified Companies or the Company, as
applicable) on behalf of the Company and its subsidiaries as may from time to
time be authorized or directed by the Board and as are customarily exercisable
by a president and chief executive officer.
<PAGE>
2. TERM.
2.1 Term of Employment. The Executive's term of employment under
this Agreement shall commence on the Effective Time, as such term is defined
in Section 1.2 of the Agreement and Plan of Merger, dated as of July 30, 1997,
among the Company, Cherokee Acquisition Corporation and Bozell, Jacobs, Kenyon
& Eckhardt, Inc., and shall continue through the date which is four (4) years
from the date of the Effective Time (the "Term of Employment").
2.2 Termination of Employment. The Term of Employment shall be
terminated, in accordance with the applicable provisions of Sections 4 and 5,
upon the first to occur of: (a) the expiration thereof pursuant to Section
2.1; (b) the death of the Executive; (c) termination of the employment of the
Executive hereunder by the Company for "Cause" (as hereinafter defined), by
giving the Executive a "Notice of Termination" (as hereinafter defined) at
least ten (10) days prior to the date of such termination; (d) at the election
of the Executive for other than "Good Reason" (as hereinafter defined), by
giving the Company a Notice of Termination; (e) at the election of the Company
in the event of the Executive's disability, as provided in Section 4.4, by
giving the Executive a Notice of Termination; (f) at the election of the
Company, for reasons other than Cause or such death or disability, by giving
the Executive a Notice of Termination at least thirty (30) days prior to the
date of such termination; or (g) at the election of the Executive for Good
Reason or as provided in Section 4.2, by giving the Company a Notice of
Termination. Notwithstanding any other provision of this Agreement to the
contrary, if the Executive notifies the Company that a dispute exists
concerning any purported termination of his employment hereunder, the Term of
Employment shall not end prior to (and the calculation or determination of any
amount hereunder otherwise calculated with reference to or determined as of
the date on which the Notice of Termination is given shall instead be
calculated or determined by reference to) the date the dispute is finally
settled, whether by mutual agreement of the parties hereto, in accordance with
Section 11, or otherwise upon final judgment, order or decree of a court of
competent jurisdiction (the time for filing appeal therefrom having expired
and no appeal having been perfected), and prior to such date the Company shall
continue to be bound by, and shall continue to perform, in all respects, this
Agreement as if the Term of Employment had not been terminated.
2.3 Notice of Termination. Any purported termination of the Term
of Employment by the Company or by the Executive (other than by reason of the
Executive's death or expiration of the Term of Employment pursuant to Section
2.1) shall be communicated to the other party by a written Notice of
Termination of Employment (herein, a "Notice of Termination") in accordance
with this Section 2.3. For purposes of this Agreement, a Notice of
Termination means a written notice which (a) indicates the specific
termination provision of this Agreement relied upon and (b) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
<PAGE>
3. COMPENSATION AND BENEFITS.
3.1 Base Salary and Incentive Compensation. The Company shall pay
to the Executive a base salary during the Term of Employment at the annual
rate of Six Hundred Thousand Dollars ($600,000) ("Base Salary"), payable in
accordance with the usual payroll practices of the Company, but not less often
than monthly, and incentive compensation in accordance with an incentive
compensation system recommended by the Compensation Committee of the Board and
approved by the Board ("Incentive Compensation"); provided that the aggregate
amount of such Base Salary and Incentive Compensation for each calendar year
during the Term of Employment shall be not less than the greater of (i) the
amount for such calendar year based on an annual rate of One Million Three
Hundred-Fifty Thousand Dollars ($1,350,000.00) and (ii) the aggregate amount
of salary and bonus for such calendar year paid to the Chief Executive Officer
of the Company (the "Calendar Year Minimum Compensation"), it being understood
that for purposes of determining Calendar Year Minimum Compensation for any
period of less than twelve calendar months Base Salary and Incentive
Compensation shall be prorated for such period, and that any payment required
to be made by this proviso shall be deemed to be Incentive Compensation. The
Board may increase the Base Salary (and Base Salary and Calendar Year Minimum
Compensation hereunder shall include all such increased amounts), but in no
event shall the Base Salary or Calendar Year Minimum Compensation in effect at
a particular time be reduced without the prior written consent of the
Executive (and any such purported reduction without such consent shall have no
effect for purposes of calculating any amounts payable to the Executive
hereunder).
3.2 Stock Options. During the Term of Employment, the Executive
shall be entitled to receive stock options in accordance with the Company's
Stock Option Plan and Performance Program (or any successor or similar plans)
at least equivalent to options received by the Company's Chief Executive
Officer. In addition, the Company covenants that the Compensation Committee
of the Board shall take such actions as may be necessary, including, where
required, to cause the approval of stock option agreements with respect to the
future grant of stock options to the Executive, so that upon the termination
or expiration of the Term of Employment, for any reason, or prior to the
occurrence of a Change in Control (as hereinafter defined), all of the stock
options theretofore granted to the Executive by the Company then held by the
Executive shall be fully exercisable until the end of the full term thereof.
3.3 Life Insurance. The Company agrees to continue to provide the
Executive throughout the Term of Employment and the Term of Consultancy (as
hereinafter defined) with split-dollar life insurance providing for a death
benefit of Two Million Dollars ($2,000,000.00), the annual premium for which
will be paid by the Company. This insurance is currently provided by Mutual
of Omaha under Policy No. 5237856. The Executive shall advise the Company in
writing of the name(s) of the beneficiary or beneficiaries of such policy.
3.4 Other Compensation and Benefits. The Executive shall be
entitled to participate in the most favorable compensation plans, programs and
arrangements (including any stock-related or incentive plans) maintained by,
or offered to senior executives of,
<PAGE>
Bozell or its subsidiaries or affiliates from time to time, in accordance with
the terms thereof, and the Executive shall be entitled to participate in the
most favorable employee benefit plans, policies, programs, practices and
arrangements available to senior executives or employees of Bozell or its
subsidiaries or affiliates (or their respective successors), including group
health, life insurance, short-term disability, long-term disability, accident,
vacation, sick leave, holiday, pension, profit- sharing, stock purchase and
non-qualified deferred compensation and retirement plans, policies, programs,
practices and arrangements, and the plans or programs for the allowance for or
the reimbursement of financial planning expenses and club dues and other
fringe benefits and perquisites and any other plans of general application to
employees and senior executives of Bozell or its subsidiaries or affiliates on
the date hereof and such plans, policies, programs, practices and arrangements
adopted hereafter for the benefit of such employees and executives, and in the
case of plans, programs, practices, policies and arrangements in effect on the
date hereof on terms no less favorable than their terms on the date hereof and
applicable to the other senior executives of Bozell or its subsidiaries or
affiliates as of such date, as any such plans, programs, practices, policies
and arrangements may be amended after the Effective Time in accordance with
Section 5.15(a) of the Merger Agreement (all such compensation and benefits
being hereinafter referred to as the "Employee Benefits"). The Executive
shall be entitled to take time off for vacation or other illness in accordance
with the Company's policy for senior executives and to receive all other
fringe benefits as are from time to time made generally available to senior
executives of the Company.
3.5 Expense Reimbursement. (a) Expenses. The Company shall
reimburse the Executive for all proper expenses incurred by him in the
performance of his duties hereunder in accordance with the Company's policies
and procedures applicable to the other senior executives of the Company. The
Company shall pay or reimburse the Executive's costs (including, without
limitation, reasonable legal fees and reasonable expenses) incurred in
connection with this Agreement and any related documents promptly upon
submission to the Company of a detailed statement or statements therefor.
(b) Automobile. The Company shall pay the actual cost of (a)
the lease, rental or purchase of an automobile (selected by the
Executive) and a full-time driver therefor and (b) all insurance
premiums, gasoline, maintenance and a garage for such automobile, in
order to provide satisfactory transportation for the Executive in
connection with the performance of his duties on behalf of the Company
and its subsidiaries and affiliates.
3.6 Indemnification. The Company and its subsidiaries and
affiliates shall indemnify the Executive to the maximum extent permitted under
the laws of the state of incorporation of the Company or such subsidiary or
affiliate, and the organizational documents of the Company and such
subsidiaries and affiliates shall contain provisions permitting such
corporation to provide the Executive with such indemnity protection. The
Company shall at all times maintain a directors and officers liability
insurance policy covering the Executive in a sufficient amount to provide such
indemnification to the Executive. In the event that a claim for payment or
benefits under this Agreement is disputed, the Company shall pay or reimburse
the Executive, upon demand, for all costs and expenses (including, without
limitation, attorneys' fees) reasonably incurred by the
<PAGE>
Executive in good faith in pursuing such claims or in connection with Section
11, including, without limitation, in connection with any application to a
court undertaken by the Executive in good faith, as well as for all such costs
and expenses reasonably incurred by the Executive in connection with entering
and/or enforcing the award rendered by the arbitrator.
4. TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN CAUSE, OR FOR
GOOD REASON.
4.1 Termination Not For Cause, or For Good Reason. If (A) the
Company terminates the Executive's employment hereunder, and such termination
of employment is not for Cause and not by reason of the Executive's death or
disability (pursuant to Section 4.3 or 4.4) or (B) the Executive terminates
his employment hereunder for Good Reason:
(a) the Executive shall be entitled to receive: (i) all Base
Salary payable with respect to the Term of Employment through the date
of the Notice of Termination, (ii) unpaid Incentive Compensation for
the calendar year prior to the date of the Notice of Termination,
(iii) Incentive Compensation for the calendar year of the date of the
Notice of Termination, prorated through the date of such Notice of
Termination based on actual results of operations for such full
calendar year and (iv) reimbursement, in accordance with Section 3.5,
of expenses incurred by him through the date of such Notice of
Termination; provided that in determining the aggregate amount of the
Base Salary payable pursuant to clause (i) of this Section 4.1(a) and
the Incentive Compensation payable pursuant to clause (iii) of this
Section 4.1(a), the Calendar Year Minimum Compensation shall be
prorated through the date of the Notice of Termination;
(b) each stock option granted to the Executive by the Company
after the Effective Time and then held by the Executive shall, on the
date of the Notice of Termination, be exercisable for the full term of
such option for all of the stock subject thereto in accordance with
the applicable stock option agreement in effect at the time of such
termination (giving effect to this provision);
(c) the Executive and his spouse shall be entitled to
continuation of medical insurance coverage, on the same basis
theretofore provided by the Company to the Executive and his spouse,
until his death, and, after his death, the Executive's spouse shall be
entitled to continuation of such medical insurance coverage until her
death; and
(d) the Company will pay to the Executive in a single cash
lump-sum an amount equal to three (3) times the Calendar Year Minimum
Compensation (at the annual rate in effect immediately prior to the
date of the Notice of Termination (or for the immediately preceding
calendar year, if higher)).
Any amounts payable to the Executive under this Section 4.1 (or under any
other Section by reference to this Section 4.1) shall be paid to him (or the
appropriate person) in full no later than thirty (30) business days after the
date of the applicable Notice of Termination; provided, however, that
Incentive Compensation so payable shall be paid to the Executive
<PAGE>
(or the appropriate person) no later than thirty (30) business days after the
date on which the amount thereof has been determined or is reasonably
determinable by the Company.
4.2 Elective Termination. The Executive may elect to terminate
his employment hereunder, for any reason or no reason, at any time on or after
February 28, 1999, and before June 30, 1999, and, if the Executive so elects,
he shall become a consultant of the Company for the five-year period beginning
immediately following the date of his Notice of Termination specifying such
election (the "Term of Consultancy"), and the Executive shall be entitled to
receive:
(a) the payments and benefits provided for in Section 4.1(a),
(b) and (c);
(b) reimbursement, in accordance with Section 3.5, of expenses
incurred by him in the performance of his consulting duties hereunder
during the Term of Consultancy; and
(c) the compensation and benefits otherwise payable hereunder
during the remaining Term of Employment if no Notice of Termination
had been delivered, and for the balance of the Term of Consultancy,
cash compensation equal to sixty percent (60%) of the Calendar Year
Minimum Compensation (at the annual rate in effect immediately prior
to the date of the Notice of Termination (or for the immediately
preceding calendar year, if higher)), payable in accordance with the
usual payroll practices of the Company, but not less often than
monthly.
While the Executive is a consultant of the Company during the Term of
Consultancy pursuant to this Section 4.2, the Executive shall make himself
available, upon reasonable notice (reasonableness to include, but not be
limited to, a good faith effort to accommodate the schedules and time needs of
the parties), to perform services for the Company which (i) shall be related
to such projects and matters of the Company as the Board or the Chief
Executive Officer of the Company may designate from time to time, (ii) are
commensurate with the Executive's years of experience and level of skill and
(iii) are similar to the services rendered by the Executive prior to the
termination of the Term of Employment, including, but not limited to, upon
reasonable notice and at the expense of the Company, such actions by the
Executive as the Company shall reasonably request (reasonableness to include,
but not be limited to, a good faith effort to accommodate the schedules and
time needs of the parties) in furtherance of the client relationships of the
Company and its subsidiaries. The Executive shall not be required to devote
more than ten (10) days during any calendar quarter to the performance of such
consulting services.
4.3 Death. The Term of Employment shall end upon the Executive's
death, and the Executive's beneficiary, or his legatee or devisee, or the
legal representative of his estate, as the case may be, shall be entitled to
receive the payments and benefits set forth in Section 4.2(a), (b) and (c)
which would have been payable assuming that, on the date of his death, the
Executive had validly elected to terminate his employment and become a
consultant of the Company for the full Term of Consultancy, in accordance with
Section 4.2, provided, however, that all such cash payments shall be paid in a
single lump-sum not later than thirty (30) days after the date of the
Executive's death, and the Executive's spouse
<PAGE>
shall be entitled to continuation of medical insurance coverage on the same
basis as theretofore provided by the Company to the Executive until her death.
4.4 Disability. The Company may terminate the Executive's
employment hereunder by reason his disability in accordance with this Section
4.4. For purposes of this Agreement, the Executive's employment hereunder
shall have been terminated by reason of his disability (a) if, as a result of
the Executive's incapacity due to physical or mental illness, as determined in
good faith by the Board, and certified by a physician chosen by the Company
and acceptable to the Executive, the Executive shall have been unable to
substantially perform his duties under this Agreement for a period of more
than six (6) consecutive months and (b) the Company shall have given the
Executive a Notice of Termination specifying such intended termination of
employment by reason of disability and (c) the Executive does not resume
substantially all of his duties hereunder before the expiration of thirty (30)
days following the date the Executive receives such Notice of Termination.
Upon termination of the Executive's employment pursuant to this Section 4.4,
the Executive or his legal representative shall be entitled to receive the
payments and benefits set forth in Section 4.2(a), (b) and (c) which would
have been payable assuming that, on the date of such termination of
employment, the Executive had validly elected to terminate his employment and
become a consultant of the Company for the full Term of Consultancy, in
accordance with Section 4.2; provided, however, that all such cash payments
shall be paid in a single lump-sum not later than thirty (30) days after the
date of termination of the Executive's employment hereunder by reason of his
disability, and provided further that the Executive shall be relieved of any
obligation during the Term of Consultancy to perform the consulting services
referred to in Section 4.2, and the Executive and his spouse shall be entitled
to continuation of medical insurance coverage, on the same basis theretofore
provided by the Company to the Executive and his spouse, until his death, and,
after his death, the Executive's spouse shall be entitled to continuation of
such medical insurance coverage until her death.
4.5 Expiration of Term of Employment. If the Term of Employment
shall expire as set forth in Section 2.2(a), (a) the Executive, or his legatee
or devisee, or his legal representative, shall be entitled to reimbursement,
in accordance with Section 3.5, of expenses incurred by him in the performance
of his duties hereunder through the date of such expiration or termination,
and (b) the Executive and his spouse shall be entitled to continuation of
medical insurance coverage, on the same basis as theretofore provided by the
Company to the Executive and his spouse, until his death, and, after his
death, the Executive's spouse shall be entitled to continuation of such
medical insurance coverage until her death.
4.6 Definition of Good Reason. For purposes of this Agreement,
"Good Reason" shall mean any of the following: (a) a breach by the Company of
any provision of this Agreement, including, but not limited to, any reduction
in the Base Salary and/or Calendar Year Minimum Compensation, failure to grant
the Executive stock options in accordance with Section 3.2 or any other
agreement between the Executive and the Company with respect thereto, failure
to appoint the Executive to the positions provided for in Section 1 hereof
(unless such failure would permit the Executive to exercise his rights under
Section 4.2, which failure shall not constitute "Good Reason"), assignment to
the
<PAGE>
Executive of any duties inconsistent in any respect with the Executive's
position with the Company, an adverse alteration in the nature or status of
the Executive's responsibilities to the Company, or breach of the covenant
contained in Section 9.2, unless any such breach is fully corrected within
thirty (30) days following written notification by the Executive to the
Company thereof, if the breach is of such a nature that correction can be
effected; (b) the Company's requiring the Executive to be based at any office
or location other than the Company's offices located in New York, New York,
except for such travel away from such offices as is reasonably required for
the performance of the Executive's services hereunder; (c) any purported
termination of the Executive's employment by the Company not effected in
accordance herewith; or (d) the Executive shall have relinquished his position
with the Company hereunder within two (2) years after the occurrence of a
Change in Control.
5. TERMINATION FOR CAUSE OR FOR OTHER THAN GOOD REASON.
5.1 Compensation and Benefits. In the event the Company, in
accordance with this Agreement, terminates the Executive's employment
hereunder for Cause, or the Executive terminates his employment hereunder
other than for Good Reason and other than pursuant to Section 4.2, the
Executive shall be entitled to receive (a) all Base Salary payable with
respect to the Term of Employment through the date of termination of the
Executive's employment hereunder for Cause or the Notice of Termination given
by the Executive, as applicable; (b) unpaid Incentive Compensation for the
calendar year preceding the date of such termination for Cause or such Notice
of Termination, as applicable; (c) Incentive Compensation for the calendar
year of the date of such termination for Cause or such Notice of Termination,
as applicable, prorated through such date based on actual results of
operations for such full calendar year, (d) reimbursement, in accordance with
Section 3.5, of expenses incurred by him through the date of such termination
for Cause or such Notice of Termination, as applicable; and (e) any other
Employee Benefits accrued through the date of such termination for Cause or
such Notice of Termination, as applicable; provided that in determining the
aggregate amount of the Base Salary payable pursuant to clause (a) of this
Section 5.1 and the Incentive Compensation payable pursuant to clause (c) of
this Section 5.1, the Calendar Year Minimum Compensation shall be prorated
through the date of termination of the Executive's employment hereunder for
Cause or the Notice of Termination is given by the Executive, as applicable.
Any amounts payable to the Executive under this Section 5.1 shall be paid to
him in full no later than ten (10) business days after the date of termination
of the Executive's employment hereunder for Cause or a Notice of Termination
is given by the Executive, as applicable; provided, however, that Incentive
Compensation so payable shall be paid to the Executive no later than ten (10)
business days after the date on which the amount thereof has been determined
or is reasonably determinable by the Company.
5.2 Definition of Cause. For purposes of this Agreement,
termination of the Executive's employment for Cause shall mean termination for
one of the following reasons: (a) the conviction of the Executive of a felony
by a Federal or state court of competent jurisdiction; (b) the commission by
the Executive of any act which involves both dishonesty with respect to the
Company or any of its subsidiaries and moral turpitude and causes the Company
to be viewed in a materially unfavorable light by its customers, employees or
investors; or (c) the Executive's material willful failure to follow a direct
lawful written
<PAGE>
order from the Board within the scope of the Executive's duties hereunder;
provided that if it reasonably could be concluded that such alleged material
willful failure did not occur or was not material or willful or a failure to
follow a direct lawful written order from the Board or such order was not
within the scope of the Executive's duties hereunder, the Executive shall have
thirty (30) days following the date on which the Executive receives the Notice
of Termination with respect thereto to cure such alleged material willful
failure. For purposes of this Section 5.2: (i) no act or failure to act by
the Executive shall be deemed "willful" if done or omitted to be done by the
Executive in good faith and in the reasonable belief that such action or
omission was in the best interest of the Company and/or permitted or required
by applicable law, and (ii) the Executive's employment shall not be deemed to
have been terminated for Cause hereunder unless and until there shall have
been delivered to the Executive a copy of the resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4ths) of the entire
membership of the Board at a meeting of the Board validly called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
the Executive, together with the Executive's counsel, to be heard before the
Board), finding in the good faith opinion of the Board that the Executive was
guilty of conduct set forth in clauses (a), (b) or (c) above and specifying
the particulars thereof in detail (the date of such finding shall constitute
the date of termination of the Executive's employment hereunder for Cause).
6. TAXES.
6.1 Federal and State Withholding. The Company shall deduct from
the amounts payable to the Executive pursuant to this Agreement the amount of
all required Federal and state withholding taxes in accordance with the
Executive's Internal Revenue Service Form W-4 on file with the Company and all
applicable social security taxes.
6.2 Parachute Payments. Notwithstanding anything in this
Agreement to the contrary, the amount of any cash payment to be received by
the Executive pursuant to this Agreement shall be reduced (but not below zero)
by the amount, if any, necessary to prevent any part of any payment or benefit
received or to be received by the Executive in connection with a Change in
Control, or the termination of the Executive's employment with the Company or
with any person whose actions result in a Change in Control (whether payable
or provided pursuant to this Agreement (but without regard to this Section
6.2) or any other agreement, contract, plan or arrangement with the Company,
any person whose action results in such Change in Control or any member of an
"affiliated group" (as defined in Section 280G(d)(5) of the Internal Revenue
Code of 1986, as amended (the "Code")) which includes the Company) (such
foregoing payments or benefits referred to collectively as the "Total
Payments"), from being treated as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code, but only if and to the extent such
reduction will also result in, after taking into account all applicable state
and Federal taxes (computed at the highest applicable marginal rate) including
any taxes payable pursuant to Section 4999 of the Code, a greater after-tax
benefit to the Executive than the after- tax benefit to the Executive of the
Total Payments computed without regard to any such reduction. For purposes of
the foregoing, (a) no portion of the Total Payments shall be taken into
account which in the opinion of nationally-recognized tax counsel selected by
the Executive ("Tax Counsel") does not constitute a "parachute payment" within
the meaning of Section 280G(b)(2) of the Code;
<PAGE>
(b) any reduction in payments pursuant to this Agreement shall be computed by
taking into account, in accordance with Section 280G(b)(4) of the Code, that
portion of the Total Payments which is reasonable compensation, within the
meaning of Section 280G(b)(4) of the Code, in the opinion of Tax Counsel; (c)
the value of any non-cash benefits or of any deferred or accelerated payments
or benefits included in the Total Payments shall be determined by a
nationally-recognized public accounting firm, selected by the Executive, in
accordance with the principles of Section 280G(d)(3) and (4) of the Code and
the Treasury Regulations thereunder; and (d) in the event of any uncertainty
as to whether a reduction in Total Payments to the Executive is required
pursuant hereto, the Company shall initially make all payments otherwise
required to be paid to the Executive hereunder, and any amounts so paid which
are ultimately determined not to have been payable hereunder other than as a
loan to the Executive, either (x) upon mutual agreement of the Executive and
the Company, or (y) upon Tax Counsel furnishing the Executive with its written
opinion setting forth the amount of such payments not to have been so payable
other than as a loan to the Executive under this Section 6.2, or (z) in the
event a portion of the Total Payments shall be determined by a court or an
Internal Revenue Service proceeding to have otherwise been an "excess
parachute payment," the amount so determined in (x), (y) or (z) shall
constitute a loan by the Company to the Executive under this Section 6.2, and
the Executive shall repay to the Company within ten (10) business days after
the time of such mutual agreement, such opinion is so furnished to the
Executive, or of such determination, as applicable, the amount of such loan
plus interest thereon at the rate provided in Section 1274(b)(2)(B) of the
Code for the period from the date of the initial payments to the Executive to
the date of such repayment by the Executive. All fees and expenses of any Tax
Counsel or accounting firm selected under this Section 6.2 shall be borne
solely by the Company.
7. NON-COMPETITION; NON-SOLICITATION.
7.1 Recital. The Executive acknowledges that in the course of his
employment with the Company pursuant to this Agreement he will become familiar
with trade secrets and customer lists of, and other confidential information
concerning, the Company and its subsidiaries, affiliates and clients and that
his services have been and will be of special, unique and extraordinary value
to the Company.
7.2 Non-competition. The Executive agrees that during the Term of
Employment, and for the unexpired Term of Employment otherwise remaining but
for termination thereof in accordance with Section 5, and during any Term of
Consultancy (the "Non-competition Period") he shall not in any manner,
directly or indirectly, through any person, firm or corporation, alone or as a
member of a partnership or as an officer, director, stockholder, investor or
employee of or consultant to any other corporation or enterprise, engage or be
engaged in any business being conducted by the Company or any of its
subsidiaries as of the termination of the Term of Employment in any geographic
area in which the Company or any of its subsidiaries is then conducting such
business. Within seven (7) days following the termination of the Term of
Employment the Company shall deliver to the Executive a written description of
the businesses being conducted by the Company and its subsidiaries as of the
date of such termination and the respective geographic areas in which such
businesses are then being conducted. If the Company shall fail to deliver
such written description within such seven (7) day period, the Executive may
<PAGE>
deliver to the Company a written demand therefor and the Company shall have
seven (7) days following the delivery of such written demand to deliver such
written description to the Executive, and the Executive shall have no
liability for any breach of the covenant contained in this Section 7.2 or
Section 7.3 which may occur during the period commencing on the termination of
the Term of Employment and ending on the date of the delivery of such written
description to the Executive, and, if the Company shall fail to deliver such
written description to the Executive by the end of the second seven-day period
specified above, the Executive shall thereupon be discharged from any
obligations or covenants under this Section 7.2 or Section 7.3 (and released
from any liability for any alleged breach thereof). Notwithstanding the
foregoing, subsequent to the termination of the Term of Employment the
Executive may engage or be engaged, or assist any other person, firm,
corporation or enterprise in engaging or being engaged, in any business
activity which is competitive with a business activity being conducted by the
Company or any of its subsidiaries as of the termination of the Term of
Employment if, at least sixty (60) days prior to the commencement of such
competitive activity, the Executive delivers to the Company a written release,
in form and substance satisfactory to the Company, releasing the Company from
all further obligations to the Executive pursuant to this Agreement, pursuant
to any other agreement or arrangement with the Company or any subsidiary of
the Company or otherwise, other than the right of the Executive to receive
benefits or payments under any retirement plan of the Company and/or its
subsidiaries, and/or as provided in Section 13; provided that nothing
contained in this Section 7.2 shall release or otherwise affect the
obligations of the Executive contained in Section 8.
7.3 Non-solicitation. The Executive agrees that during the
Non-competition Period he shall not (a) intentionally induce or attempt to
induce any officer or executive of the Company or any of its subsidiaries to
terminate or abandon his or her employment with the Company or such subsidiary
for employment with another organization with which the Executive is
affiliated, or (b) in connection with any business to which Section 7.2
applies, call on, service, solicit or otherwise do business with any client of
the Company or any of its subsidiaries.
7.4 Permitted Investments; Performance of Duties. Nothing in this
Section 7 shall (a) prohibit the Executive from being (i) a stockholder or
investor in a mutual fund, a diversified investment company or other
investment fund or (ii) an owner of not more than five percent (5%) of the
outstanding stock of any class of a corporation, or (b) apply to or interfere
with the proper performance by the Executive of his duties pursuant to Section
1 of this Agreement.
7.5 Blue Pencil Rule. If, at any time of enforcement of this
Section 7, a court of competent jurisdiction holds that the restrictions
stated herein are unreasonable under circumstances then existing, the parties
hereto agree that the maximum period, scope or geographical area reasonable
under such circumstances shall be substituted for the stated period, scope or
area and that such court shall be allowed to revise the restrictions contained
herein to cover the maximum period, scope and area determined by such court to
be permitted by law.
<PAGE>
8. CONFIDENTIALITY.
The Executive shall not, at any time during the Term of Employment,
the Term of Consultancy or thereafter make use of or disclose, directly or
indirectly, any trade secret or other confidential or secret information of
the Company or of any of its subsidiaries or affiliates not available to the
general public or to the competitors of the Company or to the competitors of
any of its subsidiaries or affiliates, in each case that the Executive
obtained as a result of his employment by the Company or any of its
subsidiaries or affiliates ("Confidential Information") except to the extent
that such Confidential Information (a) is used by the Executive during the
Term of Employment or the Term of Consultancy in the proper performance of his
duties pursuant to this Agreement, (b) is disclosed by the Executive to his
legal counsel in connection with legal services performed by such counsel for
the Executive, provided that such disclosure is made on a confidential basis,
(c) becomes a matter of public record or is published in a newspaper, magazine
or other periodical or media available to the general public, other than as a
result of any act or omission of the Executive outside the proper performance
of his duties pursuant to this Agreement, or (d) is required to be disclosed
by any law, regulation or order of any court or regulatory commission,
department or agency. Promptly following the termination of the Term of
Employment, or any Term of Consultancy, the Executive shall surrender to the
Company any records, memoranda, notes, plans, reports, computer tapes and
software and other documents and data which constitute Confidential
Information which he then possesses (together with all copies thereof then in
his possession); provided, however, that the Executive may retain copies of
such documents as are necessary for the preparation of his Federal or state
income tax returns and may retain his personal rolodex, phone book and similar
items (whether in hard-copy or computer-readable format).
9. NON-DISPARAGEMENT.
9.1 By the Executive. The Executive shall not, at any time during
the Term of Employment, the Term of Consultancy or thereafter, make any
statement, publicly or privately, which would disparage the Company, its
business or any director or officer of the Company; provided, however, that
the Executive shall not be in breach of this restriction if such statements
consist solely of (a) private statements made to any officers, directors or
employees of the Company or any subsidiary of the Company by the Executive in
the course of carrying out his duties pursuant to this Agreement or (b)
private statements made to persons other than clients or competitors of the
Company or any of its subsidiaries or its affiliates (or their
representatives) or members of the press or the financial community that do
not have a material adverse effect upon the Company; and provided further that
nothing contained in this Section 9.1 or in any other provision of this
Agreement shall preclude the Executive from making any statement in good faith
which is required by any applicable law, regulation or valid order of any
court or governmental regulatory commission, department or agency.
9.2 By the Company. The Company and/or its subsidiaries and/or
their respective directors, officers, and/or employees shall not, at any time
during the Term of Employment, the Term of Consultancy or thereafter, make or
authorize any person to make or allow, nor shall the Company or any such other
person condone the making of, any
<PAGE>
statement, publicly or privately, which would disparage the Executive;
provided, however, that the Company shall not be in breach of this restriction
if such statements consist solely of (a) private statements made to any
officers, directors or employees of the Company or (b) private statements made
to persons other than clients or potential clients or competitors of the
Company or any of its subsidiaries or affiliates (or their representatives) or
members of the press or the financial community that do not have a materially
adverse effect upon the Executive; and provided further that nothing contained
in this Section 9.2 shall preclude any officer, director, or employee of the
Company from making any statement in good faith which is required by any
applicable law, regulation or valid order of any court or governmental
regulatory commission, department or agency.
10. NO REDUCTIONS OR MITIGATION. In no event shall an asserted
violation of Section 7, 8 or 9.1 constitute a basis for reducing, deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement. The Executive shall not be required to mitigate damages or other
amounts payable to him hereunder by seeking other employment, and the amount
of any payment or benefit provided under this Agreement, including Employee
Benefits, shall not be reduced by any compensation or benefits earned by or
provided to the Executive as a result of employment by another employer.
11. ARBITRATION. The parties shall use their best efforts and good
will to settle all disputes by amicable negotiations. The Company and the
Executive agree that any dispute, controversy or claim arising out of,
relating to or in connection with this Agreement, or the termination of this
Agreement or the termination of the Executive's employment hereunder that is
not amicably resolved by negotiation (the "Dispute") shall be finally settled
by arbitration, as set forth below, in New York, New York, or such other place
agreed to by the parties, and each of the parties hereto accepts the exclusive
jurisdiction of the arbitrator or arbitral panel appointed in accordance
herewith, and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement.
(a) Any such arbitration shall be heard before a panel consisting of
one (1) to three (3) arbitrators, each of whom shall be impartial. All
arbitrators shall be appointed in the first instance by agreement between the
parties hereto. If the parties cannot agree upon a single arbitrator, each of
the Company and the Executive shall be entitled to appoint one arbitrator.
These two appointed arbitrators shall then appoint a third arbitrator by their
mutual agreement.
(b) The arbitrator or arbitrators shall decide the Dispute by applying
the governing law as stated in Section 15. The arbitration proceedings shall
be governed by such other procedural rules as the arbitrator or arbitrators
shall determine.
(c) An arbitration may be commenced by either party to this Agreement
by the service of a written request for arbitration (the "Request for
Arbitration") upon the other party. The Request for Arbitration shall
summarize the Dispute to be arbitrated. If the panel of arbitrators is not
appointed, in accordance with paragraph (a) above, within thirty (30) days
following such service, either party may apply to any court within the State
of New York for an order appointing a single qualified arbitrator. No Request
for Arbitration
<PAGE>
shall be valid if it relates to a Dispute that would have been time barred
under the applicable statute of limitations had such Dispute been submitted to
the courts of the State of New York.
(d) Judgment on the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof, or application may be made to such
court for a judicial acceptance of the award and an order of enforcement.
(e) This arbitration clause, including its enforceability and
application, shall be governed by the Federal Arbitration Act, 9 U.S.C.,
Section 1, et seq., and any dispute as to its enforceability, application or
interpretation shall be presented to the United States District Court for the
Southern District of New York.
12. SUCCESSORS AND BINDING EFFECT.
12.1 Successors of the Company. The Company will require any
acquiror of, or successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to, all or substantially all of the capital stock,
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company
would be required to perform this Agreement if no such acquisition or
succession had taken place, and this Agreement shall inure to the benefit of
and shall be binding upon any such acquiror of, or successor to, the Company,
subject to the other terms and conditions hereof. If the Company fails to
obtain such assumption and agreement prior to the effectiveness of any such
acquisition or succession, this Agreement shall nevertheless continue to
determine the Executive's rights and entitlement to receive the compensation,
remuneration and benefits provided for herein or hereunder. As used in this
Agreement, "Company" shall mean the Company, as hereinabove defined, and any
successor to the Company and/or its business and/or assets, as described in
the first sentence of this Section 12.1.
12.2 Assignment. This Agreement is personal in nature and, except
as provided in Section 12.1, neither of the parties to this Agreement shall,
without the prior written consent of the other, assign or transfer this
Agreement or any right or obligation under this Agreement to any other person;
provided, however, that nothing herein shall preclude the heirs, executors,
administrators or legal representatives of the Executive or his estate from
enforcing this Agreement and receiving any amount or benefit that may be
payable or provided to or in respect of the Executive hereunder following his
death or legal incompetency.
12.3 Representation. The Company represents and warrants that it
is fully authorized and empowered to enter into this Agreement, and that the
performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization.
13. EMPLOYEE BENEFIT PLANS. Notwithstanding any other provision of
this Agreement to the contrary, the Company and its subsidiaries shall pay or
provide to the Executive and his dependents and beneficiaries such rights and
benefits of participation
<PAGE>
under the employee benefit plans, programs and arrangements in which the
Executive is a participant immediately prior to the date his employment
hereunder terminates for any reason as the Executive and such dependents and
beneficiaries are entitled, following such termination (including, without
limitation, the Employee Benefits), under the terms and provisions of such
plans, programs and arrangements as in effect from time to time.
14. DEFINITION OF CHANGE IN CONTROL. For purposes of this
Agreement, a "Change in Control" shall be deemed to have occurred upon the
occurrence of one or more of the following events:
(a) the stockholders of the Company approve a merger,
consolidation, combination, reorganization or other transaction that
would result in less than fifty percent (50%) of the combined voting
power of the surviving or resulting entity being owned by the former
stockholders of the Company, or the liquidation or dissolution of the
Company or the sale or other disposition of all or substantially all
of the assets or business of the Company;
(b) an offer is made to the holders of the Company's common
stock to sell or exchange such common stock for cash, securities or
stock of another corporation and such offer, if accepted, would result
in the offeror becoming the owner of at least fifty percent (50%) of
the then outstanding common stock of the Company;
(c) any person or group of persons directly or indirectly
purchases or otherwise becomes the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended), or has the right to acquire such beneficial ownership
(whether or not such right is exercisable immediately, with the
passage of time, or subject to any condition) of, other than from the
Company, twenty-five percent (25%) or more of the combined voting
power of the Company's then outstanding securities; or
(d) during any period of two (2) consecutive years individuals
who at the beginning of such period constituted the Board cease for
any reason to constitute at least a majority thereof, unless the
election, or nomination for the election by the shareholders of the
Company, of each new director was approved by at least two-thirds
(2/3rds) of the directors then still in office who were directors at
the beginning of such period.
15. GOVERNING LAW. This Agreement has been executed and delivered
in the State of New York and shall be governed by and construed and enforced
in accordance with the laws of such State, without regard to the principles of
conflict of laws.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes and preempts any prior understandings,
agreements or representations by or between the parties hereto, whether
written or oral, which may have related in any manner to the subject matter
hereof, including, without limitation, the Existing Employment Agreement.
Without limiting the foregoing, upon the Effective Time, as specified in
<PAGE>
Section 2.1, the Existing Employment Agreement will be mutually cancelled
without any payments, penalties or costs being incurred by either party
hereto.
17. AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to be given when
(a) delivered personally or by certified or registered mail or reputable
overnight courier, postage prepaid, addressed to the other party and his or
its counsel at the addresses respectively set forth below or (b) sent by
facsimile to the facsimile numbers of the other party hereto and his or its
counsel respectively set forth below with a confirmatory copy thereof
delivered by reputable overnight courier to such party and his or its counsel
at the addresses respectively set forth below, pursuant to this Section 18:
(a) if to the Company, to:
Chief Human Resources Officer
True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611-2897
Facsimile No.: 312-425-6350
with a copy to:
Thomas A. Cole
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Facsimile No.: 312-853-7036
(b) if to the Executive, to:
Charles D. Peebler, Jr.
166 East 64th Street
New York, New York 10021
Facsimile No.: ______________
with a copy to:
Kevin Keogh
White & Case
1155 Avenue of the Americas
New York, New York 10036
Facsimile No.: 212-354-8113
<PAGE>
or to such other address or facsimile number as either party hereto or his or
its counsel may specify, in writing, from time to time in the manner set forth
above to the other party (provided that such notice of another address or
facsimile number shall be effective only when actually received by such other
party).
19. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under applicable law or rule
in any jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of this
Agreement or the validity, legality or enforceability of such provision in any
other jurisdiction, but this Agreement shall be reformed, construed and
enforced in such
<PAGE>
jurisdiction as if such invalid, illegal or unenforceable provision had never
been contained herein.
20. SURVIVAL. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.
21. HEADINGS. Except as otherwise provided herein, the words
"Section," "paragraph," and "clause" as used herein shall refer to provisions
of this Agreement, and headings of the Sections of this Agreement are intended
solely for convenience of reference and no provision of this Agreement is to
be construed by reference to the title of any Section.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
TRUE NORTH COMMUNICATIONS INC.
Dated: July 30, 1997 By /s/ Theodore J. Theophilos
---------------- ------------------------------
Name: Theodore J. Theophilos
Title: Executive Vice President
and General Counsel
CHARLES D. PEEBLER, JR.
Dated: July 30, 1997 /s/ Charles D. Peebler, Jr.
---------------- ---------------------------
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of July 30, 1997 between True North
Communications Inc., a Delaware corporation (the "Company"), and Richard S.
Braddock (the "Executive").
WHEREAS, the Company is a global communications holding company with
ownership interests in subsidiaries, affiliates and joint ventures that are
engaged in the advertising agency business, the multimedia production
business, the business of planning and buying of media time and space and
related businesses;
WHEREAS, the Executive currently serves as a director of the Company;
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of July
30, 1997 (the "Merger Agreement"), among the Company, a subsidiary of the
Company and Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Bozell"), Bozell will
become a wholly-owned subsidiary of the Company (such transaction being
hereinafter referred to as the "Merger");
WHEREAS, the Executive has performed significant services for the
Company in connection with the Merger; and
WHEREAS, the Company and the Executive desire to enter into this
Agreement to compensate the Executive for the services he has provided to the
Company in connection with the Merger and to provide for the employment of the
Executive by the Company upon the terms and subject to the conditions set
forth herein, in each case effective upon the consummation of the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the
Executive hereby agrees to be employed by the Company upon the terms and
subject to the conditions contained in this Agreement, effective upon the
consummation of the Merger. The term of employment of the Executive by the
Company pursuant to this Agreement (the "Employment Period") shall commence
upon the consummation of the Merger (the "Effective Date") and shall end on
the third annual anniversary of the Effective Date, unless earlier terminated
pursuant to Section 4 hereof. In the event that the Merger is not consummated
on or prior to the close of business on December 31, 1997, this Agreement
shall be of no force or effect.
2. Position and Duties. The Company shall employ the Executive
during the Employment Period in the position, and with
<PAGE>
the title, of Non-Executive Chairman of the Board of Directors (the
"Non-Executive Chairman"). Subject to the powers, authority and
responsibilities vested in the Board of Directors of the Company (the "Board")
and in duly constituted committees of the Board, the Executive shall have the
authority and responsibility for the following: oversight of activities and
business of the Board; coordinating strategies regarding the financial results
of the Company; coordinating strategies to capitalize on balance sheet
opportunities; coordinating the strategic evolution of the Company; and
insuring that the operations of the Company are properly integrated. During
the Employment Period, the Executive shall perform faithfully and loyally and
to the best of the Executive's abilities his duties hereunder, shall devote
significant business time, attention and efforts to the affairs of the Company
and shall use his reasonable best efforts to promote the interests of the
Company. Notwithstanding the foregoing, the Executive may engage in
charitable, civic or community activities and may serve as a director of any
business corporation, provided that such activities or service do not
interfere with the performance of the Executive's duties hereunder or violate
the terms of any of the covenants contained in Section 7. The principal
offices of the Executive for the performance of his duties under this
Agreement shall be located in New York, New York and Chicago, Illinois. In
connection with the performance of his duties hereunder, the Executive shall
be entitled to the full business time services of a personal secretary who
shall be an employee of the Company.
3. Compensation.
(a) Annual Base Salary. With respect to the Employment Period,
the Company shall pay to the Executive an annual base salary at the rate of
$400,000 per annum in accordance with the Company's regular payroll practices.
The annual base salary shall be reviewed periodically in accordance with
guidelines applicable to the Company's senior executives generally.
(b) Incentive Compensation. Commencing with the Company's fiscal
year ending on December 31, 1998 ("Fiscal 1998"), the Executive shall be
entitled to receive variable incentive compensation payable in cash ("VIC")
and deferred variable incentive compensation payable in cash ("DVIC") in
accordance with the Company's Performance Program (as currently in existence
or as amended in the future), as determined from time to time by the Board,
provided that the aggregate amount of such VIC and DVIC for Fiscal 1998 shall
not exceed 50 percent of the Executive's base salary for Fiscal 1998.
(c) Phantom Stock Compensation. (i) As compensation for the
services provided by the Executive to the Company prior to the date hereof in
connection with the Merger, upon the execution of this Agreement the Company
shall grant to the
<PAGE>
Executive, and the Executive shall be credited with, 350 phantom stock units
("Units"). The Units shall become vested if, and only if, the Merger is
consummated on or prior to the close of business on December 31, 1997 and the
Executive becomes the Non-Executive Chairman pursuant to the terms of this
Agreement. If the Merger is consummated on or prior to such date and the
Executive becomes the Non-Executive Chairman pursuant to the terms of this
Agreement, the Units shall, subject to the provisions of this Agreement,
become vested cumulatively as follows:
(1) On or after the Effective Date, 50 Units, subject to
adjustment as provided in Section 3(c)(iii) hereof, shall become
vested;
(2) On or after each of the first three annual anniversaries
of the date of this Agreement, an additional 100 Units, subject to
adjustment as provided in Section 3(c)(iii) hereof, shall become
vested; and
(3) Notwithstanding anything to the contrary contained in
this Section 3(c), all Units shall become vested upon a "Change in
Control" (as defined herein) of the Company. "Change in Control" shall
mean either (A) an acquisition (other than directly from the Company)
of 25 percent or more of the beneficial interest in the voting stock
of the Company by a party other than the Company or a Company-
sponsored benefit plan, or (B) a change in the Board 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; provided, however, that in no event shall the Merger be deemed
to constitute an acquisition within the meaning of clause (A) of this
Section 3(c)(i)(3) or a change in the Board within the meaning of
clause (ii) of this Section 3(c)(i)(3).
All units which shall have become vested pursuant to this Section 3(c)(i) are
hereinafter referred to as "Vested Units."
(ii) The Company shall pay to the Executive as additional
compensation (the "Phantom Stock Benefit") an amount, determined as of the
Valuation Date (as hereinafter defined), equal to the product of (1) the
number of Units then credited to the Executive hereunder which shall have
become Vested Units pursuant to Section 3(c)(i) hereof (after giving effect to
the adjustments provided for in Section 3(c)(iii) below) multiplied by (2) the
product of one thousand multiplied by the excess, if any, of the Value (as
hereinafter defined) of a share of the Company's common stock, $0.33 1/3 par
value ("Common Stock"), over $23.0625, being 100 percent of the fair market
value of a share of Common Stock on the date hereof. The Phantom Stock
Benefit shall be payable in cash, subject to any applicable payroll or other
taxes required to be withheld, on the 30th day following
<PAGE>
the Valuation Date. Nothing in this Section 3(c) shall be deemed to grant to
the Executive any right in or to, or any right to purchase or otherwise
acquire, any Common Stock (or any securities convertible into Common Stock).
(iii) In the event of a any change in the number of outstanding shares
of Common Stock by reason of any dividend payable in shares of Common Stock,
or by reason of any stock split, reverse stock split or combination of shares,
the number of Units credited to the Executive hereunder shall be increased or
decreased, as the case may be, in the same proportion. Any such adjustment
shall be made by the good faith determination of the Board, which
determination shall be conclusive.
(iv) If the Company shall spin-off a significant subsidiary or shall
make a substantial non-cash distribution to its stockholders, in partial
liquidation or otherwise (excluding, however, any transaction or change
described in Section 3(c)(iii) or in clause (D) of the definition of
"Valuation Date" in Section 3(c)(v)(1)), and it is reasonable to expect that
the future Value of the Common Stock would be materially affected thereby, the
Board shall modify the formula for determining the Phantom Stock Benefit in an
equitable manner to maintain the economic rights granted to the Executive
under this Section 3(c).
(v) For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(1) "Valuation Date" shall mean the earliest of (A) the date
which is the fourth annual anniversary of the date of this Agreement;
(B) one year following the termination of the Employment Period for
any reason other than termination of the Executive's employment by the
Company for "Cause" (as hereinafter defined); (C) termination of the
Executive's employment for Cause; and (D) the effective date of any
Change in Control.
(2) "Value" shall mean the arithmetic average of the Market
Price (as hereinafter defined) of a share of Common Stock for the 10
trading days preceding the Valuation Date, but in no event shall the
"Value" be less than the price per share of Common Stock paid prior to
the Valuation Date in any tender offer subject to Section 14(d) of the
Securities Exchange Act of 1934, as amended (or any statute hereafter
substituted therefor), which results in a Change in Control, as such
price per share shall be adjusted by the good faith determination of
the Board to reflect any change described in Section 3(c)(iii)
occurring subsequent to such tender offer.
(3) "Market Price" shall mean for any day the average of the
high and low sale prices (or if no sales were made, the average of the
last bid and asked prices) of a share of
<PAGE>
Common Stock on the principal securities exchange on which the Common
Stock is traded for such day or, if the Common Stock is no longer
listed on a national or regional securities exchange, the average of
the high and low sale prices (if the Common Stock is reported on such
basis) or otherwise the average of the bid and asked prices of a share
of Common Stock, in either case as quoted by a national quotation
system for such day.
(vi) In the absence of manifest error, the determination of the
amount of the Phantom Stock Benefit by the Board in accordance with this
Section 3(c) shall be binding upon the Executive and the Company.
(d) Stock Options. In connection with the employment of the
Executive pursuant to this Agreement, the Executive is being granted as of the
date of this Agreement under the Company's Stock Option Plan (the "Employee
Option Plan"), nonqualified stock options (the "Options") to purchase 50,000
shares of Common Stock at an exercise price equal to 100 percent of the fair
market value of a share of Common Stock on the date of grant, as determined in
accordance with the terms of the Employee Option Plan. Each Option shall
expire four years after its date of grant and shall become exercisable only if
the Merger is consummated on or prior to the close of business on December 31,
1997 and the Executive becomes the Non-Executive Chairman pursuant to the
terms of this Agreement. If the Merger is consummated on or prior to such
date and the Executive becomes the Non-Executive Chairman pursuant to the
terms of this Agreement, Options to purchase 50,000 shares of Common Stock
shall become exercisable commencing on the Effective Date. The Options are
evidenced by a stock option agreement (the "Option Agreement"), a copy of
which is attached hereto as Exhibit A.
(e) Other Benefits. During the Employment Period, the Executive
shall be entitled to participate in the Company's employee benefit plans
generally available to senior executives of the Company, including medical,
dental, salary continuance, short-term disability, long-term disability,
employee life, group life, travel accident insurance plans, pension, profit
sharing, stock purchase and nonqualified deferred compensation and retirement
plans and, as appropriate, the plans or programs for the allowance for or the
reimbursement of automobile expenses, financial planning expenses and club
dues and any other plans of general application to employees on the date
hereof and such plans and programs adopted hereafter for the benefit of senior
executives of the Company (all such benefits being hereinafter referred to as
the "Employee Benefits"), in the case of plans or programs in effect on the
date hereof on terms no less favorable than their terms on the date hereof,
subject to modifications of general application to senior executives or all
other employees. The Executive shall be entitled to take time off for vacation
or illness in accordance with the Company's policy for senior
<PAGE>
executives and to receive all other fringe benefits as are from time to time
made generally available to senior executives of the Company.
(f) Expense Reimbursement. During the Employment Period, the
Company shall reimburse the Executive for all proper expenses incurred by him
in the performance of his duties hereunder in accordance with the Company's
policies and procedures.
4. Termination of Employment Period; Suspension.
(a) Qualifying Termination. For purposes of this Agreement,
"Qualifying Termination" means after the Effective Date (i) termination of the
Executive's employment by the Company without Cause, (ii) termination of the
Executive's employment by the Company on account of the Executive having
become unable (as determined by the Company in good faith) to regularly
perform his duties hereunder by reason of illness or incapacity for a period
of more than six consecutive months ("Termination for Disability"), (iii)
termination of the Executive's employment on account of the Executive's death
or (iv) termination of the Executive's employment by the Executive due to the
occurrence of any of the following events:
(1) without the Executive's express written consent, any of (i) the
assignment to the Executive of any duties inconsistent in any material respect
with the Executive's position, duties, responsibilities or status with the
Company at the Effective Date (or subsequent thereto if such new position(s),
duties, responsibilities or status were agreed to in writing by the
Executive), (ii) any adverse change in the Executive's reporting
responsibilities, titles or office with the Company after the Effective Date,
or (iii) any removal or involuntary termination of the Executive from the
Company otherwise than as expressly permitted by this Agreement or any failure
to re-elect or re-appoint the Executive to any position with the Company held
by the Executive at the Effective Date (or subsequent thereto if held pursuant
to the written agreement of the Executive);
(2) without the Executive's express written consent, a reduction by
the Company in the Executive's rate of annual base salary in effect at the
Effective Date or, if greater, in effect at any time subsequent thereto;
(3) without the Executive's express written consent, any requirement
of the Company that the Executive (i) be based anywhere other than at the
principal offices of the Executive specified in Section 2 hereof (or specified
subsequent hereto if agreed to by the Executive in writing) or (ii) travel on
Company business after the first 12 months of the Employment Period to an
extent substantially more burdensome than the extent of the
<PAGE>
Executive's travel during the first 12 months of the Employment Period;
(4) without the Executive's express written consent, except as stated
in Section 5.15 of the Merger Agreement, the failure of the Company to (i)
continue in effect any employee benefit plan, compensation plan or employee
agreement (inclusive of this Agreement) in which the Executive is
participating on the Effective Date, unless the Executive is permitted to
participate in other plans providing the Executive with substantially
comparable benefits, or the taking of any action by the Company which would
adversely affect the Executive's participation in or materially reduce the
Executive's benefits under any such plan or agreement, (ii) provide the
Executive and the Executive's dependents welfare benefits including, without
limitation, medical, dental, disability, salary continuance, employee life,
group life, and travel accident insurance plans and programs in accordance
with the most favorable plans, practices, programs and policies of the Company
in effect for the Executive at the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to peer
executives of the Company, (iii) provide fringe benefits in accordance with
the most favorable plans, practices, programs and policies of the Company in
effect for the Executive at the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to peer
executives of the Company, (iv) provide an office or offices of a size and
with furnishings and other appointments, together with exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive at the Effective Date by the Company or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to peer executives of the Company, (v) provide the
Executive with paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company in effect for the Executive at
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to peer executives of the
Company, or (vi) reimburse the Executive promptly for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company in effect for the
Executive at the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to peer executives of the
Company; or
(5) either (i) an acquisition (other than directly from the Company)
of 25 percent or more of the beneficial interest in the voting stock of the
Company by a party other than the Company or a Company-sponsored benefit plan,
or (ii) a change in the Board 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; provided, however, that in no event
<PAGE>
shall the Merger be deemed to constitute an acquisition within the meaning of
clause (i) of this Section 4(a)(5) or a change in the Board within the meaning
of clause (ii) of this Section 4(a)(5).
For purposes of this Agreement, (i) expiration of this Agreement at
the end of its stated term or any extension thereof to which the Company and
the Executive have mutually consented shall not constitute a Qualifying
Termination and (ii) any good faith determination of a Qualifying Termination
made by the Executive shall be conclusive; provided, however, that an
isolated, insubstantial and inadvertent action taken by the Company in good
faith and which is remedied by the Company promptly (the later of 60 days or
as soon as reasonably practicable) after receipt of written notice thereof
given by the Executive shall not constitute a basis for a Qualifying
Termination.
(b) Nonqualifying Termination. For purposes of this Agreement,
"Nonqualifying Termination" means a termination of the Executive's employment
(i) by the Company for Cause, or (ii) by the Executive for any reason other
than for a Qualifying Termination.
(c) Definition of Cause. For purposes of this Agreement, "Cause"
means (i) a material breach by the Executive of the duties and
responsibilities of the Executive hereunder (other than as a result of
incapacity due to physical or mental illness), which is demonstrably willful
and deliberate on the Executive's part, which is committed in bad faith or
without reasonable belief that such breach is in the best interests of the
Company and which is not remedied within 30 days (or sooner, as specified in a
written notice, if the Company, in its good faith judgment, determines that
the period must be shorter to avoid harm to the Company) after receipt of
written notice from the Company specifying such breach or (ii) the commission
by the Executive of a felony involving moral turpitude.
(d) Suspension. If the Company shall conclude that the Executive
has committed any act or acts which constitute Cause and shall notify the
Executive thereof in writing and if the Executive shall deny that he committed
such act or acts or that such act or acts constitute Cause and shall notify
the Company of such denial in writing within seven days following the
Company's written notice to the Executive, the Board may, in its sole and
absolute discretion, suspend the Executive with full compensation and benefits
during the pendency of any investigation or arbitration with respect thereto.
5. Consequences of Termination of Employment Period.
<PAGE>
(a) Qualifying Termination, except for Death or Disability. If
the Employment Period terminates for a reason set forth in clause (i) or (iv)
of Section 4(a):
(i) the Executive shall be entitled to receive (1) all salary
payable with respect to the period through the term of this Agreement
as specified in Section 1 and any extension thereof to which the
Company and the Executive have mutually consented or, if longer, the
period of 12 months following such termination (hereinafter referred
to as the "Severance Period"), in accordance with the Company's
regular payroll practices, and (2) within 30 days after the amount in
question is reasonably determinable, (A) unpaid incentive compensation
for the prior calendar year, (B) the larger amount of (x) or (y)
determined as follows: (x) incentive compensation for the then
current calendar year, prorated through the date of such termination
based on actual results of operations for such full calendar year or
(y) a cash incentive compensation payment equivalent to the last
incentive compensation amount paid to the Executive, and (C)
reimbursement of proper expenses incurred through the date of such
termination.
(ii) the Phantom Stock Benefit shall be payable in accordance
with Section 3(c) hereof and the Options shall be governed by the
terms of the Option Agreement.
(iii) the Executive shall be entitled to receive all vested and
unvested amounts, if any, including all credited interest, in the
Executive's deferred incentive compensation account. Such payment
shall be made under the terms of the Executive's deferred incentive
compensation agreement, if any, and shall commence at the conclusion
of the Severance Period. The Company covenants that the Compensation
Committee of the Board shall take such action, as necessary and if
applicable, so that upon termination of the Executive's employment as
provided in the introduction to this Section 5(a), all current and
future deferred incentive compensation awards are fully vested.
(iv) during the Severance Period, the Executive shall be
entitled to participate in life insurance, medical and dental benefits
on terms no less favorable than on the termination date, subject to
modifications of general application to all similarly situated
employees.
(v) after expiration of the Severance Period, the Executive
shall 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. Service credit under the
Directors Part-Time Employment Agreement shall be calculated based on
the
<PAGE>
Executive being a director of the Company and shall include the
Severance Period.
(vi) the Executive shall be entitled to participate in all
other applicable benefit plans or programs in accordance with the
provisions thereof applicable to terminated employees.
(b) Qualifying Termination Due to Death or Disability. If the
Employment Period terminates for a reason set forth in clause (ii) or (iii)
of Section 4(a):
(i) the Executive or the Executive's executor, administrator
or other legal representative, as the case may be, shall be entitled
to receive within 30 days after the amount in question is reasonably
determinable (1) all salary payable through the date of such
termination, (2) unpaid incentive compensation for the prior calendar
year, (3) incentive compensation for the then current calendar year,
prorated through the date of such termination based on actual results
of operations for such full calendar year, and (4) reimbursement of
proper expenses incurred through the date of such termination.
(ii) the Phantom Stock Benefit shall be payable in accordance
with Section 3(c) hereof and the Options shall be governed by the
terms of the Option Agreement.
(iii) the Executive or the Executive's executor, administrator
or other legal representative, as the case may be, shall be entitled
to receive all vested and unvested amounts, if any, including all
credited interest, in the Executive's deferred incentive compensation
account. Such payments shall be made under the terms of the
Executive's deferred incentive compensation agreement, if any. The
Company covenants that the Compensation Committee of the Board shall
take such actions as necessary and if applicable, so that upon the
termination of the Executive's employment as provided in the
introduction to this Section 5(b), all current and future deferred
incentive compensation awards are fully vested.
(iv) the Executive (or the Executive's qualified dependents,
as the case may be), shall be entitled to participate in all other
applicable benefit plans or programs in accordance with the provisions
thereof applicable to terminated employees (or their qualified
dependents, as the case may be).
(c) Nonqualifying Termination. If the Employment Period
terminates for a reason set forth in Section 4(b):
<PAGE>
(i) the Executive shall be entitled to receive within 30 days
after the amount in question is reasonably determinable (1) all salary
payable through the date of such termination, (2) unpaid incentive
compensation for the prior calendar year, and (3) reimbursement of
proper expenses incurred through the date of such termination.
(ii) the Phantom Stock Benefit shall be payable in accordance
with Section 3(c) hereof and the Options shall be governed by the
terms of the Option Agreement.
(iii) the Executive shall be entitled to receive the vested
portion of the amounts in the Executive's deferred incentive
compensation account. Such payments will be made in accordance with
the terms of the Executive's deferred incentive compensation
agreement, if any.
(iv) the Executive shall be entitled to participate in all
other applicable benefit plans or programs in accordance with the
provisions thereof applicable to terminated employees.
(d) Termination after a Change in Control. In the event of a
Qualifying Termination, as defined in the Company's Asset Protection Plan, the
Executive shall be entitled to payments in accordance with the Company's Asset
Protection Plan. The Asset Protection Plan shall supersede this Agreement, and
no payments shall be made under this Agreement, if termination occurs after a
Change in Control, as defined in the Company's Asset Protection Plan, and
payments are made pursuant to the terms of the Asset Protection Plan; it being
expressly understood, however, that the Executive's rights independent of this
Agreement under the Executive's incentive compensation arrangements and under
stock options held by the Executive shall not be affected.
6. Federal and State Withholding. The Company shall deduct from
the amounts payable to the Executive pursuant to this Agreement the amount of
all required federal and state withholding taxes in accordance with the
Executive's Form W-4 on file with the Company and all applicable social
security taxes.
7. Noncompetition; Nonsolicitation; Confidentiality. (a) Covenant
Not to Compete. During the Employment Period and for any applicable
additional period specified in (2) and (3) below, except with the prior
written consent of the Board:
(1) the Executive shall not engage in any activities, whether as
employer, proprietor, partner, stockholder (other than the holder of less than
5% of the stock of a corporation the securities of which are traded on a
national securities exchange or in the over-the-counter market), director,
officer, employee or otherwise, in competition with (i) the businesses
conducted at
<PAGE>
the date hereof by the Company or (ii) any business in which the Company is
substantially engaged at any time during the Employment Period;
(2) during the Severance Period and during any time the Executive is
receiving payments under the Company's Directors Part-Time Employment
Agreement, the Executive shall not solicit, directly or indirectly, any
existing business relationship of clients of the Company existing at the end
of the Employment Period in which the Company is substantially engaged at any
time during the Employment Period, the Severance Period or the period during
which the Executive is receiving payments under the Directors Part-Time
Employment Agreement; and
(3) during the Severance Period and during any time the Executive is
receiving payments under the Company's Directors Part-Time Employment
Agreement, the Executive shall not induce or attempt to persuade any employee
of the Company to terminate the employee's employment relationship with the
Company.
(b) Confidential Information and Trade Secrets. The Executive shall
not, at any time during the Employment Period or thereafter, make use of any
bidding information (or computer programs thereof) of the Company, nor divulge
any trade secrets or other confidential information of the Company, except to
the extent that such information becomes a matter of public record, is
published in a newspaper, magazine or other periodical available to the
general public or as the Company may so authorize in writing; and when the
Executive shall cease to be employed by the Company, the Executive shall
surrender to the Company all records and other documents obtained by him or
entrusted to him during the course of his employment hereunder (together with
all copies thereof) which pertain specifically to any of the businesses
covered by the covenants in Section 7(a)(1) or which were paid for by the
Company; provided, however, that the Executive may retain copies of such
documents as necessary for the Executive's personal records for federal income
tax purposes.
(c) Scope of Covenants; Remedies. The following provisions shall
apply to the covenants of the Executive contained in this Section:
(1) the covenants covered in Section 7(a)(1) and 7(a)(2) shall apply
within all territories in which the Company is actively engaged in the conduct
of business during the Employment Period, including, without limitation, the
territories in which customers are then being solicited;
(2) without limiting the right of the Company to pursue all other
legal and equitable remedies available for violation by the Executive of the
covenants contained in Sections 7(a) and 7(b), including the cessation and
recovery of payments
<PAGE>
and benefits paid and provided under this Agreement, it is expressly agreed
that such other remedies cannot fully compensate the Company for any such
violation and that the Company shall be entitled to injunctive relief to
prevent any such violation or any continuing violation thereof;
(3) each party intends and agrees that if in any action before any
court or agency legally empowered to enforce the covenants contained in
Sections 7(a) and 7(b) any term, restriction, covenant or promise contained
therein is found to be unreasonable and accordingly unenforceable, then such
term, restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such court or agency; and
(4) the covenants contained in Sections 7(a) and 7(b) shall survive
the conclusion of the Executive's employment by the Company.
8. Nondisparagement; Cooperation. (a) The Executive shall not,
at any time during the Employment Period or the Severance Period or the
duration of the Company's Directors Part-Time Employment Agreement or
thereafter, make any statement, publicly or privately, which would disparage
the Company, any of its businesses or any director or officer of the Company
or such businesses or would have a deleterious effect upon the interests of
the Company or such businesses or the stockholders or other owners of any of
them; provided, however, that the Executive shall not be in breach of this
restriction if such statements consist solely of (i) private statements made
to any officers, directors or employees of the Company by the Executive in the
course of carrying out his duties pursuant to this Agreement or, to the extent
applicable, his duties as a director or officer of the Company or (ii) private
statements made to persons other than clients or competitors of the Company
(or their representatives) or members of the press or the financial community
that do not have a material adverse effect upon the Company; and provided
further that nothing contained in this Section 8(a) or in any other provision
of this Agreement shall preclude the Executive from making any statement in
good faith which is required by law, regulation or order of any court or
regulatory commission, department or agency.
(b) The Company shall not, at any time during the Employment Period
or the Severance Period or the duration of the Company's Directors Part-Time
Employment Agreement or thereafter, authorize any person to make or allow, nor
shall the Company condone the making of, any statement, publicly or privately,
which would disparage the Executive; provided, however, that the Company shall
not be in breach of this restriction if such statements consist solely of (i)
private statements made to any officers, directors or employees of the Company
or (ii) private statements made to persons other than clients or competitors
of
<PAGE>
the Company (or their representatives) or members of the press or the
financial community that do not have materially adverse effect upon the
Executive; and provided further that nothing contained in this Section 8(b) or
in any other provision of this Agreement shall preclude any officer, director,
employee, agent or other representative of the Company from making any
statement in good faith which is required by any law, regulation or order of
any court or regulatory commission, department or agency.
9. Enforcement. The parties hereto agree that the Company would
be damaged irreparably in the event that any provision of Section 7 or 8 of
this Agreement were not performed in accordance with its terms or were
otherwise breached and that money damages would be an inadequate remedy for
any such nonperformance or breach. Accordingly, the Company and its
successors or permitted assigns shall be entitled, in addition to other rights
and remedies existing in their favor, to an injunction or injunctions to
prevent any breach or threatened breach of any of such provisions and to
enforce such provisions specifically (without posting a bond or other
security). Each of the parties agrees that he or it will submit himself or
itself to the personal jurisdiction of the courts of the State of Illinois in
any action by the other party to enforce an arbitration award against him or
it or to obtain interim injunctive or other relief pending an arbitration
decision.
10. Survival. Sections 7, 8 and 9 of this Agreement shall survive
and continue in full force and effect in accordance with their respective
terms, notwithstanding any termination of the Employment Period.
11. Arbitration; Certain Costs. Any dispute or controversy
between the Company and the Executive, whether arising out of or relating to
this Agreement, the breach of this Agreement, or otherwise, shall be settled
by arbitration administered by the American Arbitration Association in
accordance with its Commercial Rules then in effect and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall have the authority to award any remedy or
relief that a court of competent jurisdiction could order or grant, including,
without limitation, the issuance of an injunction. However, either party may,
without inconsistency with this arbitration provision, apply to any court
having jurisdiction over such dispute or controversy and seek interim
provisional, injunctive or other equitable relief until the arbitration award
is rendered or the controversy is otherwise resolved. The Company shall
reimburse the Executive, upon demand, for all costs and expenses (including
without limitation attorneys' fees) reasonably incurred by the Executive in
connection with any such application undertaken by the Executive in good
faith, as well as for all such costs and expenses reasonably incurred by the
Executive in connection with entering and/or enforcing the award rendered by
the arbitrator.
<PAGE>
Except as necessary in court proceedings to enforce this arbitration provision
or an award rendered hereunder, or to obtain interim relief, neither a party
nor an arbitrator may disclose the existence, content or results of any
arbitration hereunder without the prior written consent of the Company and the
Executive. The Company and the Executive acknowledge that this Agreement
evidences a transaction involving interstate commerce. Notwithstanding any
choice of law provision included in this Agreement, the United States Federal
Arbitration Act shall govern the interpretation and enforcement of this
arbitration provision.
12. Notice. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when personally delivered or five days after deposit in the United
States mail, certified and return receipt requested, postage prepaid,
addressed (1) if to the Executive, to the most recent address then shown on
the employment records of the Company, and if to the Company, to True North
Communications Inc., 101 East Erie Street, Chicago, Illinois 60611-2897,
Attention: Secretary, or (2) to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices
of change of address shall be effective only upon receipt.
13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is determined to
be invalid, illegal or unenforceable in any respect under applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of any other
provision of this Agreement or the validity, legality or enforceability of
such provision in any other jurisdiction, but this Agreement shall be reformed
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
14. Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes and preempts any prior understandings, agreements
or representations by or between the parties, written or oral, which may have
related in any manner to the subject matter hereof.
15. Successors and Assigns. This Agreement shall be enforceable
by the Executive and the Executive's heirs, executors, administrators and
legal representatives, and by the Company and its successors and permitted
assigns. Any successor
<PAGE>
or permitted assign of the Company shall assume by instrument delivered to the
Executive the liabilities of the Company hereunder. This Agreement shall not
be assigned by the Company other than to a successor pursuant to a merger,
consolidation or transfer of all or substantially all of the capital stock or
assets of the Company.
16. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to principles of conflict of laws.
17. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of
which together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRUE NORTH COMMUNICATIONS INC.
By: /s/ Stephen T. Vehslage
------------------------------
Stephen T. Vehslage
Chairman of the Compensation
Committee of the Board of Directors
By: /s/ R.P. Meyer
------------------------------
Richard P. Mayer, a Member of the
Compensation Committee of the
Board of Directors
EXECUTIVE:
/s/ Richard S. Braddock
------------------------------
Richard S. Braddock
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
------------------------------
STOCK OPTION PLAN
-----------------
STOCK OPTION AGREEMENT
THIS AGREEMENT, entered into as of July 30, 1997 (hereinafter called
the "Date of Grant"), by and between TRUE NORTH COMMUNICATIONS INC., a
Delaware corporation (hereinafter called the "Company"), and Richard S.
Braddock (hereinafter called the "Executive").
WITNESSETH:
WHEREAS, pursuant to an Agreement and Plan of Merger among the
Company, a subsidiary of the Company and Bozell, Jacobs, Kenyon & Eckhardt,
Inc. ("Bozell"), Bozell will become a wholly-owned subsidiary of the Company
(such transaction being hereinafter referred to as the "Merger");
WHEREAS, the Company is employing the Executive pursuant to the terms
of an Employment Agreement (the "Employment Agreement") which provides that
during the term of such employment, the Executive shall be the Company's
Non-Executive Chairman of the Board (the "Non-Executive Chairman"), effective
upon the consummation of the Merger;
WHEREAS, the Company considers it desirable and in its best interests
that the Executive be given an inducement to acquire a proprietary interest in
the Company and an added incentive following the consummation of the Merger to
advance the interests of the Company in the form of an option to purchase
common stock of the Company ("Common Stock"); and
WHEREAS, the Company has adopted the Stock Option Plan and pursuant to
the provisions of the Stock Option Plan, has granted the Executive the option
described herein and has so notified the Executive;
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. This Agreement recites all the terms and conditions of the
option granted to the Executive by the Company on the Date of Grant. The
option evidenced by this Agreement is intended to be a "nonqualified stock
option" and shall not be treated as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
<PAGE>
2. The Company grants to the Executive an option to purchase
50,000 shares of Common Stock at a price of $23.0625 per share.
3. Subject to the provisions of Paragraph 5 below, the option
herein granted shall terminate in all respects on, and no exercise as to any
shares covered by such option shall be honored on or after, a date four years
from the Date of Grant.
4. The option granted hereby shall become exercisable if, and
only if, the Merger is consummated on or prior to the close of business on
December 31, 1997 and the Executive becomes the Non-Executive Chairman
pursuant to the terms of the Employment Agreement. If the Merger is
consummated on or prior to such date and the Executive becomes the
Non-Executive Chairman pursuant to the terms of the Employment Agreement, the
option granted hereby shall, subject to the provisions of this Agreement,
become exercisable in full for all shares of Common Stock covered by this
option on and after the date of consummation of the Merger (the "Effective
Date of the Merger") and be exercisable for the period specified in this
Agreement (during the lifetime of the Executive only by the Executive).
5. (a) Subject to the provisions of Sections 5(b) and 5(c) hereof,
if at any time during the term of this option, the Executive shall cease to be
employed by the Company or a "subsidiary corporation" as that term is defined
in the Stock Option Plan (any of the foregoing corporations being sometimes
called herein an "Employer Company"), the option granted hereby shall expire
and become null and void one year after the date on which such employment was
terminated, but in no event later than a date four years from the Date of
Grant, and within such period the Executive may exercise this option at any
time or times with respect to any and all shares covered by this option as to
which no exercise has been made as of such date.
(b) If at any time during the term of this option, the Executive
shall die or cease to be employed by an Employer Company by reason of
permanent incapacity (as that term is defined herein), this option shall
expire and become null and void one year after the date of death or one year
after the date such employment was terminated by reason of permanent
incapacity, but in no event later than a date four years from the Date of
Grant, and within such period the Executive or the Executive's legal
representative, as the case may be, may exercise this option at any time or
times with respect to any and all shares covered by this option as to which no
exercise has been made as of such date. The term "permanent incapacity" shall
mean the Executive's permanent or indefinite inability to render services to
the Employer Company by which the Executive was employed immediately prior to
such inability of the general nature for which the Executive was employed by
such Employer Company, and shall be deemed to exist only upon the written
certificate
<PAGE>
thereof by a duly licensed physician satisfactory to such Employer Company.
(c) If at any time during the term of this option, the Executive
shall cease to be employed by an Employer Company by reason of the termination
of such employment for cause, this option shall expire and become null and
void on the date of such termination of employment. For purposes of this
Agreement, "cause" means (i) a material breach by the Executive of the duties
and responsibilities of the Executive under the Employment Agreement (other
than as a result of incapacity due to physical or mental illness), which is
demonstrably willful and deliberate on the Executive's part, which is
committed in bad faith or without reasonable belief that such breach is in the
best interests of the Company and which is not remedied within 30 days (or
sooner, as specified in a written notice, if the Company, in its good faith
judgment, determines that the period must be shorter to avoid harm to the
Company) after receipt of written notice from the Company specifying such
breach or (ii) the commission by the Executive of a felony involving moral
turpitude.
6. (a) The option granted hereby shall be exercisable by the
delivery by the Executive (or by the Executive's legal representative, as the
case may be) of written notice of such election to the Company, attention:
Secretary/Treasurer, at its office at 101 East Erie Street, Chicago, Illinois
60611-2897, stating the number of shares with respect to which the option is
being exercised and specifying a date, no less than 10 nor more than 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 Company shall deliver, or cause to be delivered, to the
Executive stock certificates for the number of shares with respect to which
the option is being exercised, and for which payment has been received.
(b) At the request of the Executive, and if approved by the Company
as provided in the Stock Option Plan, payment for shares as to which this
option is being exercised may be made by transfer to the Company of shares of
the Company already owned by the Executive, or any combination of such shares
and cash or a check, having a fair market value determined at the close of
business on the day preceding transfer equal to the option price. Any request
to use shares already owned by the Executive in whole or part payment for an
option exercise shall be made in writing and the Company shall notify the
Executive within 14 days after receipt of the disposition of such request. The
denial of such request will not prevent the Executive from exercising the
option for cash. If such request is approved, the Company shall within five
days thereafter deliver or cause to be delivered to the Executive stock
certificates for the number of shares as to which
<PAGE>
the option is being exercised, against payment therefor, in whole or in part
in shares of the Company.
(c) Delivery of the shares may be made at the office of the Company
or at the office of a transfer agent appointed for the transfer of shares of
the Company, as the Company shall determine. Shares shall be registered in
the name of the Executive or the Executive's legal representative, as the case
may be. Neither the Executive nor the Executive's legal representative shall
have any of the rights of a shareholder 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 stated therein, the
option shall become inoperative 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 the law or any regulation of the Securities and Exchange
Commission or of any other body having jurisdiction shall require the Company
or the Executive to take any action in connection with the shares specified in
a notice of election before such shares can be delivered to the Executive,
then the date stated therein for the delivery of the shares shall be postponed
until the fifth business day next following the completion of such action.
7. The option granted hereby shall not be assigned, pledged or
hypothecated in any way, shall not be subject to execution, and is not
transferable by the Executive otherwise than by will or the laws of descent
and distribution. Any attempt at assignment, transfer, pledge, hypothecation
or other disposition of the option granted hereby contrary to the provisions
hereof and the levy of any attachment or similar proceeding upon the option
shall be null and void.
8. If any change is made in the shares subject to this option
granted hereby by reason of stock dividends or split-ups, appropriate action
shall be taken by the committee appointed by the Board to administer the Plan
as to the number of shares and price per share subject to this option in order
to prevent dilution.
9. Upon the complete liquidation of the Company, any unexercised
portion of this option shall be deemed cancelled.
10. The option granted hereby shall not impose any obligation on
the Company to continue the employment of the Executive nor shall it impose
any obligation on the part of the Executive to remain in the employment of the
Company.
11. This option shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to
principles of conflict of laws.
<PAGE>
12. This Agreement shall be binding upon and inure to the benefit
of any successor or successors of the Company.
13. The Board may, from time to time, amend the terms and
conditions of this option, but only with the written consent of the Executive
or the Executive's legal representative.
<PAGE>
IN WITNESS WHEREOF, the parties hereby have executed this Agreement as
of the date first above mentioned.
TRUE NORTH COMMUNICATIONS, INC.
By: /s/ Stephen T. Vehslage
--------------------------------
Stephen T. Vehslage
Chairman of the Compensation
Committee of the Board of Directors
By: /s/ Richard P. Mayer
--------------------------------
Richard P. Mayer, a Member of the
Compensation Committee of the
Board of Directors
EXECUTIVE:
/s/ Richard S. Braddock
--------------------------------
Richard S. Braddock
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT dated as of the 26th day of June, 1997 by
and between BOZELL, JACOBS, KENYON & ECKHARDT, INC., (hereinafter the
"Agency"), a Delaware corporation, with its principal place of business at 40
West 23rd Street, New York, New York 10010 and VALENTINE J. ZAMMIT,
(hereinafter the "Executive"), residing at 510 Manhasset Woods Road,
Manhasset, N. Y. 11030.
W I T N E S S E T H :
WHEREAS, the Executive has been in the employ of the Agency for many
years last past, and is as of the date of this Agreement a stockholder,
director, Vice Chairman and Chief Financial Officer of the Agency, and
WHEREAS, the Agency desires to further acknowledge the Executive's
years of service to the Agency and the important contributions the Executive
has made to enhance the value of the Agency for the benefit of its
stockholders, and that in the event of a sale of the Agency there is a
significant likelihood that the Executive will not be able to continue to
fully untilize his skills, experience and dedication in an appropriate manner
for the benefit of the Agency and the Executive; and
WHEREAS, the Agency and the Executive have entered into an Agreement
dated as of April 1, 1992 (the "Agreement"), and
WHEREAS, the parties are desirous of restating the term of the
Executive's employment and entering into an Employment Agreement which will
supersede all the terms and conditions of the existing Agreement.
NOW, THEREFORE, in consideration of the mutual premises herein
contained, and for other good and valuable considerations, it is agreed that
the terms of the Agreement are hereby amended and restated as follows:
1. The Executive's employment with the Agency is hereby
continued throughout the Term, as hereinafter defined. The Executive agrees
to continue to render his services exclusively to the Agency throughout the
Term, and further agrees to render his services loyally and faithfully and to
the best of his abilities. The Executive shall render his full time and
attention during regular business hours to the services to be rendered by him
hereunder.
2. The Executive shall serve as a Vice Chairman of the
Agency. In addition, throughout the Term, the Executive shall serve as the
Chief Financial Officer of the Agency.
<PAGE>
In such capacity, the Executive shall report directly to Charles D. Peebler,
Jr. ("Peebler") (or, if Peebler is not an executive officer of the Agency, the
Chief Executive Officer of the Agency) and shall perform such functions as are
customarily performed by a Chief Financial Officer and such other functions as
may from time to time be designated by the Board of Directors of the Agency
not inconsistent with the offices of Vice chairman of the Agency and Chief
Financial officer. In addition, throughout the Term, the Agency shall cause
the Executive to be elected to the Board of Directors of the Agency and to the
Executive and Finance Committees of such Board. Moreover, in the event of a
Change of Control (as hereinafter defined), the Executive shall also serve as
an Executive Vice President in charge of Operations and Mergers and
Acquisitions (or other office of comparable or more senior title, position,
duties and responsibilities (such office and other offices being referred to
as "Approved Offices")) of the Parent Company (as hereinafter defined) unless
the Parent Company is an Excluded Parent Company (as hereinafter defined).
Notwithstanding the preceding provisions of this paragraph, but without
affecting any other provisions of this Agreement (including, without
limitation the last two sentences of this paragraph 2), if the Parent Company
is True North Communications Inc. ("TN"), Executive's position need not be
with the Agency but may be solely an Approved Office at the Parent Company,
and in serving in an Approved office, Executive shall have duties and
responsibilities of a senior executive nature, which shall consist of duties
and responsibilities regarding operations and mergers and acquisitions for the
Parent Company and its subsidiaries and other senior executive duties and
responsibilities as shall be assigned to Executive by Peebler (or, if Peebler
is not an executive officer of the Parent Company, the Chief Executive officer
of the Parent Company) from time to time, and Executive shall report directly
to the Chief Executive Officer of the Parent Company. The Executive's services
shall be performed at the Agency's principal executive offices in Manhattan,
subject to the reasonable travel requirements of his position and duties
hereunder. The parties acknowledge that the Executive's performance of
services in Manhattan as referred to in the preceding sentence is a material
term of this Agreement.
3. The term of this Agreement (the "Term") shall be
deemed to commence as of the date of this Agreement and shall continue until
March 31, 2000 and thereafter shall continue until terminated by either party
upon at least ninty (90) days written notice, subject at all times, however,
to earlier termination as set forth in this Agreement.
<PAGE>
4. As full compensation for his services hereunder, the
Agency agrees to pay the Executive, and the Executive agrees to accept, the
following:
a. An annual salary (the "Salary) computed at the
rate of Four Hundred Fifty-Nine Thousand Four Hundred Fifty
Dollars ($459,450) payable in such installments as salaries
are paid to other executive personnel of the Agency.
b. On April 1, 1998 and on each anniversary
thereof within the Term (the "Adjustment Date"), the
Executive's Salary shall be adjusted upward based upon the
Consumer Price Index for all Urban Consumer/United States City
Average, as published by the Bureau of Labor Statistics of the
United States Department of Labor (the "CPI"). The
Executive's Salary for the twelve (12) months beginning on
each Adjustment Date shall be equal to the greater of (i)
$459,450 or (ii) $400,000 multiplied by a fraction, the
numerator of which shall be the CPI published most recently
prior to the Adjustment Date and the denominator of which
shall be the CPI published most recently prior to April 1,
1992. In no event, however, shall the Salary for any such
twelve (12) month period exceed one hundred six percent (106%)
of the Salary payable in the previous twelve (12) month
period.
c. The Executive shall be entitled to
reimbursement of authorized business expenses incurred in
connection with the performance of his duties in accordance
with the Agency's standard policy with regard thereto.
d. The Executive shall be entitled to life
insurance, medical insurance and dental insurance,
participation in the Agency's Profit-Sharing and 401(k) Plans,
Stock Bonus Plan, EWAP, Bonus Plan, Stock Option Plan
(including any successor or replacement plans of any of the
foregoing), and other fringe benefits in accordance with the
Agency's standard policy affecting senior Agency executives of
the Agency and its susidiaries generally and in accordance
with the terms of the applicable plans. Without limiting the
foregoing, the Executive shall be entitled to continue to
participate in, and the Agency shall maintain for the benefit
of the Executive, the Bonus Plan (including any successor or
replacement plans providing substantial comparable benefits)
and the amount of any bonus to be allocated thereunder to the
Executive shall be as determined by the Chief Executive
Officer of the Agency (or Peebler if at any time after a
Change of Control, Peebler
<PAGE>
ceases to be the Chief Executive Officer of the Agency and is
employed by the Parent Company). Furthermore, without limiting
the foregoing, throughout the Term, the Executive shall be
entitled to at least such fringe benefits, welfare benefits,
perquisites, office, furniture and support services as
received by other senior executives of the Agency and its
subsidiaries generally; provided that throughout the Term, the
Executive shall be entitled to at least such of the foregoing
as Executive received as of March 31, 1997, including without
limitation, paid vacation, country club membership and dues
and the costs (including, without limitation, costs of
insurance, gas, maintenance, parking and lease payments) of a
new Chrysler automobile selected by the Executive every three
years.
e. In addition to the foregoing, the Executive
shall be entitled to such bonuses as may be determined at any
time or from time to time by the Board of Directors of the
Agency or any authorized committee thereof.
f. In the event that a majority of the stock entitled to
vote with respect to the election of directors of the Agency(or
a substantial portion of the operations of the Agency at any
time is owned beneficially, whether directly or indirectly, by
another entity or in the event of any merger, reorganization or
consolidation whereby the existing stockholders of the Agency as
of the date hereof do not own more than 66-2/3% of the then
outstanding shares of the entity resulting from such merger,
reorganization, or consolidation (ultimate entity in each such
case being referred to herein as a "Parent Company" and such
event being a "Change of Control"), the Executive shall be
entitled to such number of options to purchase shares of stock
of such Parent Company, on such terms and conditions, as shall
be recommended by Peebler; provided however, that the amount,
price and other terms and conditions shall be consistent with
the terms of any Parent Company stock option plan and grants
made thereunder to executive officers of such Parent Company;
and provided further that such stock options will become 100%
vested and fully exercisable for their term in the event that
the Executive terminates his employment for Good Reason or is
terminated by the Agency without "Cause".
5. The Agency may terminate this Agreement for Cause at
any time upon written notice to the Executive. "Cause", as used herein, is
hereby defined as:
<PAGE>
a. the Executive's conviction in a court of
law of any crime or offense involving misuse or
misappropriation of money or other property of the
Agency, or
b. the Executive's continued, willful
failure or refusal to perform specific written
directives of Peebler (so long as Peebler is employed by
the Agency or Parent Company and otherwise of the Board
of Directors of the Agency or Parent Company), which
directives involve material aspects of the Executive's
duties and responsibilities and which are consistent
with the scope and nature of the Executive's duties and
responsibilities as set forth in paragraph 2 hereof, and
Executive's failure to cure the same within thirty (30)
days Written notice thereof by the Agency (which notice
specifically states it is being given pursuant to this
paragraph 5.b.), and
c. any flagrant act of dishonesty or
disloyalty by the Executive or any act involving gross
moral turpitude of the Executive, in either case which
materially adversely affects the business of the Agency.
6. If, on account of any physical or mental
disability, the Executive shall fail or be unable to perform under this
Agreement for a continuous period of one hundred twenty (120) days or an
aggregate period of one hundred eighty (180) days during any consecutive
twelve (12) month period, then the Agency may, at its option, terminate
the Term upon thirty (30) days written notice. In such event, the
Executive shall be entitled to receive, in addition to any and all
disability and other benefits that he may otherwise be entitled to
receive and all accrued but unpaid amounts hereunder and under all
plans, Policies, options (including, without limitation the options
referred to in paragraph 4f. above) and other agreements, the
compensation otherwise payable to him pursuant to paragraph 4 hereof
through the end of the month ending 36 months after the month in which
such termination is made effective. The option to terminate provided in
this paragraph 6 is separate, distinct and additional to any right on
the part of the Agency to terminate this Agreement pursuant to paragraph
5 hereof. In the event that, subsequent to the termination of this
Agreement by the Executive for Good Reason (as defined below) or by the
Agency without "Cause", during the Post-Term Benefit Period (as defined
below) the Executive's physical or mental condition becomes such that if
this Agreement were then in effect the Executive would be disabled
pursuant to this Agreement, then, in addition to the amounts payable
pursuant to paragraph 8b, the Executive
<PAGE>
shall be entitled to receive the compensation otherwise payable to him
pursuant to paragraph 4 hereof for and through the end of the month
ending 36 months after the month in which such termination is effective
as if he had become disabled during the Term.
If there should be a dispute between the parties hereto
as to the Executive's physical or mental disability for purposes of this
Agreement, the question shall be settled by the opinion of an impartial
reputable physician or psychiatrist agreed upon for the purpose by the
parties or their representatives, or if the parties cannot agree within
thirty (30) days after a request for designation of such party, then
each party shall designate a physician or psychiatrist and the two of
them shall designate a third such medical professional and the opinion
of a majority of the three (3) of them shall settle the question. The
certification of such physician or psychiatrist or the majority of the
three (3) of them, as the case may be, as to the question in dispute
shall be final and binding upon the parties hereto.
7. The Term will terminate in the event that the
Executive should die during the Term. In such event, the Executive's
personal representative shall be entitled to receive and all accrued but
unpaid amounts hereunder and under all other plans, policies, options
(including, without limitation, the options referred to in paragraph 4f.
above) and other agreements, the compensation otherwise payable to the
Executive pursuant to paragraph 4 hereof through the end of the month
ending 36 months after the month in which his death occurs.
8. a. The Executive shall have the right at any time
following the later of the date on which the occurrence of such event
becomes known to the Executive or the expiration of any "cure" period as
provided below (provided that no "cure" period shall apply for any
purpose if the following events occur with the authorization, approval
or direction of the Board of Directors of the Agency or any committee
thereof, or other than on an isolated basis), by giving not less than
ten (10) days prior written notice to the Agency, to terminate his
employment for "Good Reason" which, for purposes of this Agreement, is
hereby defined as the occurrence, without the Executive's consent, of
one or more of the following events, as determined in Executive's
reasonable judgment:
(i) if the Executive is not appointed to or is
otherwise removed from the offices of Vice
<PAGE>
Chairman and/or Chief Financial Officer of the Agency
(other than pursuant to the sixth sentence of paragraph
2 hereof) and/or from any Approved Offices of the Parent
Company (other than of Interpublic, Omnicom Group, Inc.
or WPP (each an "Excluded Parent Company")) for any
reason other than in connection with the termination of
his employment with the Agency or if, after a Change of
Control, the Executive is directed to report directly to
any person or entity other than the Chief Executive
officer of the Parent Company (other than an Excluded
Parent Company);
(ii) if the Executive is not elected to or is
otherwise removed from the Board of Directors of the
Agency and/or the Executive Committee and/or the Finance
Committee thereof or from any positions the Executive
holds at any time with any of the Agency's subsidiaries
(this provision continuing to apply with respect to any
subsidiary of the Agency as of the date of this
Agreement which ceases to be a subsidiary of the Agency
but is a subsidiary of a Parent Company) for any reason
other than in connection with the termination of his
employment or pursuant to the sixth sentence of
paragraph 2 hereof;
(iii) if there is either any material diminution
in the Executive's duties and/or responsibilities with
respect to the Agency and its subsidiaries (this
provision continuing to apply with respect to any
subsidiary of the Agency as of the date of this
Agreement which ceases to be a subsidiary of the Agency
but is a subsidiary of a Parent Company) or assignment
to the Executive of any duties inconsistent in any
material respect from such duties and/or
responsibilities of the Executive as of March 31, 1997,
and the foregoing is not cured within thirty (30) days
after written notice thereof to the Agency (other than
pursuant to the sixth sentence of paragraph 2 hereof),
and/or, in the event the Executive is holding any
Approved Office with any Parent Company other than an
Excluded Parent Company, and any of the following
circumstances occur (the following circumstances being
referred to herein as a "Parent Company Diminution"):
the Executive's duties and/or responsibilities with
respect to the Parent Company and its subsidiaries are
materially diminished from or inconsistent in any
material respect from the Executive's duties and/or
responsibilities with the Parent Company as
<PAGE>
required by the sixth sentence of paragraph 2 hereof,
and the foregoing is not cured within thirty (30) days
after written notice thereof to the Parent Company (it
being understood and agreed that any requirement that
the Executive report directly to any person or entity
other than the Chief Executive officer of the Parent
Company shall, under all circumstances, constitute
grounds for termination for Good Reason under clause (i)
of this paragraph 8a and are not subject to this clause
(iii));
(iv) if the Executive's rate of Salary (as in
effect from time to time) and/or fringe benefits payable
under paragraph 4 hereof are reduced or, in the case of
fringe benefits, are materially reduced, for any reason
other than in connection with the termination of his
employment and the foregoing is not cured within thirty
(30) days after written notice thereof to the Agency;
(v) notice that the Executive shall be located
at offices other than pursuant to paragraph 2 hereof, or
the assignment of duties requiring Executive to travel
for business on a meaningfully more burdensome basis
generally than on the date of this Agreement;
(vi) the commission by the Agency of a material
breach of any of its obligations under this Agreement
(other than any breaches referred to in clauses (i) -
(v) of this paragraph 8a), the Bonus Plan as it pertains
to the Executive or any of the Executive's Stock Option
Agreements which breach shall continue for thirty (30)
days after written notice thereof to the Agency; or
(vii) any assignment or purported assignment,
whether by operation of law or otherwise, in
contravention of paragraph 15 hereof, or if the assignee
and its Parent Company do not deliver to the Executive,
prior to such assignment, an instrument assuming all
Agency obligations hereunder.
Notwithstanding anything in this paragraph 8a to the
contrary, in the event that the Executive shall claim that he is
entitled to terminate his employment for "Good Reason" as a result of a
Parent Company Diminution (but not for any other basis for Good Reason,
including, without limitation, pursuant to clause (i) hereof) and within
ten (10) days after receiving notice to such effect by the
<PAGE>
Executive, the Parent Company shall give notice to the Executive that
the Parent Company, by its Chief Executive Officer, Board of Directors
or any authorized committee thereof, believes that the specific facts do
not constitute a basis for a Parent Company Diminution, then the
determination as to whether or not a Parent Company Diminution has
occurred shall be determined by arbitration in accordance with paragraph
9 hereof.
b. in the event that the Agency terminates the
Executive's employment with the Agency without Cause (which specifically
includes, without limitation, any termination by the Agency pursuant to
paragraph 3 hereof) or the Executive terminates his employment with the
Agency for Good Reason, the Executive shall be under absolutely no duty
whatsoever to mitigate damages and, in addition to all accrued but
unpaid amounts hereunder and under all plans, policies, options
(including, without limitation, the options referred to in paragraph 4f.
above) and other agreements and a pro rata bonus for the year in which
such termination takes place based on the bonus earned by the Executive
for the then immediately preceding fiscal year, the Executive shall be
entitled to receive and there shall be paid by the Agency to the
Executive within ten (10) days after such termination of employment, a
lump sum cash payment in an amount equal to the product of (x) $668,385
times (y) the number of years or fractions thereof in the following
period (such period being referred to as the "Post-Term Benefit Period")
(A) in the event such termination is effective on or prior to March 31,
1998, for a period from the effective date of such termination through
March 31, 2001 or (B) in the event such termination is effective after
March 31, 1998, for a three-year period commencing on the effective date
of such termination of employment.
In addition, throughout the Post-Term Benefit Period the
Agency shall provide coverage under all dental, medical, life, accident
and all other insurance and welfare plan benefits for Executive and his
family (on the terms required to be provided to Executive pursuant to
this Agreement immediately prior to such termination) at Agency expense,
or if coverage under any given insurance or welfare plan on such terms
cannot be provided to Executive and his family, payments to Executives
which, on an after tax basis, equal to the amounts which would be
necessary to be paid by Executive to obtain such comparable coverage for
Executive and his family, for the Post-Term Benefit period.
No compensation or any other amounts or benefits
received by Executive shall be applied in mitigation of amounts
otherwise then or thereafter payable to the
<PAGE>
Executive pursuant to this paragraph 8 (b) or otherwise. Nothing
contained in this Agreement shall be deemed to limit Executive's rights
under any retiree benefit or other plan, agreement or arrangement.
9. a. Notwithstanding anything in this Agreement to
the contrary, (i) if it shall be determined that any payment or
distribution by the Agency to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to
any adjustment required under this Section 9) (in the aggregate, the
"Total Payment") would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended, or any successor
(the "Code") (the "Excise Tax"), and (ii) if after reduction by the
amount of such Excise Tax the amount of the Total Payments would be less
than the maximum amount that could be paid to the Executive without the
imposition of such Excise Tax, then the payments due hereunder shall be
reduced so that the Total Payments are One Dollar ($l) less than such
maximum amount.
b. All determinations required to be made under
Sections 9a. and b., including whether and when a reduction in the
amount payable hereunder pursuant to Section 9(a) is required and the
amount of any such reduction and the assumptions to be utilized in
arriving at such determination, shall be made by the Agency's public
accounting firm (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Agency and the Executive within 15
business days of the receipt of notice from the Executive that there has
been a payment under Section 8, or such earlier time as is requested by
the Agency or the Executive. In the event that the Accounting Firm is
serving as accountant or auditor for the individual entity or group
effecting the Change in Control, the Executive, at his election, may
appoint another nationally recognized public accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Agency. If the
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executivels applicable federal
income tax return would not result in the imposition of a negligence or
similar penalty. Any determination by the Accounting Firm shall be
binding upon the Agency and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is
possible that the reduction
<PAGE>
in the amount payable hereunder pursuant to Section 8 will not have been
made consistent with the calculations required to be made hereunder. In
the event that the Accounting Firm determines that the reduction was too
small, upon receipt of notice from the Accounting Firm to such effect,
the Executive shall promptly pay to the Agency the amount of the
required reduction. Conversely, in the event that the Accounting Firm
determines that the reduction was too great, upon receipt from the
Accounting Firm to such effect, the Agency shall promptly pay to the
Executive the amount determined by the Accounting Firm to have been an
excess reduction.
c. If any contest or dispute shall arise under this
Agreement involving termination of the Executivels employment with the
Agency or involving the failure or refusal of the Agency to perform
fully in accordance with the terms of this Agreement, including any
arbitration under paragraph 9f, the Agency shall reimburse the
Executive, on a current basis, for all legal fees and expenses, if any,
incurred by the Executive in connection with such contest or dispute,
together with interest in an amount equal to the prime rate of Citibank,
N.A. from time to time in effect, but in no event higher than the
maximum legal rate permissible under applicable law, such interest to
accrue from the date the Agency receives the Executivels statement for
such fees and expenses through the date of payment thereof, provided
however, that in the event the resolution of any such contest or dispute
includes a finding denying, in total, the Executive's claims in such
contest or dispute, the Executive shall be required to reimburse the
Agency, over a period of 12 months from the date of such resolution, for
all sums advanced to the Participant pursuant to this Section 9(c).
d. The Agency's obligation to make any payments
provided for this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Agency or
any of its affiliates may have against the Executive or others.
e. If there shall be any dispute between the Agency
or any of its affiliates and the Executive in the event of any
termination of the Executive's employment, then unless and until there
is a final, nonappealable judgment by a court of competent jurisdiction
declaring that such termination was for Cause, that, except as set forth
in paragraph 9f, the determination by the Executive of the existence of
a termination for Good Reason was not reasonable, or that the Agency or
any of its affiliates is not otherwise obligated to pay any amount or
provide any
<PAGE>
benefit to the Executive and his dependents or other beneficiaries, as
the case may be, under Section 8, the Agency shall pay all amounts, and
provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Agency would be required to
pay or provide pursuant to Section 8 as though such termination were by
the Agency without Cause or by the Executive for Good Reason.
f. In the event of a disagreement in accordance
with the last paragraph of paragraph 8a as to whether or not a Parent
Company Diminution has occurred, such matter shall be determined by
expedited arbitration under the auspices of the American Arbitration
Association ("AAA") - Such arbitration shall be governed by the then
current rules of the AAA. In this regard, the parties agree that (i)
such arbitration shall commence as promptly as possible after the 20th
day following service of the notice by the Parent Company pursuant to
the last paragraph of paragraph 8a, (ii) the proceeding shall be
determined by one arbitrator (who shall be selected or approved by the
AAA), (iii) the arbitrator shall have authority to determine only the
issue of whether or not a Parent Company Diminution (as defined in this
Agreement) has occurred, and shall have no authority to order a
modification or amendment of this Agreement, and (iv) the decision of
the arbitrator shall be final and binding upon the parties thereto.
Until the ruling of such arbitrator, the Executive shall continue to be
employed pursuant to the terms and conditions of this Agreement,
including the payment to the Executive of all compensation under
paragraph 4 as and when due. In the event that in any circumstance the
arbitrator shall rule that a Parent Company Diminution has not occurred,
neither Executive's having given notice of termination for Good Reason
with respect thereto nor such ruling shall constitute a termination of
employment or breach of this Agreement by the Executive and this
Agreement shall continue in full force and effect in accordance with its
terms.
10. At all times during the Term and the Post-Term Benefit
Period the Agency shall maintain and pay on a timely basis the premiums
for an insurance policy on the life of the Executive with the named
beneficiary being the Executivels spouse or such other person or party
as the Executive may designate from time to time (the "Policy"). The
Policy shall be in the face amount of at least $900,000, shall be issued
through an insurance carrier having a rating of at least AA and the
Policy may not be cashed in and no borrowing against the Policy or
alienation thereof shall be permitted.
<PAGE>
11. In consideration of the Executive's employment and
continued employment by the Agency, the Executive agrees that while in
the employ of the Agency and for a period of one (1) year subsequent to
the termination of his employment, whether such termination occurs prior
to, simultaneously with or after the expiration of the Term, (the period
from the commencement of employment through the one (1) year period
subsequent to termination of employment being the "Non Competition
Period") the Executive will not, directly or indirectly, either on his
own behalf or on behalf of any other person, firm or corporation,
solicit any account which is a client of the Agency at any time within
one year prior to the date of such termination.
The Executive further covenants and agrees that during the
Non Competition Period he will not, directly or indirectly, perform any
advertising, public relations, marketing or research services for any
such account, either on his own behalf or on behalf of any advertising
agency, public relations consultant, or similar organization
representing any such account.
The Executive further covenants and agrees that within the
Non Competition Period he will not, directly or indirectly, employ or
attempt to employ or assist anyone else to employ any person who is at
such time or who was at any time within the six (6) month period
immediately prior to such time, in the employ of the Agency.
Accounts which are or were clients of the Agency, as used
herein, are hereby defined as advertising or public relations accounts
which are principally represented by the office of the Agency at which
the Executive is principally employed.
The Executive also agrees that he will not at any time
(whether before or after the termination of his employment with the
Agency) disclose to anyone any confidential information or trade secrets
of the Agency or of any client of the Agency, or utilize such
confidential information or trade secrets for his own benefit or the
benefit of third parties. All records, memoranda, notes and other
documents compiled by him or made available to him during his employment
concerning the business of the Agency or the business of any of its
clients shall be and remain the property of the Agency, and shall be
delivered to the Agency upon the termination of the Executive's
employment or any time prior thereto upon request.
In the event of any breach by the Executive of any of the
covenants hereinabove contained, it is specifically understood and
agreed that the Agency shall be entitled, in
<PAGE>
addition to any other remedies which it may have, to equitable relief by
way of injunction or otherwise.
12. a. The Agency agrees that, in addition to any rights that
the Executive may have under the certificate of incorporation and
by-laws of the Agency as the same may be in effect from time to time
hereafter as to indemnification and advancement of expenses, the
Executive shall hereby, as a matter of separate contract, be entitled
and continue to be entitled to all rights of indemnification and
advancement of expenses provided to directors, officers, employees or
agents of the Agency or who serve or served at the request of the Agency
in any capacity with any other corporation or other enterprise, under
the certificates or articles of incorporation and by-laws of the Agency
and such other companies as in effect on the date hereof (the provisions
of which are incorporated herein by reference), regardless of any
amendments thereto which thereafter occur, which rights the Agency
expressly agree shall apply to the Executive as a director, officer,
employee and agent of the Agency, and which rights shall continue
indefinitely in the Executive's favor as to any actions, suits, claims
or proceedings now pending or threatened and as to any actions, suits,
claims or proceedings which may hereafter be brought or threatened.
b. The Agency agrees to include the Executive as an
insured beneficiary of, and to furnish the Executive with coverage
under, any and all director and officer liability insurance policies now
or hereafter maintained by the Agency or its affiliates to the same
extent other current and/or former officers and directors of the Agency
are provided coverage thereunder. Such coverage shall be furnished to
the Executive until the expiration of the statutes of limitations
applicable to the liabilities for which indemnification is provided
herein. The Agency agrees to furnish the Executive with evidence of such
coverage upon the Executive's written request.
13. This Agreement constitutes the complete understanding
between the parties with respect to the employment of the Executives
hereunder, and no statement, representation, warranty or covenant has
been made by either party with respect thereto except as expressly set
forth herein. This Agreement may not be altered, modified, amended or
terminated except by written instrument signed by each of the parties
hereto.
<PAGE>
14. If any covenant or other provision of this Agreement is
declared to be invalid, unlawful, or incapable of being enforced, by
reason of any rule of law or public policy, all other conditions and
provisions of this Agreement which can be given effect without the
valid, unlawful or unenforceable provision, shall be given effect.
15. The obligations and rights of the Executive shall inure to
the benefit of and shall be binding upon himself and his personal
representatives, and the obligations and rights of the Agency shall
inure to the benefit of and shall be binding upon it and its successors
and assigns; provided, however, that the Company shall not assign this
Agreement other than to a successor pursuant to a merger, consolidation
or transfer of all or substantially all of the outstanding capital stock
or assets of the Agency.
16. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first set forth above.
BOZELL, JACOBS, KENYON &
ECKHARDT, INC.
By: /s/ Charles D. Peebler, Jr.
----------------------------
Charles D. Peebler, Jr.,
Chief Executive Officer
and President
ACCEPTED AND AGREED
/s/ Valentine J. Zammit
- ------------------------------
Valentine J. Zammit
<PAGE>
Exhibit 10.15
AGREEMENT made as of the 30th day of March, 1992, between BOZELL,
JACOBS, KENYON & ECKHARDT, INC., a Delaware corporation with principal offices
at 40 West 23rd St., New York, New York 10010 (hereinafter referred to as the
"Corporation"), and LEO-ARTHUR KELMENSON, residing at Cedar Lane, Remsenburg,
Long Island, New York (hereinafter referred to as "Kelmenson").
WHEREAS, Kelmenson is currently employed by the Corporation pursuant
to an Agreement dated August, 1983 between K & E HOLDINGS INC. (a corporation
subsequently merged into the Corporation and thus assumed by the Corporation),
an initial Amendment Agreement dated as of January 2, 1986 and a second
Amendment Agreement dated February 8, 1988 (the original Employment Agreement,
together with the first and second Amendments thereto being hereinafter
collectively referred to as the "Employment Agreement"), and
WHEREAS, the Corporation and Kelmenson desire to restate the terms of
their future relationship, and
<PAGE>
WHEREAS, the Corporation hereby agrees to continue to employ
Kelmenson, and Kelmenson hereby agrees to continue to serve the Corporation upon
the terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties hereby agree as follows:
1. Employment.
----------
The Corporation shall employ, or cause one or more of its subsidiary
companies to employ, Kelmenson, and Kelmenson shall serve the Corporation and
such of the Corporation's subsidiary companies as may be designated by the
Corporation, upon the terms and conditions hereinafter set forth.
2. Term of Service.
---------------
2.1 Full Time Employment.
--------------------
The Agency shall employ Kelmenson for a period (hereinafter referred
to as the "Period of Full Time Employment" beginning on the date hereof and
ending on December 31, 1993 or at such other date as the parties hereto may
mutually agree upon.
2
<PAGE>
2.2 Consulting Period.
-----------------
Upon the expiration or termination of the Period of Full Time
Employment of Kelmenson pursuant to this Agreement, unless such employment shall
have been terminated for cause pursuant to Paragraph 10.1 hereof, the Agency
shall retain Kelmenson as a consultant for a period of seven (7) years
commencing on the date of such expiration or termination (hereinafter referred
to as the "Consulting Period").
2.3 Option to Extend Term.
---------------------
Kelmenson shall have the option (the "Option"), exercisable at any
time on or before June 30, 1993, to extend the Term through December 31, 1995
(the "Extended Employment Period"), with his Consulting Period to commence,
again subject to termination for cause, on January 1, 1996 but extend only for a
period of five (5) years thereafter. The Option shall be exercised in writing
delivered to the Chief Executive Officer of the Agency by certified or
registered mail, return receipt requested.
3
<PAGE>
3. Duties and Extent of Services.
-----------------------------
3.1 Duties and Extent of Services during Period of Full Time
--------------------------------------------------------
Employment.
----------
(a) During the Period of Full Time Employment, Kelmenson shall serve
as Chairman of the Executive Committee of the Corporation and such of the
Corporation's subsidiary companies as may be designated by the Board of
Directors of the Corporation, under the direction and supervision of the Board
of Directors of the Corporation, and shall perform, from time to time, such
other services, advisory or otherwise, and the Board of Directors of the
Corporation shall reasonably request, without further compensation other than
that for which provision is made in this Agreement. The principal place of
business of Kelmenson shall be the New York metropolitan area. Kelmenson shall
also serve during the Period of Full Time Employment as Chairman of the
International Division of the Corporation, and, subject to his election
to the Board of Directors of Bozell Mexico, as hereinafter referred to in
Paragraph 3.1(c), the Corporation will use its best efforts to arrange for his
election as Chairman of Bozell Mexico.
(b) During the Period of Full Time Employment, Kelmenson (i)
shall devote such attention and energy to the performance of his duties
hereunder and to promoting
4
<PAGE>
and furthering the interests of the Corporation as may reasonably be required;
and (ii) shall not, without the express consent of the Board of Directors of the
Corporation, become directly or indirectly associated with or engaged in
any other business, including without limiting the generality of the foregoing,
any advertising, marketing, public relations or promotional business other than
that of the Corporation, or a subsidiary company of the Corporation, and he
shall do nothing inconsistent with his duties to the Corporation except that he
may engage in business activities in connection with the investment of his
personal assets and such other minimal business activities which shall not
interfere or conflict with the performance by Kelmenson of his duties and
obligations under this Agreement. Nothing contained herein shall be deemed
to prohibit or restrict Kelmenson from owning shares or otherwise investing
in any advertising, marketing, public relations or promotional company whose
securities are listed on a national securities exchange or actively traded in
the over-the-counter market so long as Kelmenson's holdings do not exceed more
than 1% of the issued and outstanding securities of such company.
5
<PAGE>
(c) During the Period of Full Time Employ Employment:
(i) Kelmenson shall be elected as a member of the Board of
Directors of the Corporation and of any committees thereof of which he is
currently a member;
(ii) Kelmenson shall serve as Chairman of the International
Division of the Corporation;
(iii) the Corporation shall use its best efforts to arrange for
the election of Kelmenson to the Board of Directors of Bozell Mexico, a
Mexican corporation in which the Corporation owns a minority interest; and
(iv) Kelmenson shall be provided with an office and staff
consistent with his stature and responsibilities under this Agreement.
3.2 Duties and Extent of Service During Consulting Period.
-----------------------------------------------------
(a) Upon commencement of the Consulting Period, Kelmenson shall cease
to be a salaried employee of the Corporation and its subsidiary companies,
parents or affiliates, shall cease to be eligible to participate in the
6
<PAGE>
Corporation's employee benefit plans and shall resign as an officer and director
of the Corporation and of each of its subsidiary companies, parents or
affiliates.
(b) During the Consulting Period, Kelmenson shall furnish consulting
and advisory services to the Corporation and/or its subsidiary companies with
respect to the operation of the Corporation's advertising business and the
maintenance of harmonious relations between the Corporation and those clients of
the Corporation and/or its subsidiary companies, as may be designated by the
Board of Directors of the Corporation. Without limiting the generality of the
foregoing, Kelmenson shall (i) cooperate fully with the Chief Executive Officer
of the Corporation and the other senior executive officers of the Corporation
and its subsidiary companies, (ii) provide such assistance and information as
may be reasonably requested by the Board of Directors and officers of the
Corporation, and (iii) be available, by telephone or in person, at such times
and places as may be reasonably requested by the Company and as may be mutually
convenient to the Corporation and Kelmenson. During the Consulting Period,
(i) Kelmenson shall not be required to devote more than an average of 6 hours
per week to such consulting and advisory services and (ii) Kelmenson's
consulting and advisory services shall be subject to Kelmen-
7
<PAGE>
son's reasonable business and professional commitments and vacations.
(c) Kelmenson may, during the Consulting Period, engage or participate
in, or become employed by, or render advisory or other services in connection
with, any and all other business activities which are not inconsistent with or
otherwise in breach of Kelmenson's duties and obligations to the Corporation
under Paragraph 13 hereof.
4. Compensation.
------------
4.1 Base Compensation During the Period of Full Time Employment.
-----------------------------------------------------------
(a) As full compensation for the services to be rendered by Kelmenson
during the Period of Full Time Employment hereunder, the Corporation shall pay
to Kelmenson as base compensation (hereinafter referred to as the "Base
Compensation") the greater of the following:
(i) commencing with the annual period beginning January 1,
1991, the annual sum of $734,492 (adjusted as hereinafter provided), and
(ii) Seven Hundred Fifty Eight Thousand Eight Hundred and
Ninety Dollars ($758,890) per annum.
8
<PAGE>
Such Base Compensation shall be paid to Kelmenson in the same periodic
installments as the salaries of other senior executives of the Corporation or in
such other manner an the parties hereto mutually may agree upon.
(b) On January 1, 1992 and on each January 1 thereafter during the
Term (the "Adjustment Date"), Kelmanson's compensation provided in Paragraph
4.1(a)(i) above shall be adjusted upward based upon the Consumer Price Index for
all Urban Consumer/United States City Average, as published by the Bureau of
Labor Statistics of the United States Department of Labor (the "CPI"). Such
compensation for the twelve (12) months beginning on each Adjustment Date
pursuant to Paragraph 4.1(a)(i) above shall be equal to the greater of (i)
$734,492, or (ii) $734,492, multiplied by a fraction, the numerator of which
shall be the CPI published most recently prior to the Adjustment Date and the
denominator of which shall be the CPI published most recently prior to January
1, 1991. In no event however, shall the salary for any twelve month period
exceed 106% of the salary payable in the previous twelve month period.
4.2 Consulting Fees During The Consulting Period.
--------------------------------------------
During the Consulting Period, the Corporation shall pay to Kelmenson
consulting fees, payable in monthly installments or in such other manner as the
parties hereto mutually may agree upon, at a rate per annum equal to the sum of
(a) 50% of the Base Compensation in effect at the
9
<PAGE>
time of termination of the Period of Full Time Employment, plus (b) Thirty Five
Thousand Dollars ($35,000). In the event that Kelmenson exercises the Option
referred to in Paragraph 2.3 hereof, there shall be determined the amount of
Consulting Fees which would have been payable to Kelmenson over the seven
(7) year Consulting Period, had the Option not been exercised, which amount
shall be paid to Kelmenson in equal installments throughout the five (5) year
Consulting Period in effect as a result of the exercise of the Option.
5. Bonus Arrangements.
------------------
The Corporation shall pay Kelmenson a bonus (the "Bonus") of Three
Hundred Fifty Thousand Dollars ($350,000) on December 31, 1993. In the event of
the termination of Kelmenson's employment for any reason, including, without
limitation, Kelmenson's death, prior to December 31, 1993, the Bonus shall
nevertheless be payable on such date. In the event of Kelmenson's death prior
thereto, the Bonus shall be payable to such person or persons as may be
designated by Kelmenson in writing delivered to the Corporation, and in the
absence of such written designation, to Kelmenson's estate.
10
<PAGE>
6. Discretionary Issuance of Additional Stock.
------------------------------------------
The Corporation may consider, at the sole discretion of the Chief
Executive Officer of the Corporation, and subject to the availability of shares
of Stock and subject also to the limitations on the Corporation's right and
ability to issue additional shares, offering to Kelmenson not more than 250,000
shares of the Class B Common Stock of the Corporation, in addition to the shares
of the Class B Common Stock currently owned by Kelmenson, subject to Kelmenson's
execution of the Corporation's standard Subscription Agreement providing for
such purchase.
7. Other Benefits.
--------------
7.1 Employee Benefit Plans.
----------------------
The Corporation shall maintain in full force and effect all of its
employee benefit plans and arrange ments in affect on the date hereof (including
the split-dollar insurance policy, the life insurance policies pursuant to
Paragraph 12.1 hereof and all other insurance policies from which Kelmenson
currently benefits), or plans or arrangements providing Kelmenson with at least
equivalent benefits thereunder, and shall not make any changes in such plans or
arrangements which would adversely affect Kelmenson's rights or benefits
thereunder. Kelmenson shall be entitled to participate in, or receive benefits
under, any
11
<PAGE>
generally available pension plan, profit-sharing plan, health-and-accident plan,
or any other employee benefit plan or arrangement made available by the
Corporation or Kenyon & Eckhardt, Incorporated in the future to the extent that
Kelmenson qualifies under the provisions of any such plan, and nothing paid to
Kelmenson under any such plan or arrangement (or under any presently in effect,
other than under any bonus plan referred to in Paragraph 5 hereof) shall be
deemed or treated as a payment to Kelmenson hereunder.
7.2 Travel With Spouse.
------------------
It is understood that it will be necessary for business purposes for
Mrs. Kelmenson to accompany Kelmenson on various business trips from time to
time and, whenever Kelmenson in the exercise of his reasonable judgment
determines that the presence of Mrs. Kelmenson on any business trip will serve
the Corporation's best interests, the Corporation will pay for all reasonable
travel expenses incurred by Mrs. Kelmenson on such business trip.
7.3 Type of Air Travel.
------------------
It is acknowledged that the Corporation policy requires all employees,
including senior executives, to travel in Economy Class on domestic flights and
in Business Class on International flights. However, from time to
12
<PAGE>
time Kelmenson may fly First Class on either a domestic or an international
flight whenever Kelmenson, in the exercise of his reasonable judgment,
determines that it is in the best interests of the Corporation for him to do so,
as for example, and without limitation, when traveling with a client or with
talent appearing in a commercial produced by the Corporation.
7.4 Review By Chief Financial Officer.
---------------------------------
It is understood and agreed that the Chief Financial Officer of the
Corporation may from time to time review determinations made by Kelmenson with
regard to travel arrangements as provided in Paragraphs 7.2 and 7.3 hereof. If
in the reasonable determination of such officer any of such travel arrangements
were not in the best interests of the Corporation, Kelmenson agrees to conform
to such determination with regard to future travel arrangements, without any
adjustment of the costs of travel arrangements previously incurred.
7.5 Medical Expenses.
----------------
Kelmenson shall be reimbursed by the Company for medical expenses
incurred by Kelmenson (or by members of his immediate family), which medical
expenses are not subject to reimbursement under the Company's Medical
Reimbursement Plan, up to a maximum of twelve thousand dollars
13
<PAGE>
($12,000.00) per annum; provided, however, that the Company reserves the right
to cancel and revoke prospectively the supplemental medical reimbursement
prescribed herein in the event that the Internal Revenue Service determines that
the payment thereof shall not be considered an expense deductible by the
Company for federal income tax purposes.
7.6 Benefit Plan Differential.
-------------------------
Kelmenson shall be entitled to participate ratably with other senior
officers in all contributions during each annual period to the present Profit
Sharing Plan and any employee stock ownership or other qualified plan of BJK&E
or any qualified plan adopted by the Company subsequent hereto.
At the end of each of the Company's fiscal years within the Term,
there shall be determined the aggregate amount of the annual addition
attributable to employer contributions and forfeitures within the meaning of
Section 415(c)(2)(A) and (C) of the Internal Revenue Code of 1986 (the "Code")
to Kelmenson's account for the plan year corresponding with such fiscal year
under any of BJK&E's qualified defined contribution plans under Section 401 of
the Code (the "Annual Addition"). Kelmenson shall be paid promptly a bonus in
cash equal to the difference, if any, between:
14
<PAGE>
(i) $30,000 (or such greater or lesser amount that is the
maximum annual addition for such year under Section 415(c)(1)(A) of
the Code), and
(ii) the Annual Addition to the Executive's accounts for
such year.
7.7 Other Expenses.
--------------
(a) The Corporation will pay to Kelmenson, upon the execution of
this Agreement and in a single lump-sum payment, the sum of Twenty Thousand
Dollars ($20,000) to compensate Kelmenson for legal fees incurred to date by him
in connection with the negotiation of this Employment Agreement and prior
Employment Agreements.
(b) The Corporation will pay to Kelmenson, upon the execution of
this Agreement and in a single lump-sum payment, the sum of Twelve Thousand
Dollars ($12,000) to compensate Kelmenson for accounting fees incurred by him in
connection with the preparation of prior personal income tax returns. In
addition, the Corporation agrees to provide the services of the firm of
certified public accountants generally retained by it (currently Peat Marwick
Main & Co.) in connection with the preparation of Kelmenson's personal annual
federal, state and local income tax returns if Kel-
15
<PAGE>
menson so elects to utilize such firm, without cost to Kelmenson.
7.8 Additional Possible Death Benefit.
---------------------------------
In the event of Kelmenson's death at any time from and after the
date of the execution of this Agreement through the Period of Full Time
Employment, the Agency will pay to Kelmenson, for a period of twenty-nine (29)
months beginning six (6) months after the date of Kelmenson's death, the
Consulting Fees which would have been paid to Kelmenson within such twenty-nine
(29) month period had he survived, computed as if retirement had occurred on the
date of Kelmenson's death. In addition, in the event of Kelmenson's death
within the twenty-nine (29) month period beginning on the commencement of the
Consulting Period, the Agency will pay, throughout the remainder of such twenty-
nine (29) month period, the Consulting Fees which would have been payable to
Kelmenson within such remaining period had he survived.
All payments hereunder will be made to Kelmenson's estate or to
such persons or person as Kelmenson may specifically designate in writing
delivered to the Agency.
16
<PAGE>
8. Expenses.
--------
8.1 General.
-------
It is contemplated that, in connection with his employment
hereunder during the Period of Full Time Employment and during the Consulting
Period, Kelmenson may be required to incur reasonable business, entertainment
and travel expenses. The Corporation shall advance funds to Kelmenson or
reimburse Kelmenson in full, for all reasonable business, entertainment and
other related expenses, including, without limitation, travel expenses,
incurred or expended by him incident to the performance of his duties
hereunder, upon submission by Kelmenson to the Corporation of vouchers or
expense statements reasonably satisfactory to the Corporation evidencing such
expenses. Specifically included, again without limitation, among the expenses
reimbursable pursuant to this Paragraph 8.1 are expenses incurred by Kelmenson
for special staff food and drink for entertainment or meetings at any residence
of Kelmenson in furtherance of the Corporation's business activities. In the
event, however, that the Corporation utilizes Kelmenson's residence in
Remsenburg, N. Y. on a daily basis for purposes of client entertainment or
company business, the Corporation will pay to Kelmenson, in addition to
reimbursement for food and drink as hereinabove provided, the sum of
17
<PAGE>
One Thousand Five Hundred Dollars ($1,500) per day for each such day of use.
8.2 Automobiles.
-----------
In connection with his services hereunder, the Corporation shall
provide Kelmenson during the Period of Full Time Employment two automobiles
similar in make to those in use by Kelmenson on the date hereof or exclusive use
by Kelmenson and shall employ, or reimburse Kelmenson for the cost of a driver
reasonably selected by Kelmenson for such automobiles.
9. Vacations.
---------
During the Period of Full Time Employment under this Agreement,
Kelmenson shall be entitled to actual vacations (taken consecutively or in
segments) the length of which shall be determined consistent with the effective
discharge of Kelmenson's duties hereunder and the past customs and practices of
the Corporation up to a maximum of 25 days per annum.
10. Termination.
-----------
10.1 Termination by Corporation for Cause.
-------------------------------------
Kelmenson's employment hereunder during the Period of Full Time
Employment may be terminated by the
18
<PAGE>
Corporation for cause only by reason of one or more of the following
occurrences: (i) Kelmenson shall have been guilty of wilful and material breach
of this Agreement or habitual neglect of duty in the course of his employment,
which breach or neglect is unrelated to any illness or other disability, and of
which breach or neglect he shall have been previously advised, except in the
case of any act or omission which would be criminal and the Board of Directors
has made a determination to that effect, or (ii) the engaging by Kelmenson in
any competitive act or the willful making by Kelmenson of any unauthorized
disclosure.
Termination for cause shall not have occurred because of any act
or omission by Kelmenson believed by Kelmenson in good faith not to be adverse
to the bent inter est of the Corporation without his intention of gaining from
such act or omission, directly or indirectly, any profit or benefit to which he
was not legally entitled. In the event that the employment of Kelmenson either
during the Period of Full Time Employment or during the Consulting Period should
be terminated by the Corporation for cause in accordance with this Paragraph
9.1, the Corporation shall have no further obligations under this Agreement.
19
<PAGE>
10.2 Disability.
----------
(a) If Kelmenson should be incapacitated by reason of mental or
Physical disability during the period of full time of employment so that he is
prevented from performing the services required of him in accordance with his
obligations under Paragraph 3.1 of this Agreement, and such incapacity continues
for a period of 180 consecutive days, or for shorter periods aggregating 180
days during any period of 365 consecutive days, the Corporation may, upon
written notice to Kelmenson, terminate the full time employment of Kelmenson
hereunder. Upon such termination, Kelmenson shall become a consultant to the
Corporation in accordance with this Agreement and shall be entitled to the
compensation provided for in Paragraph 4 hereof.
(b) If, during the Consulting Period, Kelmenson should be
incapacitated by reason of any mental or physical disability occurring in or
continuing into the Consulting Period so that he is prevented from performing
the services required of him pursuant to Paragraph 3.2 hereof, Kelmenson shall
continue to be paid the compensation provided for in Paragraph 4 hereof;
provided, however, that in the event Kelmenson shall fully recover from such
incapacity, Kelmenson shall render such services to the Corporation during any
balance of the Consulting Period.
20
<PAGE>
Reference is made to that certain Employment Agreement dated as of March
30, 1992 between Bozell, Jacobs, Kenyon & Eckhardt, Inc. and Leo-Arthur
Kelmenson ("Employment Agreement").
It is understood and agreed that the reference to "Chairman of the
Executive Committee" in the second and third lines of Paragraph 3.1(a) and in
the fourth and fifth lines of Paragraph 10.3 of the Employment Agreement shall
be changed to "Chairman of the Board of Directors".
Except as is referred to herein, all the terms and provisions of the
Employment Agreement shall remain unamended and in full force and effect as of
the date hereof.
DATED: July 13, 1992
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
By: /s/ Valentine J. Zammit
--------------------------------------
Valentine J. Zammit
/s/ Leo-Arthur Kelmenson
--------------------------------------
Leo-Arthur Kelmenson
<PAGE>
FIRST AMENDMENT, made as of the 30th day of June, 1993, to the Employment
Agreement between Bozell, Jacobs, Kenyon and Eckhardt Inc, a Delaware
corporation with its principal offices at 40 West 23rd Street, New York, New
York (hereinafter the "Corporation"), and Leo-Arthur Kelmenson residing at Cedar
Lane, Remsenburg, New York (hereinafter "Kelmenson").
WHEREAS, Kelmenson is currently employed by the Corporation pursuant to an
employment agreement dated as of March 30, 1992 (the "Employment Agreement"),
pursuant to which Kelmenson, at Paragraph 2.3 thereof, was granted an option to
extend the term of the agreement from June 30, 1993 through December 21, 1995,
and
WHEREAS, Kelmenson has duly executed such option, and
WHEREAS, the parties desire to grant to Kelmenson an additional option to
extend the term for an additional one year through December 31, 1996,
NOW THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the parties hereby agree as follows:
<PAGE>
1. Kelmenson is hereby given and granted the right and option (the
"Second Option"), exercisable at any time before June 30, 1995, to extend the
Period of Full Time Employment, as defined in Paragraph 2.1 of the Employment
Agreement, for a period of one additional year through December 31, 1996.
2. In the event of the exercise of the Second Option, the Consulting
Period, as defined in Paragraph 2.2 of the Employment Agreement, shall, unless
Kelmenson's employment shall have been terminated for cause pursuant to
Paragraph 10.1 of the Employment Agreement, commence on January 1, 1997 and
shall extend for a period of four years thereafter. The amount of Consulting
Fees payable throughout the said four year Consulting Period shall be the total
amount of Consulting Fees payable throughout the five year Consulting Period
referred to in Paragraph 4.2 of the Employment Agreement. The Consulting Fees
shall be paid to Kelmenson in equal installments throughout the said four year
period.
3. The Second Option shall be exercised in writing delivered to the Chief
Executive Officer of the Agency by certified or registered mail, return receipt
requested.
2
<PAGE>
4. As thus amended, all of the terms and conditions of the Employment
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date and year first above written.
BOZELL, JACOBS, KENYON
& ECKHARDT, INC.
By: /s/ Valentine J. Zammit
----------------------------
Valentine J. Zammit
/s/ Leo-Arthur Kelmenson
----------------------------
Leo-Arthur Kelmenson
3
<PAGE>
SECOND AMENDMENT, entered into this 3rd day of February, 1995, to the
Employment Agreement between Bozell, Jacobs, Kenyon and Eckhardt, Inc., a
Delaware corporation with its principal offices at 40 West 23rd Street, New
York, New York (hereinafter the "Corporation"), and Leo-Arthur Kelmenson
residing at Cedar Lane, Remsenburg, New York (hereinafter "Kelmenson").
WHEREAS, Kelmenson is currently employed by the Corporation pursuant
to an employment agreement dated as of March 30, 1992 (the "Employment
Agreement"), pursuant to which Kelmenson, at Paragraph 2.3 thereof, was granted
an option to extend the term of the agreement from June 30, 1993 through
December 31, 1995, which option Kelmenson has duly exercised, and
WHEREAS, Kelmenson was granted an additional option to extend the term
of the Employment Agreement for an additional one year period through December
31, 1996 pursuant to a first amendment to the Employment Agreement dated as of
June 30, 1993 (the "First Amendment"), and
WHEREAS, the parties wish to further amend the Employment Agreement
and First Amendment on the terms and conditions set forth herein (all terms not
otherwise defined
<PAGE>
herein shall be used as defined in the Employment Agreement and First
Amendment),
NOW, THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the parties hereby agree as follows:
1. The Second Option, as defined in Paragraph 1 of the First
Amendment, if exercised by Kelmenson pursuant to the provisions thereof, shall
extend the Period of Full Time Employment, as defined in Paragraph 2.1 of the
Employment Agreement, through March 31, 1998. In the event Kelmenson exercises
the Second Option, the Consulting Period shall commence on April 1, 1998 and
continue for four (4) years thereafter, and the Consulting Fee shall be
calculated and paid in accordance with Paragraph 4.2 of the Employment Agreement
and Paragraph 2 of the First Amendment.
2. Paragraph 7.8 of the Employment Agreement as amended by the First
Amendment is hereby deleted in its entirety and the following is hereby
substituted in its place and stead:
"7.8(a) In the event of Kelmenson's death at any time from and after
the date of the execution of this Agreement through the Period of Full
Time
2
<PAGE>
Employment, and prior to his exercise of the Second Option, the Agency
will pay to Kelmenson, for a period of five (5) years beginning six
(6) months after the date of Kelmenson's death (the "Payment
Commencement Date"), the Consulting Fees which would have been paid to
Kelmenson within such five (5) year period had he survived, computed
as if retirement had occurred on the date of Kelmenson's death. In
addition, in the event that Kelmenson has not exercised the Second
Option and dies during the Consulting Period, the Agency will pay,
throughout the remainder of the Consulting Period, the Consulting Fees
which would have been payable to Kelmenson within such remaining
period had he survived. Notwithstanding the foregoing, in such latter
event, no payment shall be due Kelmenson for the last fifteen and one-
half (15 1/2) months of said five (5) year period (the "15 1/2 Month
Payment") unless the annual Gross Income, as hereinafter defined,
earned by the Corporation and its subsidiaries from the Chrysler
account throughout the United States and the remainder of the world
(the "Worldwide Chrysler Account") in the last full fiscal year of the
Corporation immediately preceding the Payment Commencement Date (the
"Comparison Year"), is at
3
<PAGE>
least equal to $63,010,000, the annual Gross Income earned from the
Worldwide Chrysler Account for the Corporation's fiscal year ending
March 31, 1994 (the "Base Year"), adjusted upward to account for the
aggregate percentage increase in the 8-media composite cost-per-
thousand between the Base Year and the Comparison Year. The percentage
increase in the 8 media composite CPM used in making such comparison
shall be obtained from the Media Cost-Per Thousand (CPM) Increase
Table prepared annually and distributed by the American Association of
Advertising Agencies ("AAAA") to its membership annually. At the end
of the Comparison year, the annual Gross Income from the Worldwide
Chrysler Account earned in the Base Year, for purposes of determining
Kelmenson's eligibility for the 15 1/2 Month Payment, shall be
adjusted to an amount equal to the greater of (i) $63,010,000, the
amount of Gross Income earned from the Worldwide Chrysler Account in
the Base Year, or (ii) the amount of such annual Gross Income
increased by the aggregate annual percentage increase in the 8-media
composite (CMP) between the Base Year and the year ended immediately
preceding the end of the Comparison Year. The parties agree that if
the method
4
<PAGE>
utilized in the report distributed annually by AAAA in determining the
annual 8-media composite (CPM) percentage increase is changed in any
material manner, or if AAAA ceases distributing such data to its
membership prior to the determination of the right of Kelmenson's
estate to all payments due pursuant to the provisions of this
Paragraph 7.8(a), then the parties agree to use their best efforts to
ascertain and utilize for the purposes of this Agreement the best CPM
index determination then available to the advertising industry, and to
use best efforts as well to adjust any such index if necessary in
order to fairly and equitably relate such index to the adjustment
provided herein.
(b) In the event Kelmenson exercises the Second Option, the
Consultancy Fees shall be computed in accordance with the provisions
of paragraph 2 of the First Amendment, which provides for a four (4)
year Consulting Period, and if Kelmenson dies prior to the
commencement of the Consulting Period, Kelmenson will receive the
Consulting Fee which would have been paid to Kelmenson during such
four (4) year period had he survived, computed as if retirement had
occurred on the date
5
<PAGE>
of Kelmenson's death. If Kelmenson's death occurs within such
Consulting Period, no payment shall be due to Kelmenson for the last
twelve (12) months of said four (4) year period unless the Annual
Gross Income earned from the Worldwide Chrysler Account in the
Comparison Year is at least equal to the Annual Gross Income earned
from said account in the Base Year, adjusted pursuant to the formula
set forth in paragraph 7.8(a) above.
"Gross Income", as used herein, is hereby defined as the sum of (i)
commissions earned from media on the Worldwide Chrysler Account, (ii) fees
earned from the Worldwide Chrysler Account, (iii) commissions earned on
print and broadcast production from the Worldwide Chrysler Account, and
(iv) time charges for collateral materials and other services performed for
the Worldwide Chrysler Account".
All payments hereunder will be made to Kelmenson's estate or to such
persons or person as Kelmenson may specifically designate in writing delivered
to the Agency.
3. It is acknowledged that pursuant to the Corporation's Bonus Plan
(the "Bonus Plan") currently in effect, Kelmenson is eligible to receive a bonus
from two
6
<PAGE>
separate bonus pools within the Bonus Plan, those being the Holding Company
Executive Pool (the "HCE Pool") and the Detroit Profit Center Plan (the "Detroit
Pool")
a. With regard to the HCE Pool, the Corporation agrees that Kelmenson's
share of any bonus payable from the HCE Pool shall be an amount equal to
Kelmenson's Base Compensation multiplied by a fraction, the numerator of which
shall be the total amount of the HCE Pool, and the denominator of which shall be
the total salaries of all employees eligible to participate in the HCE Pool. The
amount of any bonus to Kelmenson from the HCE Pool, however, shall not exceed
twenty-five (25%) percent of Kelmenson's Base Compensation, or such greater
percentage as may be determined from time to time by and at the discretion of
the Chief Executive Officer of the Corporation with approval of the Compensation
Committee of the Board of Directors of the Corporation.
b. With regard to the Detroit Pool, the Corporation agrees that
Kelmenson's share of any bonus payable from the Detroit Pool shall be determined
in accordance with the provisions of the Bonus Plan and shall thereby be subject
to review by the Compensation Committee of the Board of Directors of the
Corporation, but shall be no less than an amount equal to Kelmenson's Base
7
<PAGE>
Compensation multiplied by a fraction, the numerator of which shall be the total
amount of the Detroit Pool, and the denominator of which shall be the total
salaries of all employees eligible to participate in the Detroit Pool. By reason
of the obligation of the Corporation to pay for the acquisition of the
Jeep/Eagle Account from Campbell Mithun Esty, it is agreed that the amount of
any bonus to Kelmenson from the Detroit Pool for the Corporation's fiscal years
ending March 31, 1995 and March 31, 1996 shall not exceed twenty-five percent
(25%) of Kelmenson's Base Compensation.
It is understood and agreed that the Corporation may eliminate the Bonus
Plan or modify the terms thereof, and that if eliminated, the Corporation shall
have no further obligation to Kelmenson with regard to bonus payments provided
for in this Paragraph 3, and if modified, the obligations of the Corporation
hereunder shall be considered changed to reflect such modification; provided,
however, that Kelmenson shall not be treated any less favorably in connection
with any such termination or modification than any other Bonus Plan participant.
4. The Corporation hereby gives and grants to the Executive an option to
purchase 250,000 shares of the Class B Common Stock of the Corporation pursuant
to the terms and conditions of the Bozell, Jacobs, Kenyon &
8
<PAGE>
Eckhardt Inc. Stock Option Plan (the "Stock Option Plan"). The grant of such
option shall be evidenced by the execution by both the Corporation and
Kelmenson, simultaneously with the execution of this Agreement, of a Stock
Option Agreement the form of which is annexed hereto as Schedule 1.
5. Except as amended herein, all of the terms and conditions of the
Employment Agreement and First Amendment shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date and year first above written.
BOZELL, JACOBS, KENYON
& ECKHARDT, INC.
By: /s/ Valentine J. Zammit
-------------------------
Valentine J. Zammit
/s/ Leo-Arthur Kelmenson
--------------------------
Leo-Arthur Kelmenson
9
<PAGE>
THIRD AMENDMENT
THIRD AMENDMENT dated July 30, 1997 (the "Third Amendment") between BOZELL,
JACOBS, KENYON & ECKHARDT, INC. (the "Company") and Leo-Arthur Kelmenson (the
"Executive") to the Employment Agreement dated March 30, 1992, as amended by the
First Amendment dated as of June 30, 1993, and by the Second Amendment dated
February 3, 1995 (the employment agreement as thus amended being hereinafter the
"Employment Agreement").
WITNESSETH:
----------
WHEREAS, the Company and the Executive have entered into the Employment
Agreement, and
WHEREAS, the Company, Cherokee Acquisition Corporation and True North
Communications Inc. ("True North") have entered into an Agreement and Plan of
Merger, dated as of July 30, 1997 (the "Agreement and Plan of Merger"), pursuant
to which the Company will become a wholly-owned subsidiary of True North; and
WHEREAS, the Company and the Executive desire to amend the Employment
Agreement to extend the term of the Employment Agreement for an additional three
years from its expiration date without automatically extending the Executive's
service as Chairman and a member of the Board of the Company and of Bozell
Mexico, with such amendment to become effective upon the Effective Time (as such
term is defined in Section 1.2 of the Agreement and Plan of Merger).
<PAGE>
NOW, THEREFORE, it is agreed that the Employment Agreement is hereby
amended in the following manner:
1. Effective Date. This Third Amendment shall become effective only if
Bozell, Jacobs, Kenyon & Eckhardt, Inc. becomes a wholly-owned subsidiary of
True North Communications Inc. pursuant to the Agreement and Plan of Merger,
dated as of July 30, 1997, among Bozell, Jacobs, Kenyon & Eckhardt, Inc.,
Cherokee Acquisition Corporation and True North Communications Inc. (the
"Agreement and Plan of Merger"), and all of the terms and conditions of this
Third Amendment shall become effective from and after the Effective Time (as
such term is defined in Section 1.2 of the Agreement and Plan of Merger).
2. Term of Agreement. Paragraph 2.1 of the Employment Agreement is hereby
amended to extend the Period of Full Time Employment, as defined in Paragraph
2.1 of the Employment Agreement, through March 31, 2001; provided, however, for
purposes of Paragraphs 3.1(a), 3.1(c)(i), and 3.1(c)(iii) of the Employment
Agreement, this Third Amendment shall not automatically extend Kelmenson's
service as Chairman of the Board of Directors of the Corporation and such of the
Corporation's subsidiary companies as may be designated by the Board of
Directors of the Corporation, as a member of the Board of Directors of the
Corporation, or as a member and Chairman of the Board of Directors of Bozell
Mexico. The Consulting Period (as defined in Paragraph 2.2 of the Employment
Agreement) shall commence on April 1, 2001 and continue for four (4) years
thereafter, and the Consulting Fee (as defined in Paragraph 4.2 of the
Employment Agreement) shall be calculated and paid in accordance with Paragraph
4.2 of the Employment Agreement and
<PAGE>
Paragraph 2 of the First Amendment to the Employment Agreement, dated as of June
30, 1993.
3. Effectiveness of Employment Agreement. All of the terms and conditions
of the Employment Agreement as amended by this Third Amendment shall remain in
full force and effect throughout the term hereof, as such term has been extended
hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
on the day and year first above written.
BOZELL, JACOBS, KENYON
& ECKHARDT, INC.
By: ___________________________
Title: ________________________
ACCEPTED AND AGREED:
____________________
LEO-ARTHUR KELMENSON
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into this 13th
day of September, 1985, by and between BOZELL & JACOBS, INC., a Delaware
corporation ("B&J"), and DAVID A. BELL, sometimes hereinafter designated as
"Employee."
WITNESSETH:
WHEREAS, Employee is an officer, director and shareholder of B&J; and
WHEREAS, concurrently with the execution of this Agreement, an
Agreement of Merger is being entered into by and between Lorimar Acquisition
Corp., a Delaware corporation ("Acquisitionn Corp."), BJKE Holdings, Inc., a
Delaware corporation ("Holdings"), Lorimar, Inc., a Delaware corporation
("Lorimar"), Employee and other shareholders of B&J, pursuant to which and on
the Effective Time (as defined in such Agreement of Merger), Acquisition Corp.
will be merged with and into B&J with B&J surviving as a wholly-owned
subsidiary of Holdings and Holdings continuing to be a wholly-owned subsidiary
of Lorimar; and
WHEREAS, immediately following the Effective Time of such merger,
Kenyon & Eckhardt, Incorporated ("K&E") will either (i) be merged with B&J, or
(ii) become a wholly-owned subsidiary of B&J, and immediately thereafter, B&J
will change
1
<PAGE>
its name to Bozell, Jacobs, Kenyon & Eckhardt, Inc. (the term "the Company"
shall be hereinafter be used to refer to B&J as it shall exist after the
Effective Time); and
WHEREAS, Employee and B&J desire by this Agreement to ensure that the
Company will have the benefit of the expertise, knowledge and services of
Employee;
NOW, THEREFORE, it is agreed as follows:
1. EFFECTIVE DATE
--------------
This Agreement shall become effective only if the merger of
Acquisition Corp. with and into B&J is consummated and shall be effective from
the date of the consummation of such merger. Such date shall hereinafter be
referred to as the Effective Date.
2. TERM OF AGREEMENT; POSITION
---------------------------
The Company hereby employs Employee as Chairman of the Company's
Atlantic Division for a five (5) year term beginning on the Effective Date and
Employee hereby accepts such employment. Employee, subject and reporting only
to the Chief Executive Officer of the Company, shall devote his full time,
attention, and energies, during regular business hours, to the business and
affairs and to promote the interests and welfare of the Company and its
subsidiaries. Employee shall perform, to the best of his abilities, as
Chairman of the Company's Atlantic Division, such executive duties with
2
<PAGE>
managerial responsibility as may, from time to time, be specified by the Chief
Executive Officer of the Company consistent with his status as Chairman of the
Company's Atlantic Division. The parties acknowledge that Employee being
Chairman of the Atlantic Division is a material term of this Agreement.
Lorimar agrees to cause Employee to be elected to the Board of Directors of
the Company.
Employee shall not, during the term hereof, be interested
directly or indirectly, in any manner, as a partner, officer, director,
stockholder, advisor, employee or in any other capacity, in any other business
similar to any of the businesses of Lorimar or any of its subsidiaries or
affiliates; provided, however, that this clause shall not prevent or limit the
right of Employee to own up to five percent (5%) of the issued and outstanding
securities of any publicly-owned company whose securities are regularly traded
on any securities exchange or in the over-the-counter market. Employee shall
not be required to perform his duties under this Agreement other than in New
York, New York, except for normal business travel consistant with his duties
as the Chairman of the Atlantic Division.
3
<PAGE>
3. COMPENSATION
------------
3.1 Base Compensation
-----------------
The Company shall compensate Employee for the
services to be rendered by Employee hereunder, including all services to
be rendered as a director and executive officer of the Company, at the
rate of $415,200 per annum, payable not less frequently than monthly in
accordance with the regular executive salary procedures from time to
time adopted by the Company. The Company shall deduct from all
compensation paid to Employee hereunder such sums, including but without
limitation, social security, income tax withholding, and unemployment
insurance, as the Company is by law obligated to deduct.
On January 1, 1987 and on each anniversary thereof
during the term of this Agreement (the "Adjustment Date"), Employee's
base compensation shall be adjusted upward based upon the Consumer Price
Index for All Urban Consumer/United States City Average, as published by
the Bureau of Labor Statistics of the United States Department of Labor
(the "CPI"). Employee's base compensation for the twelve (12) months
beginning on each Adjustment Date shall be equal to the greater of (a)
$415,200 or (b) $415,200 multiplied by a fraction, the numerator of
which shall be the CPI published most recently prior to the Adjustment
Date and the denominator
4
<PAGE>
of which shall be the CPI published most recently prior to the Effective Date
of this Agreement.
3.2 Incentive Bonus.
---------------
Employee shall be entitled to participate in the Incentive
Bonus Plan attached hereto as Exhibit A. Amounts payable pursuant to the
Incentive Bonus Plan, if any, shall be paid on or before 120 days after the
end of each bonus plan year.
3.3 B&J Wealth Accumulation Plan and Fringe Benefits.
------------------------------------------------
The Company agrees to maintain for Employee during the term
of this Agreement the B&J Wealth Accumulation Plan at not less than the
current benefit levels enjoyed by Employee. The Company agrees that
Employee's fringe benefits taken as a whole, will not be less than he received
as an employee of B&J.
3.4 Lorimar Incentive Stock Option Plan.
-----------------------------------
Employee shall, during his employment hereunder, be
eligible to participate in Lorimar's 1981 Incentive Stock Option Plan and
shall be granted each year that number of Incentive Stock Option that the
Lorimar Compensation Committee believes is appropriate considering Employee's
position and performance.
5
<PAGE>
3.5 Expenses.
--------
Employee shall be reimbursed for the reasonable and actual
out-of-pocket expenses incurred by him in the performance of his duties and
responsiblities hereunder, provided Employee shall first furnish to the
Company proper vouchers and expense accounts in accordance with Company
policy.
4. LIFE INSURANCE
--------------
The Company may, in its sole discretion, at any time during the
term of this Agreement, apply for and procure as owner and for its own benefit
insurance on the life of Employee, in such amounts and in such form or forms
as the Company may choose. Employee shall have no interest whatsoever in any
such policy or policies, but he shall, at the request of the Company, submit
to such medical examinations, supply such information, and execute such
documents as may be required by the insurance company or companies to whom the
Company has applied for such insurance. Upon the termination of Employee's
employment by the Company, if the Company owns any whole-life life insurance
on the Employee's life, the Employee shall have the option to acquire such
life insurance from the Company at a price equal to its cash surrender value
at the date of the termination of the Employee's employment, and if the
Company owns any term life insurance on the Employee's life, the
6
<PAGE>
Employee shall have the option to acquire such life insurance from the Company
at a price equal to the pre-paid premium at the date of the termination of the
Employee's employment. However, Employee shall have no right to acquire any
insurance covering his life maintained in conection with the B&J Wealth
Accumulation Plan.
5. DISABILITY
----------
If, on account of any physical or mental disability, Employee
shall fail or be unable to perform under this Agreement for a continuous
period of one hundred twenty (120) days or an aggregate period of one hundred
eighty (180) days during any consecutive twelve (12) month period, then the
Company may, at its option, terminate this Agreement upon thirty (30) days
written notice. In such event, Employee shall be entitled to receive the base
compensation payable to him pursuant to Paragraph 3.1 hereof through the end
of the month in which such termination is made effective, and the incentive
bonus payable to him pursuant to Paragraph 3.2 hereof pro-rated through the
end of the month in which such termination is effective. The option to
terminate provided in this Paragraph 5 is separate, distinct and additional to
any right on the part of the Company to terminate this Agreement pursuant to
Paragraph 10 hereof.
7
<PAGE>
If there should be a dispute between the parties hereto as to
the Employee's physical or mental disability for purposes of this Agreement,
the question shall be settled by the opinion of an impartial reputable
physician or psychiatrist agreed upon for the purpose by the parties or their
representatives, or if the parties cannot agree within thirty (30) days after
a request for designationn of such party, then each party shall designate a
physician or psychiatrist and the two of them shall designate a third such
medical professional and the opinion of a majority of the three (3) of them
shall settle the question. The certification of such physician or
psychiatrist or the majority of the three (3) of them, as the case may be, as
to the question in dispute shall be final and binding upon the parties hereto.
6. DEATH
-----
This Agreement will terminate in the event that Employee should
die during the term hereof. In such event, Employee's personal
representative shall be entitled to receive, in addition to all other accrued
but unpaid benefits, the base compensation payable to Employee pursuant to
Paragraph 3.1 hereof through the end of the second month after the month
during which his death occurs and the incentive compensation payable pursuant
to Paragraph 3.2 hereof pro-rated
8
<PAGE>
through the end of the second month after the month in which his death occurs.
7. VACATION
--------
Employee shall be entitled to four (4) weeks' vacation in any
twelve (12) month period or to such greater vacation time that the Company's
Board of Directors determines to be the Company's vacation policy with respect
to its executive offficers.
8. SOLICITATION OF THE COMPANY EMPLOYEES
-------------------------------------
Employee agrees that from the date hereof until three (3) years
after the termination of his employment with the Company, he will not,
directly or indirectly, solicit or otherwise initiate any inducement of any
persons who are employees of the Company to terminate their employment with
the Company.
9. REMEDY FOR BREACH
-----------------
Employee hereby represents that the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary and
intellectual character, the loss of which can not be reasonably or adequately
compensated for in damages. Accordingly, Employee agrees that, in the event
of any breach of the terms and conditions of this Agreement to be performed by
him, or in the event Employee shall, without the written consent of the
Company, leave its
9
<PAGE>
employment (except if Employee leaves the employ of the Company after the
Company or Lorimar has materially breached this Agreement) and thereafter
perform services during the five (5) year period commencing on the date hereof
for any person, firm, or corporation engaged in competition with the Company,
then the Company shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either in law or
in equity, to obtain damages for any breach of this Agreement, or to enforce
the specific performance thereof by Employee, or to enjoin Employee from
performing services for any such other person, firm, or corporation, during
the term of this Agreement.
10. TERMINATION FOR CAUSE
---------------------
(a) The Company shall have the right at any time, by written
notice to Employee, to terminate this Agreement forthwith and to discharge
Employee for cause if one of the following events shall occur during the
employment term:
(i) Employee's conviction in a court of law of any crime
or offense involving misuse or misappropriation of money or other property
of the Company, or
(ii) Employee's continued, willful failure or refusal to
perform specific written directives of the Board of Directors or the Chief
Executive Officer of the
10
<PAGE>
Company which directives involve material aspects of the Employee's duties
and responsibilities and which are consistent with the scope and nature of
Employee's duties and responsibilities as set forth in Paragraph 2 hereof;
and
(iii) Any flagrant act of dishonesty or disloyalty by
Employee or any act involving gross moral turpitude of the Employee which
adversely affects the business of Corporation.
11. SUCCESSORS AND ASSIGNS
----------------------
The provisions of this Agreement shall inure to the benefit of
and be binding upon the Company, its successors and assigns, including,
without limitation, any corporation which may acquire all or substantially all
of the Company's assets and business or with or into which the Company may be
consolidated, merged or reorganized.
The parties hereto agree that Employee's services are personal
and that this Agreement is executed with respect thereto. Accordingly,
Employee may not assign this Agreement nor any of his rights, duties or
obligations created hereunder.
11
<PAGE>
12. NOTICES
-------
All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be deemed to have been
given and received forty-eight (48) hours after deposit thereof for mailing at
any general or branch United States Post Office enclosed in a registered or
certified postpaid envelope and addressed as follows:
To Employee: David A. Bell
____________________________
____________________________
With copy to: Hall, Dickler, Lawler Kent & Friedman
460 Park Avenue
New York, New York 10022
Attn: William J. Marlow, Esq.
To the Company: Bozell, Jacobs, Kenyon & Eckhardt
10250 Regency Circle
Omaha, Nebraska 68114
Attn: Joseph Caggiano,
Vice-Chairman of the Board
To Lorimar: Lorimar
3970 Overland Avenue
Culver City, California 80230
Attn: Chairman of the Board - President
With copy to: Buchalter, Nemer, Fields, Chrystie
& Younger
700 South Flower Street
Los Angeles, CA 90017
Attn: Cary D. Cooper, Esq.
12
<PAGE>
The parties hereto may designate a different place at which notice shall be
given provided, however, that any such notice of change of address shall be
effective only upon receipt.
13. ENTIRE UNDERSTANDING
--------------------
This Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter thereof and no other
representations, warranties or agreements whatsoever have been made to
Employee not herein contained. This Agreement shall not be modified, amended
or terminated except by another instrument in writing executed by the parties
hereto.
14. SEVERABILITY
------------
In case one or more of the provisions contained in this
Agreement or any portion of any such provision shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceablility shall not affect any other provision of this
Agreement or any portion of any such provision, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision or portion
thereof had never been contained herein. The failure by the Company or
Lorimar, as the case may be, at any time, to require performance by Employee
of any of the provisions hereof, shall not be deemed a waiver of any kind nor
13
<PAGE>
in any affect the respective rights of the Company or Lorimar, as the case may
be, to thereafter enforce the same.
15. GOVERNING LAW
-------------
This Agreement and all rights, obligations and liabilities
arising hereunder shall be construed and enforced in accordance with the laws
of the State of New York, without regard to conflict of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
the day and year first above written.
BOZELL & JACOBS, INC., "EMPLOYEE"
a Delaware corporation
/s/ David A. Bell
By /s/ Charles D. Peebler ------------------------------
-------------------------- DAVID A. BELL
Charles D. Peebler
Chief Executive Officer
Lorimar agrees to be bound by those provisions of Paragraph 2 and 3.4 which
apply to Lorimar.
LORIMAR, INC., a Delaware
corporation
By /s/
--------------------------
Title Chairman
-------------------
14
<PAGE>
INCENTIVE BONUS PLAN
--------------------
This Incentive Bonus Plan (this "Plan") is adopted by BOZELL & JACOBS,
INC., a Delaware corporation (the "Company"), to be effective at the
effective time of the merger of Lorimar Acquisition Corp. with and into the
Company (the "Effective Time"), with respect to Messrs. J. LIENER TEMERLIN,
CHARLES D. PEEBLER, DAVID A. BELL, AND RONALD DeLUCA, each of whom is or will
be at the Effective Time an executive officer of the Company and all of whom
are collectively referred to herein as the "Participants."
1. This Plan shall apply to each of the five calendar years
commencing January 1, 1986. As to any amounts payable pursuant to this Plan,
Mr. Peebler shall be entitled to 32%, Mr. Temerlin to 32%, Mr. Bell to 16% and
Mr. DeLuca to 20%.
2. The Participants shall be entitled to receive incentive bonus
payments hereunder determined as follows:
A. The Participants and the Company agree that the target
operating profit pre-profit sharing and pre-tax ("TOP") for Year One will be
$11,000,000; for Year Two, the TOP will be $13,750,000; for Year Three, the
TOP will be $19,530,000; for Year Four, the TOP will be $24,410,000; and for
Year Five, the TOP will be $30,520,000.
B. In each year, the TOP will be adjusted by deducting
therefrom a Profit Sharing Allowance ("PSA"). The PSA for Year One will be
$3,000,000; the PSA for Year Two will be
<PAGE>
$3,500,000; the PSA for Year Three will be $4,000,000; the PSA for Year Four
will be $4,500,000; and the PSA for Year Five will be $5,000,000. The TOP
less the PSAA in each year will be the target net pre-tax profit of the
Company ("TNPP").
C. After each of such calendar Years, the actual domestic net
pre-tax profit of the Company ("ANPP") will be adjusted by (a) the difference
(plus or minus) of the actual charge for the contribution to the Company's
Internal Revenue Service qualified Employees Profit Sharing Plan ("Profit
Sharing Plan") and the PSA adjustment made for each of such Years as stated
above (for example, since the PSA for Year Three is $4,000,000, if the actual
charge for the contribution to the Profit Sharing Plan is $5,000,000, ANPP
would be adjusted by adding $1,000,000 to ANPP, and conversely, if the actual
charge for the contribution to the Profit Sharing Plan is $3,000,000, ANPP
would be adjusted by subtracting $1,000,000 from ANPP); (b) adding to the
domestic net pre-tax profit the Company's profit from foreign operations after
deduction of foreign taxes attributable to such profit; (c) eliminating any
charges relating to (i) the issuance of Lorimar common stock to Messrs.
Peebler and Temerlin, and (ii) the assumption by the Company of or payment by
the Company of $750,000 of Mr. Peebler's principal residence mortgage
obligations, all as provided in the
2
<PAGE>
respective employment agreements of Messrs. Peebler and Temerlin; (d) with
respect to the calendar year during which the Company surrenders its leasehold
interest at One Dag Hammarskjold Plaza, New York, New York (the "Leasehold
Interest"), adding the net amount of the leasehold improvements carried on the
Company's books which were written off in connection with the Company's
surrender of its Leasehold Interest, and subtracting any consideration paid or
to be paid to the Company by its Lessor in connection with the surrender of
the Leasehold Interest; and (e) eliminating any intercompany charges from
Lorimar, Inc. ("Lorimar") or its affiliates, except for charges for services
actually rendered to the Company by Lorimar or its affiliates and for interest
computed in accordance with Paragraph 3 below.
D. The Adjusted ANPP for each of such Calendar Years will be
inserted in Row 1 of the attached calculation form, and the incentive bonus
payment payable for each of such Years, if any, will be determined by
completing the form. If the Cumulative Earned Bonus (item 8 on the attached
form) is equal to or greater than $5,000,000 at the end of any IBP Year, this
Plan shall terminate effective at the end of such IBP Year; however, the
Participants shall be paid as though the Plan continued through the end of
1990 and as if the Adjusted ANPP for IBP Years after the Plan is terminated is
equal to such year's TNPP.
3
<PAGE>
3. For the purpose of computing ANPP, except with respect to
interest-free loans from Lorimar to the Company or from the Company to Lorimar
in accordance with Paragraph 4 below, the Company will (i) accrue interest
expense with respect to its indebtedness to Lorimar, if any, at a rate equal
to the rate in effect from time to time between Lorimar and its principal
bank, and (ii) accrue interest income with respect to the indebtedness of
Lorimar to the Company, if any, at a rate equal to the 90-day Treasury Bill
rate ("T-Bill Rate") plus 1/2% as such T-Bill Rate exists from time to time.
Effective June 30, 1986, and for each year thereafter, the Company will
declare and pay a dividend to its shareholder equal to its pre-tax earnings
for the fiscal year ended on such date; provided, however, that dividends may
be declared and paid sooner if funds are available, as determined by the
Board of Directors. (The dividend with respect to June 30, 1986, will be
equal to the company's pre-tax earnings from the Effective Time to June 30,
1986.)
4. Effective July 1, 1986, 1987, 1988 and 1989, Lorimar will
advance to the Company or the Company will advance to Lorimar on an
interest-free basis an amount determined by multiplying the average previous
twelve months monthly capitalized income ("capitalized income" is determined
by multiplying 6.67 times the Company's commissions and fees) by .21 and
subtracting 17,400,000 from the product thereof. The difference thereof shall be
referred to as the "Advance". (The capitalized income for the twelve months
ended June 30, 1986
4
<PAGE>
will be determined as though the merger of K&E and B&J occurred on July 1,
1985.) If the 1986 Advance is a positive number, Lorimar will loan such
amount to the Company, and if the 1986 Advance is a negative number, the
Company will loan such amount to Lorimar. For example, if the average monthly
capitalized income for the Company during the twelve months ended June 30,
1986 was $95,000,000, then Lorimar would loan to the Company effective July 1,
1986, on an interest-free basis the sum of $2,550,000, computed as follows:
95,000,000 x .21 = $19,950,000 - 17,400,000 = $2,550,000. By way of further
example, if the average monthly capitalized income for the twelve months ended
June 30, 1986 was $75,000,000, then the Company would loan to Lorimar,
effective July 1, 1986, on an interest-free basis the sume of $1,650,000,
computed as follows: 75,000,000 x .21 = $15,750,000 - 17,400,000 =
(1,650,000).
The 1987, 1988 and 1989 Advance will be computed in the same manner,
except there wil be subtracted from the 1987, 1988 and 1989 Advances the sum
of the previous Advances. For example, if the average twelve month
capitalized income for the twelve months ending June 30, 1986 was $95,000,000,
for the twelve months ending June 30, 1987 was $105,000,000, for the twelve
months ending June 30, 1988 was $80,000,000, and for the twelve months ending
June 30, 1989 was $100,000,000, the 1986, 1987, 1988, and 1989 July 1 advances
would be as follows:
6
<PAGE>
1986
- ----
95,000,000 x .21 = 19,950,000 - 17,400,000 = $2,550,000;
therefore, Lorimar advances to the Company $2,550,000.
1987
- ----
105,000,000 x .21 = 22,050,000 - 17,400,000 = $4,650,000 - 2,550,000 =
$2,100,000; therefore, Lorimar advances to the Company
$2,100,000.
1988
- ----
80,000,000 x .21 = 16,800,000 - 17,400,000 = (600,000) - 4,650,000 =
$(5,250,000); therefore, the Company advances to Lorimar
$5,250,000.
1989
- ----
100,000,000 x .21 = 21,000,000 - 17,400,000 = 3,600,000 - (600,000) =
$4,200,000; therefore, Lorimar advances to the Company
$4,200,000.
5. Adjusted ANPP, TNPP and capitalized income for each IBP Plan
Year will be determined by the public accounting firm then retained by the
Company as soon as practical following the close of each IBP Year, and such
determinations shall be binding upon the Company and the Participants.
6
<PAGE>
(000's omitted)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
IBP YEAR 1 2 3 4 5
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 This Year's Adjusted ANPP
- -----------------------------------------------------------------------------------
2 Cumulative Adjusted ANPP
(1 Accumulated, including
this year)
- -----------------------------------------------------------------------------------
3 This Year's TNPP 8,000 10,250 15,530 19,910 2,552
- -----------------------------------------------------------------------------------
4 Cumulative TNPP
(3 Accumulated, including
this year)
- -----------------------------------------------------------------------------------
5 Cumulative Surplus or
Deficit (2 less 4)
- -----------------------------------------------------------------------------------
6 Theoretical Cumulative
Bonus (50% of 5 if positive;
zero, if 5 is negative)
- -----------------------------------------------------------------------------------
7 Cumulative Maximum Cap 1,500 3,000 4,500 5,000 5,000
- -----------------------------------------------------------------------------------
8 Cumulative Earned Bonus
(Lesser of 6 or 7)
- -----------------------------------------------------------------------------------
9 Cumulative Interest Earned
(14 Accumulated, excluding
this year)
- -----------------------------------------------------------------------------------
10 Cumulative Paid Bonus (15
Accumulated, excluding this
year)
- -----------------------------------------------------------------------------------
11 Cumulative Owing
(8 + 9 - 10)
- -----------------------------------------------------------------------------------
12 Deferred (50% of 11 if
positive; however, zero in
year 4 if 8 is $5,000,000
and zero in Year 5)
- -----------------------------------------------------------------------------------
13 Current Owing
(11 - 12)
- -----------------------------------------------------------------------------------
14 Interest at 10% on Last
Year Deferral (12)
- -----------------------------------------------------------------------------------
15 Total Current Payment
(13 + 14; not less than
zero)
</TABLE>
7
<PAGE>
AMENDMENT dated February 8th 1988 (the "Amendment") between BOZELL,
JACOBS, KENYON & ECKHARDT, INC. (the "Company") and DAVID BELL (the
"Employee") to the Employment Agreement (the "Employment Agreement") dated
September 13, 1985 between BOZELL & JACOBS, INC. (to which the Company is
successor in interest) and the EMPLOYEE.
WITNESSETH:
WHEREAS, Bozell Inc. ("Bozell") and Lorimar Telepictures Corporation
("Lorimar") have entered into an agreement (the "Acquisition Agreement") dated
September 15, 1987 pursuant to which Bozell has agreed to acquire from Lorimar
all of the stock of the Agency; and
WHEREAS, the closing of the transactions contemplated by the
Acquisition Agreement is intended to take place in or about the month of
February, 1988; and
WHEREAS, the Company and the Employee are desirous of amending the
Employment Agreement in certain respects, with such amendments to become
effective upon the consummation of the transactions contemplated in the
Acquisition Agreement;
NOW, THEREFORE, it is agreed as follows:
<PAGE>
1. Effective Date. This Amendment shall become effective only if
the stock of the Agency is acquired by Bozell from Lorimar pursuant to the
provisions of the Acquisition Agreement, and all of the terms and conditions
of this Amendment shall become effective from and after the date of the
consummation of such transaction. Such date is hereinafter referred to as the
Effective Date.
2. Term of Agreement. The term of the Employee's employment is
hereby extended through December 31, 1993.
3. Compensation. Commencing on the Effective Date and continuing
thereafter through July 31, 1989, the Base Compensation payable to the
Employee as provided in Paragraph 3.1 of the Employment Agreement shall be
computed at the annual rate of Four Hundred and Seventy-Five Thousand
($475,000.00) Dollars. Thereafter, and through the remainder of the term as
hereby extended, the Base Compensation shall be computed at the annual rate of
Six Hundred and Seventy-Five Thousand ($675,000.00) Dollars per annum.
4. Effectiveness of Employment Agreement. The terms and conditions
of the Employment Agreement as specifically amended hereby shall remain in
full force and effect throughout the term hereof, as such term has been
extended hereby.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement on
the day and year first above written.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
Successor in interest to Bozell &
Jacobs, Inc.
By: /s/ Charles D. Peebler
-----------------------------------
Title: Chief Executive Officer
--------------------------------
ACCEPTED AND AGREED:
/s/ David Bell
- -------------------------
DAVID BELL
3
<PAGE>
SECOND AMENDMENT
SECOND AMENDMENT dated May , 1996 (the "Second Amendment") between
BOZELL, JACOBS, KENYON & ECKHARDT, INC. (the "company") and DAVID A. BELL (the
"Executive") to the Employment Agreement dated September 13, 1985, as amended
by Agreement date February 8, 1988 (the employment agreement as thus amended
being hereinafter the "Employment Agreement").
WITNESSETH:
WHEREAS, the Company and the Executive have entered into the
Employment Agreement, and
WHEREAS, the parties are desirous of further amending the Employment
Agreement in certain respects in the manner hereinafter set forth,
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable considerations, receipt of which is
hereby acknowledged, the Employment Agreement is hereby amended in the
following manner:
1. Paragraph 2 of the Employment Agreement is hereby amended to
extend the Executive's employment through March 31, 1998.
<PAGE>
2. Paragraph 3.1 is hereby deleted in its entirety, and the
following paragraph 3.1 is substituted in the place and stead thereof:
"3.1 Base Compensation.
-----------------
The Company shall compensate the Executive for the services
to be rendered by the Executive hereunder, including all services to
be rendered as a director and executive officer of the Company, at the
rate of $800,000 per annum, payable not less frequently than monthly
in accordance with the regular executive salary procedures from time
to time adopted by the Company. The Company shall deduct from all
compensation paid to the Executive hereunder such sums, including but
without limitation, social security, income tax withholding, and
unemployment insurance, as the Company is by law obligated to deduct.
On April 1, 1997 and on each anniversary thereof during the
term of this Agreement (the "Adjustment Date"), the Executive's base
compensation shall be adjusted upward based upon the Consumer Price
Index for All Urban Consumer/United States City Average, as published
2
<PAGE>
by the Bureau of Labor Statistics of the United States Department of
Labor (the "CPI"). The Executive's base compensation for the twelve
(12) months beginning on each Adjustment Date shall be equal to the
greater of (a) $800,000 or (b) $800,000 multiplied by a fraction, the
numerator of which shall be the CPI published most recently prior to
the Adjustment Date and the denominator of which shall be the CPI
published most recently prior to April 1, 1996. In no event, however,
shall the Base Compensation for any such twelve (12) month period
exceed one hundred and six percent (106%) of the Base Compensation
payable in the previous twelve (120) month period."
3. The terms and conditions of this Second Amendment shall become
effective as of April 1, 1996.
4. A Second Amendment to the Employment Agreement dated June, 1992,
effective as of April 1, 1992, is for all intents and purposes null and void
as and after April 1, 1996.
5. All of the terms and conditions of the Employment Agreement as
amended by this Second Amendment
3
<PAGE>
shall remain in full force and effect throughout the term hereof, as such term
has been extended hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
By /s/ Valentine J. Zammit
------------------------------------
Valentine J. Zammit
ACCEPTED AND AGREED:
/s/ David Bell
- -------------------------
DAVID BELL
4
<PAGE>
SECOND AMENDMENT
SECOND AMENDMENT dated June , 1992 (the "Second Amendment")
between BOZELL, JACOBS, KENYON & ECKHARDT, INC. (the "Company") and DAVID A.
BELL (the "Executive") to the Employment Agreement dated September 13, 1985,
as amended by Agreement date February 8, 1988 (the employment agreement as
thus amended being hereinafter the "Employment Agreement").
WITNESSETH:
WHEREAS, the Company and the Executive have entered into the
Employment Agreement, and
WHEREAS, the parties are desirous of further amending the Employment
Agreement in certain respects in the manner hereinafter set forth,
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable considerations, receipt of which is
hereby acknowledged, the Employment Agreement is hereby amended in the
following manner:
<PAGE>
1. Paragraph 2 of the Employment Agreement is hereby amended to
extend the Executive's employment through March 31, 1998.
2. Paragraph 3.1 is hereby deleted in its entirety, and the
following paragraph 3.1 is substituted in the place and stead thereof:
"3.1 Base Compensation.
-----------------
The Company shall compensate the Executive for the services
to be rendered by the Executive hereunder, including all services to
be rendered as a director and executive officer of the Company, at the
rate of $675,000 per annum, payable not less frequently than monthly
in accordance with the regular executive salary procedures from time
to time adopted by the Company. The Company shall deduct from all
compensation paid to the Executive hereunder such sums, including but
without limitation, social security, income tax withholding, and
unemployment insurance, as the Company is by law obligated to deduct.
2
<PAGE>
On April 1, 1993 and on each anniversary thereof during the
term of this Agreement (the "Adjustment Date"), the Executive's base
compensation shall be adjusted upward based upon the Consumer Price
Index for All Urban Consumer/United States City Average, as published
by the Bureau of Labor Statistics of the United States Department of
Labor (the "CPI"). The Executive's base compensation for the twelve
(12) months beginning on each Adjustment Date shall be equal to the
greater of (a) $675,000 or (b) $675,000 multiplied by a fraction, the
numerator of which shall be the CPI published most recently prior to
the Adjustment Date and the denominator of which shall be the CPI
published most recently prior to April 1, 1992. In no event, however,
shall the Base Compensation for any such twelve (12) month period
exceed one hundred and six percent (106%) of the Base Compensation
payable in the previous twelve (12) month period."
3. The terms and conditions of this Second Amendment shall become
effective as of April 1, 1992.
4. All of the terms and conditions of the Employment Agreement as
amended hereby shall remain in full force and effect throughout the term
hereof, as such term has been extended hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
BOZELL, JACOBS, KENYON
& ECKHARDT, INC.
By: /s/ Valentine J. Zammit
--------------------------
Valentine J. Zammit
ACCEPTED AND AGREED:
/s/ David Bell
- -------------------------
DAVID BELL
3
<PAGE>
THIRD AMENDMENT
THIRD AMENDMENT dated July 30, 1997 (the "Third Amendment") between
BOZELL, JACOBS, KENYON & ECKHARDT, INC. (the"Company") and DAVID BELL (the
"Executive") to the Employment Agreement dated September 13, 1985, 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 "Employment Agreement").
WITNESSETH:
WHEREAS, the Company and the Executive have entered into the
Employment Agreement; and
WHEREAS, the Company, Cherokee Acquisition Corporation and True North
Communications Inc. ("True North") have entered into an Agreement and Plan of
Merger, dated as of July 30, 1997 (the "Agreement and Plan of Merger"),
pursuant to which the Company will become a wholly-owned subsidiary of True
North; and
WHEREAS, the Company and the Executive desire to amend the Employment
Agreement to extend the term of the Employment Agreement for an additional
three years from its expiration date, with such amendment to become effective
upon the Effective Time (as such term is defined in Section 1.2 of the
Agreement and Plan of Merger).
NOW, THEREFORE, it is agreed that the Employment Agreement is hereby
amended in the following manner:
1. Effective Date. This Third Amendment shall become effective
only if Bozell, Jacobs, Kenyon & Eckhardt, Inc. becomes a wholly-owned
subsidiary of True North Communications Inc. pursuant to the Agreement and Plan
of Merger, dated as of July 30, 1997, among Bozell, Jacobs, Kenyon & Eckhardt,
Inc., Cherokee Acquisition Corporation and True North Communications Inc. (the
"Agreement and Plan of Merger"), and all of the terms and conditions of this
Third Amendment shall become effective from and after the
<PAGE>
Effective Time (as such term is defined in Section 1.2 of the Agreement and
Plan of Merger).
2. Term of Agreement. Paragraph 2 of the Employment Agreement is
hereby amended to extend the term of the Executive's employment through March
31, 2001.
3. Effectiveness of Employment Agreement. All of the terms and
conditions of the Employment Agreement as amended by this Third Amendment
shall remain in full force and effect throughout the term hereof, as such term
has been extended hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment on the day and year first above written.
BOZELL, JACOBS, KENYON
& ECKHARDT, INC.
By: _________________________
Title: ______________________
ACCEPTED AND AGREED:
__________________________
DAVID BELL
2
<PAGE>
EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of July
30, 1997 by and between True North Communications, Inc., a Delaware
corporation (the "Company"), and The Northwestern Mutual Life Insurance
Company, a Wisconsin corporation (the "Stockholder").
WITNESSETH:
----------
WHEREAS, this Agreement is made in connection with the merger of
Cherokee Acquisition Corporation, a wholly- owned Delaware subsidiary of the
Company, with and into Bozell, Jacobs, Kenyon & Eckhardt, Inc., ("Bozell"), a
Delaware corporation (the "Merger") pursuant to the Agreement and Plan of
Merger of even date herewith;
WHEREAS, prior to the Merger, the Stockholder owns 5,533,724 shares of
the issued and outstanding common stock of Bozell and upon consummation of the
Merger the Stockholder will own shares received in connection with the Merger
of the outstanding Common Stock of the Company;
WHEREAS, the Company and the Stockholder desire to enter into this
Agreement pursuant to which the Stockholder or any Affiliate (as hereinafter
defined) that may acquire Common Stock from the Stockholder will have the
right to cause the Company, upon request, to register with the Securities and
Exchange Commission (the "Commission") an offering and sale of Common Stock of
the Company owned by the Stockholder or any such Affiliate, subject to the
terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements
herein contained, the parties to this Agreement agree as follows:
1. Definitions. As used in this Agreement, the following
capitalized terms shall have the following respective meanings:
(a) Affiliate - Any Person that, directly or indirectly, through
one or more intermediaries, controls, or is
<PAGE>
controlled by, or is under common control with, the Stockholder.
(b) Common Stock - The Common Stock, $0.33 1/3 par value per
share, of the Company.
(c) Exchange Act - The Securities Exchange Act of 1934, as
amended, or any successor Federal statute, and the rules and regulations of
the Commission thereunder.
(d) NASD - The National Association of Securities Dealers, Inc.
(e) Effective Date - The date the Merger becomes effective.
(f) Officers' Certificate - A certificate signed by any two
officers of the Company.
(g) Person - Any individual, corporation, partnership, trust,
organization, association, governmental body or agency.
(h) Registrable Securities - Common Stock (and any securities that
may be issued or distributed in respect thereof by way of stock dividend or
stock split or other distribution, recapitalization or reclassification) owned
by the Stockholder as of the Effective Date, and subsequently owned by the
Stockholder or any Affiliate of the Stockholder.
(i) Securities Act - The Securities Act of 1933, as amended, or
any successor Federal statute, and the rules and regulations of the Commission
thereunder.
(j) Selling Expenses - Underwriting discounts and commissions and
transfer taxes, if any, incurred by the Stockholder or any Affiliate in
connection with a disposition of Registrable Securities.
2. Demand Registration. (a) In the event that at any time
after the Effective Date, the Stockholder or an Affiliate desires to sell
Registrable Securities owned by the Stockholder or such Affiliate, then upon
the written request of the Stockholder or an Affiliate requesting that the
Company effect the registration under the Securities Act of all or part of the
Registrable Securities owned by the Stockholder or such Affiliate and
specifying the intended method of disposition thereof, but subject to the
limitations set forth herein, the Company will file with the Commission
<PAGE>
as promptly as practicable, and use its reasonable best efforts to cause to
become effective, a registration statement on Form S-3 under the Securities
Act registering the offering and sale of the Registrable Securities which the
Company has been so requested to register, all to the extent necessary to
permit the disposition (in accordance with the intended method thereof as
aforesaid) of the Registrable Securities so to be registered; provided, that
the Company shall not be obligated to file a registration statement relating
to any registration request under this Section 2(a), (A) with respect to more
than one registration under this Section 2(a), or (B) unless the request for
such registration covers an aggregate number of shares of Registrable
Securities which would result in anticipated gross offering proceeds to the
holders of such Registrable Securities, before deducting Selling Expenses, of
at least $5,000,000 provided further that the Stockholder's rights under this
Section 2(a) shall be subject to the rights of other holders of the Company's
securities with respect to offering their securities existing as of the date
hereof.
(b) Priority in Requested Registrations. A requested registration
pursuant to this Section 2 shall be in the form of a firmly underwritten
offering through the underwriters of recognized national standing the
Stockholder designates. In the event that the number of Registrable
Securities requested to be included in such registration is less than the
number which, in the opinion of the managing underwriter, can be sold, the
Company may include in such registration securities the Company proposes to
sell up to the number of securities that, in the opinion of the managing
underwriter, can be sold; provided, however, that neither the Company nor any
other Person may include any securities in any registration pursuant to this
Section 2 without the prior written consent of the Stockholder or Affiliate
requesting such registration which approval will not be unreasonably withheld
or delayed.
(c) Limitation on Registration Rights. (i) The Company shall be
entitled to postpone for a reasonable period of time (not to exceed 60 days
(or, in the case of clause (A) below, 60 days after effectiveness of the
proposed registration statement), which may not thereafter be extended) the
filing of any registration statement otherwise required to be prepared and
filed by it pursuant to Section 2(a) hereof if, at the time it receives a
request for such registration, (A) the Company is conducting or has taken
definitive steps to conduct an offering of any class of its securities and the
Company is advised in writing by the
<PAGE>
investment banker, managing underwriter or financial advisor engaged by the
Company to advise the Company thereon that such offering would be affected
materially and adversely by the registration so demanded, (B) the Company is
in possession of material information that has not been disclosed to the
public and the Board of Directors of the Company, in the reasonable exercise
of its discretion, has determined that it is advisable not to disclose such
information in the registration statement, (C) the Company is engaged in an
active program for repurchase of its Common Stock or (D) the Board of
Directors of the Company shall determine in good faith that such offering will
materially interfere with a pending or contemplated merger, sale of assets,
recapitalization or other similar corporate action of the Company, and in each
such case the Company shall have furnished to holders of Registrable
Securities requesting such registration an Officers' Certificate confirming
the applicability of clause (A), (B), (C) or (D), as the case may be. After
such period of postponement the Company shall effect such registration as
promptly as practicable without further request from the holders of
Registrable Securities, unless such request has been withdrawn by the
Stockholder or such Affiliate.
(ii) Any request by the Stockholder or any Affiliate for registration
of Registrable Securities pursuant to Section 2(a) hereof (x) which is
subsequently withdrawn prior to the registration statement becoming effective
or, pursuant to Section 5(c), remaining effective for 135 days or such shorter
period as provided therein shall not constitute a registration for purposes of
the limitation contained in clause (A) of the proviso in Section 2(a),
provided that a registration which does not become effective after the Company
has filed a registration statement with respect thereto solely by reason of
the refusal to proceed of the requesting Stockholder or Affiliate (other than
a refusal to proceed based upon the advice of counsel relating to a matter
with respect to the Company) shall be deemed to have been effected by the
Company unless the requesting Stockholder or Affiliate shall have elected to
pay all expenses of the Company in connection with such registration, and (y)
shall not constitute a registration for purposes of the limitation contained
in clause (A) of the proviso in Section 2(a) if after it has become effective,
such registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court
for any reason or withdrawn by the Company for any reason.
<PAGE>
3. Piggy-Back Registration. (a) If the Company shall at any time
after the Effective Date propose to file a registration statement under the
Securities Act for an offering of securities of the Company (whether for its
own account or the account of any holder of its securities) for cash (other
than an offering relating to an employee benefit plan or a registration on
Form S-4 or similar form), the Company shall provide prompt written notice of
such proposal, in any event, not less than 30 days before the anticipated
filing date, to the Stockholder of its intention to do so and of the rights of
the Stockholder and its Affiliates under this Section 3 and, subject to the
rights of other holders of the Company's securities with respect to such
offering existing as of the date hereof, shall use its reasonable best efforts
to include such number of Registrable Securities in such registration
statement which the Company has been so requested to register by the
Stockholder or its Affiliates, which request shall be made to the Company
within 30 days after the Stockholder receives notice from the Company of such
proposed registration; provided, that (i) if, at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such securities,
the Company may, at its election, give written notice of such determination to
the Stockholder or its Affiliate and, thereupon, the Company shall be relieved
of its obligation to register any Registrable Securities in connection with
such registration (but not from its obligation to pay the registration
expenses referred to in Section 6 incurred in connection therewith), and (ii)
if such registration involves an underwritten offering, all holders of
Registrable Securities that are included in the Company's registration shall
sell their Registrable Securities to the underwriters selected by the Company
or other holders of the Company's securities having an existing right as of
the date hereof to participate in such offering on the same terms and
conditions that apply to the Company and/or such other holders, with such
differences, including with respect to indemnification, as may be customary or
appropriate in combined primary and secondary offerings. If a registration
proposed pursuant to this Section 3(a) involves an underwritten public
offering, any holder of Registrable Securities requesting to be included in
such registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration.
<PAGE>
(b) If a registration pursuant to this Section 3 involves an
underwritten offering and the managing underwriter advises the Company in
writing (with a copy to the Stockholder) that, in its opinion, the number of
securities to be included in such registration exceeds the number which can be
sold in such offering, so as to be likely to have a material adverse effect on
such offering as contemplated by the Company or other holders of the Company's
securities having an existing right as of the date hereof to participate in
such offering (including the price at which the Company and/or such other
holders propose to sell such securities), then the number of Registrable
Securities included in such registration shall be reduced to an amount that in
the opinion of such managing underwriter when added to the shares that the
Company and/or such other holders propose to include in such registration
would not have such a material adverse effect provided that any such reduction
in the case of a third party registration shall be first applied to any
securities proposed to be registered by the Company prior to a reduction of
the Stockholder's Registrable Securities. Except as provided in the previous
sentence, the amount so determined will be allocated among the requesting
holders of Registrable Securities pro rata on the basis of Registrable
Securities then held by each such holder.
4. Restrictions on Public Sale. The Company agrees not to effect
any public sale or distribution of Common Stock during the fourteen (14) days
prior to, and during the 135- day period beginning on, the effective date of
any registration statement which includes Registrable Securities, except as
part of such registration, and except pursuant to registrations on Form S-4 or
S-8 or any successor or similar forms thereto or a registration of securities
proposed to be offered to all members of any class or series of the Company's
then existing security holders or solely to its employees and except pursuant
to a demand for registration made pursuant to that certain Registration Rights
Agreement dated as of January 1, 1989 between the Company and Publicis
Communication.
5. Registration Procedures. Whenever any Registrable Securities
are to be registered pursuant to Sections 2 or 3 of this Agreement, the
Company will use its reasonable best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the intended method
of disposition thereof, and the Company will as expeditiously as possible:
<PAGE>
(a) and in any event within forty-five (45) days after receipt of a
request (subject Section 2(c)) prepare and file with the Commission a
registration statement with respect to or including such Registrable
Securities and use its reasonable best efforts to cause such registration
statement to become effective within ninety (90) days after such receipt;
provided, however, that before filing a registration statement or prospectus
or any amendments or supplements thereto, the Company will furnish to the
Stockholder, any Affiliates requesting such registration pursuant to Sections
2 or 3 of this Agreement and the underwriters, if any, draft copies of all
such documents proposed to be filed at least five (5) business days prior
thereto, which documents will be subject to the reasonable review of the
Stockholder, any such Affiliates and the underwriters, if any, and the Company
will not, unless required by law, file any registration statement or amendment
thereto or any prospectus or any supplement thereto (including such documents
incorporated by reference) to which the Stockholder or any such Affiliate
shall reasonably object;
(b) notify the Stockholder of any stop order issued or threatened by
the Commission or any other governmental authority in connection therewith and
take all reasonable actions to prevent the entry of such stop order or to
remove it if entered;
(c) prepare and file with the Commission such amendments,
post-effective amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than 135 days (or
such shorter period which will terminate when all Registrable Securities
covered by such registration statement have been sold or withdrawn, but not
prior to the expiration of the applicable period referred to in Section 4(3)
of the Securities Act and Rule 174 thereunder, if applicable), cause the
prospectus to be supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act, and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
<PAGE>
(d) furnish to the Stockholder, each Affiliate who is selling
Registrable Securities and the underwriter or underwriters, if any, without
charge, such number of conformed copies of such registration statement, each
amendment and supplement thereto, the prospectus included in such registration
statement (including each preliminary prospectus) and any amendments or
supplements thereto, any documents incorporated by reference therein and such
other documents as the Stockholder, any such Affiliate or such underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Securities (it being understood that the Company consents to the use of the
prospectus (including the preliminary prospectus) and any amendment or
supplement thereto by the Stockholder, any such Affiliates and the underwriter
or underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the prospectus or any amendment or
supplement thereto);
(e) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as the Stockholder or any Affiliate who is selling such
Registrable Securities reasonably requests and do any and all other acts and
things that may be reasonably necessary or advisable to enable the Stockholder
or such Affiliate to consummate the disposition in such jurisdictions of the
Registrable Securities owned by the Stockholder or such Affiliate (provided
that the Company will not be required to (i) qualify generally to do business
in any jurisdiction where it would not otherwise be required to qualify but
for this subparagraph or (ii) subject itself to taxation in any such
jurisdiction);
(f) notify the Stockholder and each Affiliate who is selling such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, when the Company becomes
aware of the occurrence of any event as a result of which the prospectus
included in such registration statement (as then in effect) contains an untrue
statement of a material fact or omits to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading and, as promptly as practicable thereafter, prepare
and file with the Commission a supplement or amendment to such prospectus so
that, as thereafter
<PAGE>
delivered to the purchasers of such Registrable Securities, such prospectus
will not contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(g) make generally available to its security holders an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act no
later than 60 days after the end of the 12-month period beginning with the
first day of the Company's first fiscal quarter commencing after the effective
date of the registration statement, which requirement will be deemed to be
satisfied if the Company complies with Rule 158 under the Securities Act as
soon as possible;
(h) cause all such Registrable Securities to be listed or admitted
for trading on each securities exchange or quotation system on which
securities issued by the Company that are of the same class as the Registrable
Securities are then listed or admitted;
(i) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(j) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent certified public accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(k) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the sellers thereof to consummate the disposition of such
Registrable Securities;
(l) obtain a "comfort" letter from the Company's independent public
accountants in customary form and covering matters of the type customarily
covered by
<PAGE>
"comfort" letters as the seller or sellers of a majority of the Registrable
Securities being sold reasonably request and as described in Statement of
Financial Accounting Standards No. 72;
(m) if underwriters are engaged in connection with any registration
referred to in this Agreement, the Company shall enter into underwriting or
other agreements providing indemnification, representations, covenants,
opinions and other assurance to the underwriters in form and substance
reasonably satisfactory to the Company and such underwriters; and
(n) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Securities being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities.
Upon receipt of any notice from the Company of the happening of any
event of the kind described in subsection (f) of this Section 5, the
Stockholder and any Affiliates selling Registrable Securities will forthwith
discontinue disposition of the Registrable Securities until receipt of copies
of the supplemented or amended prospectus contemplated by subsection (f) of
this Section 5 or until the Stockholder and any such Affiliates are advised in
writing by the Company that the use of the prospectus may be resumed, and have
received copies of any additional or supplemental filings which are
incorporated by reference in the prospectus and, if so directed by the
Company, the Stockholder and any such Affiliates will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in
such holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event that
the Company shall give any such notice, the time period mentioned in
subsection (c of this Section 5 shall be extended by the number of days during
the period from and including the date of the giving of such notice to and
including the date when the Stockholder shall have received the copies of the
supplemented or amended prospectus contemplated by subsection (f) of this
Section 5.
6. Registration Expenses. (a) All expenses incident to the
Company's performance of or compliance with a request for registration under
Section 2(a) of this
<PAGE>
Agreement excluding Selling Expenses but, including, without limitation, all
Commission and securities exchange or NASD registration and filing fees, fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), printing expenses, messenger
and delivery expenses, the fees and expenses incurred in connection with the
listing of the securities to be registered, if any, on each securities
exchange or quotation system on which securities of the same class as the
Registrable Securities issued by the Company are then listed and reasonable
fees and disbursements of counsel for the Company and its independent
certified public accountants (including the expenses of any special audit or
"comfort" letters required by or incident to such performance) will be borne
by the Company.
(b) All expenses incident to the Company's performance of or
compliance with a request under Section 3(a) of this Agreement excluding
Selling Expenses but including, without limitation, all Commission and
securities exchange or NASD registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), printing expenses, messenger and delivery expenses,
the fees and expenses incurred in connection with the listing of the
securities to be registered, if any, on each securities exchange or quotation
system on which securities of the same class as the Registrable Securities
issued by the Company are then listed and reasonable fees and disbursements of
counsel for the Company and its independent certified public accountants
(including the expenses of any special audit or "comfort" letters required by
or incident to such performance) will be borne by the Company.
7. Term. This Agreement shall become effective as of the
Effective Date and shall terminate upon the earlier to occur of (i) the sale
or other disposition pursuant to a registration statement by the Stockholder
and each Affiliate holding Registrable Securities of all of the Registrable
Securities held by the Stockholder or any such Affiliate and (ii) the fifth
anniversary of the date of this Agreement. As of the Effective Date, the
Registration Rights Agreement dated as of February 1, 1988, as amended,
between Bozell, the Stockholder and certain other persons shall be terminated
and of no further force and effect.
<PAGE>
8. Indemnification. (a) In connection with any offering of
Registrable Securities pursuant to Section 2(a) or 3(a) hereof, the Company
agrees to indemnify, to the fullest extent permitted by law, the Stockholder
and all Affiliates of the Stockholder who hold Registrable Securities whose
Registrable Securities are sold in such offering, each of their officers and
directors, trustees and employees and each person who controls the Stockholder
or such Affiliates (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses (including reasonable
attorney's fees) arising out of or based upon any untrue or alleged untrue
statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto under
which such Registrable Securities were registered under the Securities Act or
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement, preliminary
prospectus, prospectus, amendment or supplement in reliance upon any
information furnished in writing to the Company describing the Stockholder or
such Affiliate by the Stockholder or an Affiliate who holds Registrable
Securities expressly for use therein.
(b) The Stockholder and each Affiliate who holds Registrable
Securities whose Registrable Securities are sold in an offering pursuant to
Section 2(a) or 3(a) hereof, agrees to indemnify, to the fullest extent
permitted by law, the Company, the other holders of Registrable Securities
whose Registrable Securities are sold in such offering, their respective
officers and directors, trustees and employees and each other person, if any,
who controls the Company or such other holders of Registrable Securities
(within the meaning of the Securities Act) against all losses, claims,
damages, liabilities and expenses (including attorney's fees) caused by any
untrue or alleged untrue statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto under which such Registrable Securities were
registered under the Securities Act or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such reg- istration statement, preliminary
prospectus, prospectus, amendment or supplement in reliance upon any
information
<PAGE>
furnished in writing to the Company describing the Stockholder or such
Affiliate by the Stockholder or such Affiliate expressly for use therein.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such in- demnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (which consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim.
(d) If the indemnification provided for in this Section 8 from the
indemnifying party is unavailable to any indemnified party hereunder or
insufficient to hold such party harmless in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
consid- erations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified parties, and the parties' relative intent,
knowledge, access to information and oppor- tunity to correct or prevent such
action. The amount paid or payable by a party under this Section 8 as a
result of the losses, claims, damages, liabilities and expenses referred to
<PAGE>
above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allo- cation or by any other method of allocation which does not take into
account the equitable considerations referred to herein.
9. Rule 144 and Rule 144A. The Company will file the reports
required to be filed by it under the Exchange Act and the rules and
regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, will, upon the request of the Stockholder or
any Affiliate, make publicly available other information) and will take such
further action as such holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 or Rule 144A
under the Securities Act, as such Rules may be amended from time to time, or
(ii) any similar rule or regulation hereafter adopted by the Commission. Upon
the request of the Stockholder or any Affiliate, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
10. Miscellaneous. (a) The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent or in
conflict with the rights granted in this Agreement to the Stockholder and its
Affiliates.
(b) Any person having rights under any provision of this Agreement
will be entitled to enforce such rights specifically, to recover damages
caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
(c) The provisions of this Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the
Stockholder's written consent thereto.
(d) All covenants and agreements in this Agreement by or on behalf of
any of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
<PAGE>
(e) Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(f) This Agreement may be executed in two or more counterparts, any
one of which need not contain the signatures of more than one party, but all
such counterparts taken together will constitute one and the same Agreement.
(g) The interpretation and construction of this Agreement and all
matters relating hereto shall be governed by the law of the State of New York
applicable to agreements executed and to be performed solely within such
state.
(h) All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, by
facsimile transmission, by courier with receipt acknowledgment or mailed by
certified or registered mail, return receipt requested and postage prepaid, to
the recipient. Such notices, demands and other communication will be sent to
each holder of Registrable Securities at such holder's address as it appears
in the records of the Company or the registrar of the Company's shares (unless
otherwise indicated by any such holder to the Company in writing) and to the
Company at 101 East Erie Street, Chicago, Illinois, 60611- 2847, Attention:
General Counsel, Facsimile No. 312-425-6354.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed
this Agreement as of the day and year first above written
TRUE NORTH COMMUNICATIONS, INC.
By: /s/ Theodore J. Theophilos
---------------------------
Name: Theodore J. Theophilos
Title: Executive Vice President
and General Counsel
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ J. Thomas Christofferson
-----------------------------
Name: J. Thomas Christofferson
Title: Manager of Investments
<PAGE>
EXHIBIT 11.1
SUMMARY OF CALCULATIONS OF EARNINGS PER SHARE
For the Years Ended December 31, 1995, 1996 and 1997
(In 000's, except per share amounts)
<TABLE>
<CAPTION>
I. EARNINGS PER SHARE -- BASIC CALCULATION
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
A. Net income (loss) $29,055 $37,917 $(50,046)
======= ======= ========
B. Calculation of Denominator:
Weighted average common shares outstanding 42,133 42,569 43,733
Treasury share impact of Publicis shares (978) (978) (1,102)
------- ------- --------
41,155 41,591 42,631
======= ======= ========
C. Net income (loss) per share $ .71 $ .91 $ (1.17)
======= ======= ========
</TABLE>
2. EARNINGS PER SHARE -- DILUTED CALCULATION
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
A. Net income (loss) $29,055 $37,917 Note 1
======= =======
B. Calculation of Denominator:
Weighted average common shares outstanding 42,133 42,569
Treasury share impact of Publicis shares (978) (978)
Effect of dilutive options 1,165 1,281
------- -------
42,320 42,872
======= =======
C. Net income (loss) per share $.69 $.88
======= =======
</TABLE>
Note 1 - Because Registrant reported a loss for 1997, presentation of an
earnings per share calculation on a diluted basis is inapplicable.
<PAGE>
EXHIBIT 13.1
LOGO
1997 FINANCIAL REPORT
TRUE NORTH COMMUNICATIONS INC.
101 EAST ERIE STREET
CHICAGO, ILLINOIS
60611
312-425-6500
<PAGE>
ABOUT TRUE NORTH
In December 1994 True North Communications Inc. (True North) succeeded
Foote, Cone & Belding Communications, Inc. as the holding company for Foote,
Cone & Belding--one of America's largest advertising agencies. In December
1997, through its merger with Bozell, Jacobs, Kenyon & Eckhardt, Inc. (BJK&E),
True North almost doubled its size by adding Bozell Worldwide, Temerlin
McClain and other specialized communications businesses to its network. With
these brands as the foundation, True North is building a new type of
architecture to offer clients leverageable marketplace advantage.
True North offers full-service advertising through two separate, independent
global agency networks: FCB Worldwide and Bozell Worldwide. True North also
operates two significant independent regional full-service agencies, Temerlin
McClain and Tierney & Partners. In addition the Company owns certain marketing
service and specialty advertising companies through the True North Diversified
Services Companies, and certain interactive marketing companies through True
North Technologies Inc.
FCB Worldwide and Bozell Worldwide, by themselves and through their
respective subsidiaries and affiliates, independently operate advertising
agency networks worldwide. Their primary business is to create marketing
communications for their clients' goods and services across the total spectrum
of advertising and promotion media. Each of the agency networks has its own
clients and competes with the other in the same markets.
. FCB WORLDWIDE--FCB Worldwide is headquartered in New York and has full-
service offices in New York, Chicago, San Francisco, and Los Angeles. FCB
Worldwide operates internationally through subsidiaries in Canada, Europe,
Latin America, and the Asia-Pacific region.
. BOZELL WORLDWIDE--Bozell Worldwide is headquartered in New York and has
full-service offices in New York, Chicago, Detroit, Los Angeles, and
Seattle. Bozell Worldwide operates internationally through subsidiaries in
Canada, Europe, Latin America, and the Asia-Pacific region.
. TRUE NORTH DIVERSIFIED SERVICES COMPANIES--True North Diversified Services
Companies offer a wide variety of marketing and specialty advertising
services. Marketing services include: promotion, public relations, public
affairs, direct/database marketing, branding consultancy, graphic arts,
sports marketing and directory advertising. Specialty advertising includes
healthcare and multicultural advertising. True North Diversified Services
Companies have both U.S. and international operations which include: BSMG
Worldwide, Wahlstrom, Bozell Wellness Worldwide, Market Growth Resources,
and McCracken Brooks.
Through planned acquisitions and internal growth, True North believes it has
become a communications company encompassing resources much broader in scope
than other existing advertising holding companies. True North's architecture
is unique and includes three specialized business units:
. TN Technologies Inc.--This company is a leader in global interactive
marketing. TN Technologies Inc. delivers a complete 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
requests, purchases and behaviors; delivery of uniform and updated sales
tools for sales forces; and technical consulting. After its merger with
BJK&E, True North holds a leading position in interactive marketing through
its ownership of two of the three largest interactive marketing agencies:
Modem Media and Poppe Tyson. Together with R/GA Digital Studios, True North
has developed a fundamental point-of-difference compared to other
advertising agencies because of its ability to provide a complete range of
interactive marketing strategies and techniques.
. TN Media Inc.--This business unit is a global network of the Company's
specialists in the planning and buying of media time and space. Following
its combination with Bozell Media, TN Media Inc. ranks as one of the largest
media buying companies in the world.
1
<PAGE>
. TN Services Inc.--True North has established this business unit to house all
of its agency support services around the globe, handling all financial
transactions including bill paying, payroll, and accounts receivable
collections; all human resource tasks from insurance to employee stock
purchase plans; and a broad range of other support services in the areas of
legal services, travel and management of leased facilities.
The architecture of True North is designed to free local agency management
from administration of the media buying and back office support functions and
give them leading edge technology so they can devote their full energy and
creativity to True North's most important endeavor--growing our clients'
business.
REVENUES: True North's principal source of revenues is from its agency
brands, which receive commissions and fees earned on advertising placed with
the various media, and commissions and fees earned for the production and
preparation of advertising. In addition, True North's agency brands receive
fees for various other services performed in connection with advertising,
research and marketing studies. True North's revenues generally reflect the
media buying patterns of its clients and are concentrated in the second and
fourth quarters of the year.
The Company's client list includes many well-known national and
international advertisers of consumer and industrial goods and services.
During 1997, the ten largest clients accounted for approximately 27% of
consolidated revenues; one client accounted for approximately 10% of
consolidated revenues.
PERSONNEL: The principal asset of any service company is its people. True
North has an array of employee benefit and training programs to attract and
retain personnel considered to be industry leaders. As of December 31, 1997,
True North employed 10,052 people in its majority-owned offices; 6,078 were
employed in its domestic offices and 3,974 in its international offices. Of
the 10,052 total employees, 2,998 were engaged in the creation and production
of advertising, 2,847 in account management, 1,489 in media and research
activities, and 2,718 in administrative and clerical functions.
MARKET PRICE OF STOCK AND DIVIDEND RECORD: True North's Common Stock is
listed on the New York Stock Exchange. Its trading symbol is TNO. The
following table shows the high and low sale price of its Common Stock and
dividends paid each quarter since January 1, 1996:
<TABLE>
<CAPTION>
PRICE RANGE
----------------
DIVIDENDS
HIGH LOW DECLARED
------- -------- ---------
<S> <C> <C> <C>
1996
1st Quarter........................................ $25 3/8 $16 1/4 $.15
2nd Quarter........................................ 27 3/4 21 3/8 .15
3rd Quarter........................................ 23 7/8 16 3/4 .15
4th Quarter........................................ 24 3/4 19 1/2 .15
1997
1st Quarter........................................ $22 3/4 $17 1/2 $.15
2nd Quarter........................................ 25 17 .15
3rd Quarter........................................ 27 1/8 22 1/8 .15
4th Quarter........................................ 27 5/8 22 5/16 .15
</TABLE>
At December 31, 1997 True North had approximately 7,600 shareholders. True
North employees owned approximately 17% of the Company's outstanding Common
Stock as of that date through various employee benefit plans.
2
<PAGE>
UNAUDITED QUARTERLY FINANCIAL DATA: Quarterly results (in thousands) and per
share data, which have been restated as a result of the BJK&E acquisition (see
Note 2), are as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996
Revenues................................ $212,842 $235,704 $249,154 $289,336
Pretax income (loss).................... 747 8,265 18,469 15,085
Net income (loss)....................... (351) 10,346 9,419 18,503
Net income (loss) per share:
Basic................................. (.01) .25 .23 .45
Diluted............................... .24 .22 .43
1997
Revenues................................ $266,235 $301,308 $294,371 $342,973
Pretax income (loss).................... 1,381 19,316 20,840 (87,641)
Net income (loss)....................... (980) 14,653 9,876 (73,595)
Net income (loss) per share:
Basic................................. (.02) .34 .23 (1.73)
Diluted............................... .33 .22
</TABLE>
FIVE-YEAR SELECTED FINANCIAL DATA: Selected historical financial data (in
thousands, except per share amounts), which have been restated as a result of
the BJK&E acquisition (see Note 2), are as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 644,106 $ 740,577 $ 847,043 $ 987,036 $1,204,887
Net income (loss)....... 21,867 36,754 29,055 37,917 (50,046)
Net income (loss) per
share
Basic................. .55 .89 .71 .91 (1.17)
Diluted............... .54 .87 .69 .88
Dividends per share..... .60 .60 .60 .60 .60
<CAPTION>
AT DECEMBER 31,
- ---------------
<S> <C> <C> <C> <C> <C>
Working capital......... (22,283) (49,487) (87,747) (106,268) (234,402)
Total assets............ 1,029,671 1,160,224 1,272,719 1,618,388 1,674,422
Long-term debt (includes
current portion)....... 76,628 63,075 48,939 72,012 50,267
Total liabilities....... 798,112 912,616 1,000,044 1,314,737 1,406,595
Stockholders' equity.... 231,559 247,608 272,675 303,651 267,827
Book value per share.... 5.64 6.05 6.57 7.30 6.09
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
BJK&E ACQUISITION
On December 30, 1997 the Company consummated its acquisition of BJK&E by
issuing approximately 18,627 shares of its common stock in exchange for all
outstanding common stock of BJK&E. The Company also assumed and exchanged all
outstanding BJK&E stock options into options to purchase shares of the
Company's common stock. The transaction has been accounted for as a pooling of
interests. As further discussed in Note 2 to the Consolidated Financial
Statements, all of the Company's financial data have been restated to include
the historical financial information of BJK&E.
3
<PAGE>
RESULTS OF OPERATIONS--1997 COMPARED TO 1996
During the fourth quarter of 1997, True North completed its acquisition of
BJK&E. In connection therewith, True North recorded a pre-tax charge of
$80,946 related to merger-related transaction costs and restructuring
activities principally arising from this acquisition. In addition, the Company
took other actions in the fourth quarter to reduce personnel and occupancy
costs in several of its offices which resulted in higher than normal charges
for severance and lease reserves; because these actions do not represent exit
activities and therefore can not be classified as restructuring costs these
charges are reflected as salaries and benefits expenses and office and general
expenses, respectively. These charges are described in detail below.
Revenues from True North's consolidated operations increased 22.1% to
$1,204,887 in 1997 from $987,036. U.S. revenues increased 13.2% to $892,117 in
1997 while international revenues increased 57.2% to $312,770. During the
latter part of 1996 and in 1997, True North acquired several agencies in North
America, Latin America, Europe and the Pacific Rim in addition to the European
agencies it obtained in its settlement with Publicis. These agencies accounted
for $148,457 of the growth in revenues between years. Excluding the impact of
acquisitions and the 1997 divestiture of a small agency in the Pacific Rim,
revenues from existing operations increased 8.3% between years.
Salaries and benefits expense increased 18.9% to $744,282 in 1997. Salaries
and benefits expense in 1996 includes a charge of $4,169 related to the
severance of two former executives of True North. 1997 salaries and benefits
expense includes a fourth quarter charge of $3,528 resulting from the
downsizing of several True North offices in reaction to changes in local
business conditions. Excluding these charges in both years, salaries and
benefits expense as a percent of revenues declined from 63.0% in 1996 to 61.5%
in 1997.
Office and general expenses increased 29.9% to $401,617 in 1997. Office and
general expenses in 1996 included a charge of $9,837 principally consisting of
the costs to close a division of Poppe Tyson and a sublet loss related to an
FCB Los Angeles-based operation. 1997 office and general expenses include
charges of $41,122 consisting principally of lease reserves and the write-off
of associated intangible costs for True North operations in New York, Hong
Kong, Stamford and certain other locations, fixed asset write-offs related to
abandoned computer system projects, and the costs of relocating FCB employees
as part of a management reorganization of that network. The lease reserves
recorded as a part of 1997 office and general expenses, though technically not
an exit activity, arose as a result of the BJK&E acquisition and the
subsequent change in management's assessment of the usability of the related
leased space. Excluding these items in both years, office and general expenses
as a percent of revenues declined from 30.3% in 1996 to 29.9% in 1997.
The 1997 provision for doubtful accounts was significantly higher than 1996
and 1995 levels for three reasons: (1) in the fourth quarter of 1997, True
North wrote off a $7.4 million receivable related to a client which
unexpectedly lost its ability to obtain bank or equity financing, (2) True
North recorded a $3.0 million bad debt reserve in the fourth quarter of 1997
as it expands its business into project-based compensation arrangements as
opposed to traditional compensation arrangements based upon media spending,
and (3) True North recorded write-offs of $1.8 million related to client
resignations and businesses sold as a result of the BKJ&E merger. Excluding
these fourth quarter items, the provision for doubtful accounts as a percent
of revenues was 0.2% in both years.
As further disclosed in Note 3, in 1997 True North recorded a charge of
$80,946 in restructuring and merger-related costs principally related to its
acquisition of BJK&E. Of this amount, $16,872 represents the costs associated
with completing the transaction, $11,097 represents losses on lease
commitments for offices closed and/or downsized as a result of the merger,
$38,740 represents severance and other associated exit costs for offices
closed and/or downsized, and $14,237 represents the write-off of long-lived
assets resulting from the Company's decision to close and/or sell offices as a
result of the merger. As previously disclosed in True North's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997, as a result of its
merger with BJK&E, True North ended its relationship with a client in the
automotive industry due to a conflict with a BJK&E client. The client
accounted for approximately 1.8% of True North's consolidated revenues for the
year ended December 31, 1997. True North anticipates that the cost savings it
derives from its restructuring actions will offset the loss of revenue from
this client in future periods.
4
<PAGE>
Interest expense increased 26.4% to $20,083 in 1997 as a result of higher
average borrowings in 1997 primarily caused by the Company's investment
spending detailed on page 6.
The 1997 tax rate was impacted by the write-off of nondeductible intangible
assets, the payment of nondeductible merger-related costs, and the
establishment of tax reserves of $7,000 related to True North's plan to
reorganize its foreign operations. The various elements of the tax provision
for both 1996 and 1997 are more fully explained in Note 13.
In 1997, True North recorded minority interest expense of $2,385 compared to
minority interest income of $450 in 1996. This change is due to the 1997
acquisitions of several highly profitable agencies in the Pacific Rim and
Latin America which have substantial management ownership.
Equity income, which consists primarily of True North's share of Publicis'
European operations, was $9,673 in 1997 compared to $19,084 in 1996. The
fourth quarter of 1996 was benefited by the true-up of Italian restructuring
reserves as the Italian operations of the joint venture were able to negotiate
more favorable settlements on leases and other actions than previously
anticipated. This reserve true-up resulted in a one-time increase in 1996
earnings of $5,759. The remainder of the decline is due to (1) a 1997
restructuring of the relationship between True North and Publicis described in
detail below, and (2) the strengthening of the U.S. dollar against European
currencies.
RESULTS OF OPERATIONS--1996 COMPARED TO 1995
Revenues from True North's consolidated operations increased 16.5% to
$987,036 in 1996 from $847,043 in 1995. U.S. revenues increased 18.2% to
$788,110 in 1996 while international revenues increased 10.2% to $198,926.
During the latter part of 1995 and in 1996, True North purchased several
agencies in North America, Latin America and the Pacific Rim. These
acquisitions contributed $69,413 to True North's 1996 revenues.
Salaries and benefits expenses increased 18.0% to $625,749 in 1996. Salaries
and benefits expense in 1996 include a charge of $4,169 related to the
severance of two former executives of True North. Excluding this charge, as a
percent of revenues this category of expense increased slightly from 62.6% in
1995 to 63.0% in 1996 principally due to acquisitions.
Office and general expenses increased $44,203 or 16.7% between years, higher
than the rate of revenue growth. During the fourth quarter of 1996, True North
experienced high levels of legal and consulting costs related primarily to its
continuing negotiations with Publicis (approximately $1.4 million higher than
1995). In addition, True North continued to invest in new digital advertising
technologies, resulting in higher levels of depreciation expense and
consulting costs.
The increase in interest expense between years is due to higher average
borrowings in 1996 primarily caused by the Company's investment spending
detailed on page 6.
The increase in other income, which primarily represents interest income, is
due to the fact that in 1996 other income includes gains recorded on an
investment in the common stock of a publicly held British public relations
agency. These gains are more fully explained in Note 1.
The effective tax rate was 56.8% in 1996 compared to 46.1% in 1995. The 1995
effective tax rate was impacted by the favorable settlement of outstanding
obligations in several tax jurisdictions. The 1996 effective tax rate was
favorably impacted by the reversal of $1,000 of valuation allowance related to
net operating losses previously incurred by the Company's Canadian operations.
During 1996, the Company was able to utilize these net operating loss
carryforwards to offset current taxable income. As a result, the related
valuation allowance was no longer required and so was reduced. The various
elements of the tax provision for both 1995 and 1996 are more fully explained
in Note 13.
5
<PAGE>
Equity income, which consists primarily of True North's share of Publicis'
European operations, was $19,084 in 1996 compared to $9,320 in 1995. 1995
equity income was depressed by the first quarter 1995 Italian restructuring
provision of $7,034. The fourth quarter of 1996 was benefited by the true-up
of Italian restructuring reserves as the Italian operations of the joint
venture were able to negotiate more favorable settlements on leases and other
actions than previously anticipated. This reserve true-up resulted in a one-
time increase in 1996 earnings of $5,759. Actual operating results for Europe
were down $3,862 primarily due to revenue declines and resultant severance
actions taken at several of the joint venture's German locations and also to
the strengthening of the U.S. dollar against European currencies.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities have historically represented the
Company's primary source of funding for investment activities. Over the past
five years True North has emphasized the timely collection of accounts
receivable and the careful management of its accounts receivable to accounts
payable ratio, resulting in an optimum accounts receivable to accounts payable
ratio at the end of 1994. During 1995 and 1996, True North experienced a shift
in client spending from media to production work. Media costs are typically
billed to and collected from clients before payment is due to the media. In
general, production work requires that the agency incur and pay costs that it
can bill to its clients once the related work is completed. As a result of
this shift in client spending patterns, True North's accounts receivable to
accounts payable ratio increased as did its investment in expenditures
billable to clients, resulting in lower cash flows from operating activities.
In 1997, this trend was reversed, in part due to client spending related to
the Winter Olympics. True North continues to review its billing and payment
procedures and believes that this change in client spending patterns will not
result in further significant increases in its accounts receivable to accounts
payable ratio.
The pace of True North's investment spending continues to grow as the
Company has focused its efforts in two areas:
. Capital expenditures--the two primary drivers of capital spending are (i)
capital spending to enhance backoffice efficiencies and increase True
North's abilities to exploit new digital technologies, and (ii) capital
spending related to office moves. The decline in capital spending between
1995 and 1996 was due to the fact that in 1995 the FCB New York office
moved into new leased facilities, resulting in higher than normal
spending on leasehold improvements and furniture and equipment. The
increase in capital spending between 1996 and 1997 is roughly comparable
to the growth of the Company. In the future the Company anticipates that
capital expenditures will be at levels comparable to or slightly higher
than 1997 (capital spending for 1997 was $42,413) due to True North's
commitment to maintain its competitive edge in providing digital
marketing services and as it strives to obtain operating efficiencies (as
measured by salaries and employee benefits as a percent of revenues)
through improvements of its basic media and accounting systems. True
North had no material commitments for capital expenditures at December
31, 1997.
. Purchase of subsidiaries and interests in affiliated companies--True
North continues to contemplate strategic acquisitions to enhance its
worldwide network. During the past three years, True North completed the
acquisition of several agencies in North America, Europe, Latin America
and the Pacific Rim. These acquisitions were financed through a
combination of existing cash balances and the issuance of short-term
borrowings. As discussed in Note 2, on December 31, 1996 True North
acquired a 64% interest in Modem Media in exchange for 1,121 shares of
its common stock, a 36% interest in the assets and operations of TN
Technologies Inc., and a contingent obligation to pay $16 million in cash
and $4 million in True North common stock in the event that TN
Technologies Holding Inc. (the combined operations of Modem Media and TN
Technologies Inc.) is able to complete an initial public offering of its
common stock. Future acquisitions may be financed through a combination
of cash from existing operations, and the issuance of stock and long-term
borrowings.
True North improved its access to long-term financing by entering into a $90
million Revolving Credit Agreement during 1995 and a $25 million three year
term loan during 1996. During 1998 True North intends to
6
<PAGE>
renegotiate several of its debt agreements as a consequence of its merger with
BJK&E. These debt negotiations, which are designed to rationalize the debt of
the combined companies and further improve True North's access to long-term
financing, are expected to be completed by the end of 1998. As further
discussed in Note 6, at December 31, 1997 True North had committed available
lines of credit under its various debt agreements in the amount of $152,192.
In addition, the Company had available at various banks uncommitted lines of
credit aggregating approximately $144,662 at December 31, 1997, of which
$128,823 was unused.
True North has paid cash dividends at an annual rate of $.60 per share over
the past ten years. Determination of the payment of dividends is made by the
Company's Board of Directors on a quarterly basis. True North anticipates that
its cash flow from operations will be adequate to continue payment of
dividends at similar levels in 1998.
PUBLICIS RELATIONSHIP
As previously disclosed, during 1997 True North negotiated a resolution to
its outstanding disputes with Publicis, its partner in their European joint
venture, resulting in a separation agreement dated May 19, 1997. The intent of
this agreement is to establish a new legal and business relationship between
the parties so that all disputes between the parties are resolved and each is
free to create its own separate, independent agency network.
Pursuant to the agreement, True North exchanged its 49% interest in the
joint venture for agencies in France, Greece, Portugal and the United Kingdom
and an additional 5.7% interest in Publicis Communication. The impact of this
settlement was not material to True North's consolidated financial statements.
The agreement also contains certain terms intended to provide True North
with a means of selling its resulting equity interest in Publicis either in a
public offering or based upon appraised market values and other specified
formulas contained in the agreement. Under the terms of the agreement,
Publicis has agreed to use its best efforts to cause its common stock to be
listed on a major European stock exchange by no later than December 31, 1998.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During 1993, True North entered into an interest rate swap contract with a
bank which became effective in June 1994. Under this arrangement, True North
receives LIBOR and pays a fixed interest rate of 6.1% on a notional amount of
$25,000 in borrowing during the period from June 1994 to June 1999. At
December 31, 1997, the carrying and fair market values of this interest rate
swap were $323 and $(118), respectively. Other than this interest rate swap
contract, True North has not entered into any market risk sensitive contracts
during the past three years.
True North's consolidated financial statements are denominated in U.S.
dollars. In 1997, True North derived approximately 26% of its revenues from
operations outside of the United States. Currency fluctuations may give rise
to translation gains and losses when financial statements of foreign operating
units are translated into U.S. dollars. Significant strengthening of the U.S.
dollar against major foreign currencies could have an adverse impact on True
North's results of operations. In general True North incurs most of its costs
to support the related revenues in the same currency in which these revenues
are billed, thereby reducing exposure to currency fluctuations. In the past,
True North has not hedged foreign currency profits into U.S. dollars, because
its management has believed that, over time, the costs of a hedging program
outweigh any benefit of greater predictability in the Company's U.S. dollar
denominated profits. However, as True North continues to extend the depth and
breadth of its foreign operations, management will from time-to-time
reconsider the issue of whether a foreign currency hedging program would be
beneficial to its operations.
7
<PAGE>
YEAR 2000 COMPLIANCE
True North is currently conducting a comprehensive review of its computer
systems to identify all computer systems and software applications that could
be affected by the inability of many existing computer systems to process
time-sensitive data accurately beyond the year 2000 (the "Year 2000" issue).
True North has instituted a process of identifying and replacing all of its
computer systems and software which it has identified as being noncompliant
with respect to the Year 2000 issue. To date, the Company has not yet
identified any aspect of this project which will result in a material adverse
effect on the Company's financial condition or results of operations. However,
due to the complexity of the issues involved, and because True North is
dependent upon third-party vendors for certain of its applications used in its
accounting and media functions, there can be no assurance that True North will
not face major delays or incur material costs in completing this process.
INCLUSION OF FORWARD-LOOKING INFORMATION
Certain statements under the captions "About True North" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" constitute "forward-looking statements" within the meaning
of Section 21E(i)(1) of the Securities Exchange Act of 1934. Such forward-
looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results of the Company 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 the
Company's services, changes in competition, the ability of the Company 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 the Company that the
Company's plans and objectives will be achieved.
8
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Revenues....................................... $847,043 $987,036 $1,204,887
Costs and Expenses:
Salaries and benefits........................ $530,193 $625,749 $ 744,282
Office and general........................... 264,898 309,101 401,617
Provision for doubtful accounts.............. 3,291 2,441 14,563
Restructuring and merger-related costs....... -- -- 80,946
Interest expense............................. 16,617 15,887 20,083
Other (income) expense....................... (5,389) (8,708) (10,500)
-------- -------- ----------
$809,610 $944,470 $1,250,991
-------- -------- ----------
Income (Loss) before Provision for Income
Taxes......................................... $ 37,433 $ 42,566 $ (46,104)
Provision for Income Taxes..................... 17,275 24,183 11,230
-------- -------- ----------
$20,158 $ 18,383 $ (57,334)
Minority Interest Income (Expense)............. (423) 450 (2,385)
Equity in Earnings of Affiliated Companies..... 9,320 19,084 9,673
-------- -------- ----------
Net Income (Loss).............................. $ 29,055 $ 37,917 $ (50,046)
======== ======== ==========
Net Income (Loss) Per Share:
Basic........................................ $ .71 $ .91 $ (1.17)
======== ======== ==========
Diluted...................................... $ .69 $ .88
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
ASSETS 1996 1997
------ ---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 130,188 $ 109,033
Accounts receivable, net of bad debt reserve of
$7,505 in 1996 and $11,544 in 1997.................. 798,458 797,254
Other current assets................................. 88,320 91,594
---------- ----------
$1,016,966 $ 997,881
========== ==========
Property and Equipment:
Land and buildings................................... $ 412 $ 938
Leasehold improvements............................... 62,690 74,209
Furniture and equipment.............................. 194,508 223,160
---------- ----------
$ 257,610 $ 298,307
Less--Accumulated depreciation and amortization...... (148,208) (173,985)
---------- ----------
$ 109,402 $ 124,322
========== ==========
Other Assets:
Goodwill, net of accumulated amortization of $62,610
in 1996 and $64,694 in 1997......................... $ 249,200 $ 332,807
Investment in affiliated companies................... 207,479 170,197
Other assets......................................... 35,341 49,215
---------- ----------
$ 492,020 $ 552,219
---------- ----------
$1,618,388 $1,674,422
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable..................................... $ 911,185 $ 945,285
Short-term bank borrowings........................... 91,761 88,008
Liability for federal and foreign taxes.............. 12,131 13,676
Current portion of long-term debt.................... 16,094 14,352
Accrued expenses..................................... 92,063 170,962
---------- ----------
$1,123,234 $1,232,283
========== ==========
Noncurrent Liabilities:
Long-term debt....................................... $ 55,918 $ 35,915
Liability for deferred compensation.................. 67,218 63,276
Other noncurrent liabilities......................... 43,980 75,121
Obligation to Modem Media partners................... 24,387 --
---------- ----------
$ 191,503 $ 174,312
========== ==========
Stockholders' Equity:
Preferred stock, $1.00 par value, authorized 100
shares, none issued................................. $ -- $ --
Common stock, 33 1/3c par value, authorized 90,000
shares, issued 41,797 in 1996 and 44,195 in 1997.... 13,932 14,732
Paid-in capital...................................... 167,797 204,070
Retained earnings.................................... 134,047 68,951
Less--Treasury stock, at cost: 204 in 1996; 243 in
1997................................................ (4,553) (5,155)
Less--Deferred compensation.......................... (750) (150)
Cumulative translation adjustment.................... (6,822) (14,621)
---------- ----------
$ 303,651 $ 267,827
---------- ----------
$1,618,388 $1,674,422
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
CASHFLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss)............................. $ 29,055 $ 37,917 $ (50,046)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Restructuring charge........................ -- -- 80,946
Depreciation and amortization............... 32,813 38,181 47,502
Provision for doubtful accounts............. 3,291 2,441 14,563
Provision for deferred compensation......... 4,730 9,130 633
Equity in earnings of affiliated companies.. (9,320) (19,084) (9,673)
Dividends received from affiliated
companies.................................. 6,632 3,604 2,872
Other non-cash charges...................... 7,242 (3,343) 175
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable....................... (82,369) (130,395) 21,227
Other current assets...................... (14,634) (5,690) 562
Accounts payable.......................... 73,235 110,263 28,638
Accrued expenses.......................... (4,063) 32,915 14,844
Deferred income taxes..................... (6,229) (5,338) (3,796)
-------- -------- ---------
Net cash provided by operating
activities............................. $ 40,383 $ 70,601 $ 148,447
-------- -------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment........... $(37,490) $(33,094) $ (42,413)
Acquisitions of advertising agencies.......... (39,442) (58,121) (81,724)
Other transactions............................ (2,723) 3,351 --
-------- -------- ---------
Net cash used in investing activities... $(79,655) $(87,864) $(124,137)
-------- -------- ---------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Increase (decrease) in short-term bank
borrowings................................... $ 42,118 $ 29,716 $ (15,748)
Proceeds from issuance of common stock........ 11,068 12,275 19,202
Proceeds from issuance of long-term debt...... 689 25,264 4,425
Payments of long-term debt.................... (18,938) (30,077) (29,763)
Cash dividends paid........................... (13,864) (14,235) (15,050)
Payments for purchases of common stock........ (2,340) (9,258) (7,115)
-------- -------- ---------
Net cash provided by (used for)
financing activities................... $ 18,733 $ 13,685 $ (44,049)
-------- -------- ---------
Effect of exchange rate changes on cash......... $ 683 $ (388) $ (1,416)
-------- -------- ---------
Net increase (decrease) in cash................. $(19,856) $ (3,966) $ (21,155)
Adjustment to conform fiscal year of pooled
entity......................................... -- 50,668 --
Cash, at beginning of year...................... 103,342 83,486 130,188
-------- -------- ---------
Cash, at end of year............................ $ 83,486 $130,188 $ 109,033
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN 000'S)
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
CUMULATIVE
COMMON PAID-IN RETAINED TREASURY DEFERRED TRANSLATION
STOCK CAPITAL EARNINGS STOCK COMPENSATION ADJUSTMENT
------- -------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $13,862 $160,034 $ 95,179 $(13,653) $(1,800) $ (6,014)
Net income............ -- -- 29,055 -- -- --
Dividends............. -- -- (13,864) -- -- --
Common stock
issuances............ 95 723 -- 11,249 -- --
Common stock
purchases............ (83) (2,000) -- (257) -- --
Other................. -- -- -- -- 600 (451)
------- -------- -------- -------- ------- --------
Balance at December 31,
1995................... $13,874 $158,757 $110,370 $ (2,661) $(1,200) $ (6,465)
Net income............ -- -- 37,917 -- -- --
Dividends............. -- -- (13,877) -- -- --
Common stock
issuances............ 127 7,257 -- 4,132 -- --
Common stock
purchases............ (69) (2,786) -- (6,024) -- --
Gain on issuance of
subsidiary stock..... -- 4,569 -- -- -- --
Other................. -- -- (363) -- 450 (357)
------- -------- -------- -------- ------- --------
Balance at December 31,
1996................... $13,932 $167,797 $134,047 $ (4,553) $ (750) $ (6,822)
Net loss.............. -- -- (50,046) -- -- --
Dividends............. -- -- (15,050) -- -- --
Common stock
issuances............ 888 39,803 -- 2,895 -- --
Common stock
purchases............ (88) (3,530) -- (3,497) -- --
Other................. -- -- -- -- 600 (7,799)
------- -------- -------- -------- ------- --------
Balance at December 31,
1997................... $14,732 $204,070 $ 68,951 $ (5,155) $ (150) $(14,621)
======= ======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN 000'S, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations--The Company ("True North") is a global advertising and
communications business. Pages 1 and 2 of this Annual Report contain a more
comprehensive discussion of the nature of True North's operations.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and all wholly owned and majority-owned
subsidiaries. The Company uses the equity method of accounting to record its
investments in 20% to 49% owned affiliated companies.
On December 30, 1997 True North consummated its acquisition of Bozell,
Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E"), a global advertising and
communications business. The transaction has been accounted for as a pooling
of interests: accordingly the Company's historical financial statements have
been restated to reflect the nature of this transaction, as more fully
disclosed in Note 2.
Use of Estimates--The preparation of these financial statements required the
use of certain estimates by management in determining the Company's assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.
Income Recognition--True North records revenue when media placements appear
and production costs are billable. Salaries and other agency costs are charged
to expense at the time incurred.
Cash Equivalents--For purposes of balance sheet and statements of cash flow
presentation, True North considers all highly liquid investments with an
original maturity of 90 days or less to be cash equivalents.
Property and Depreciation--True North computes depreciation principally
using the straight line method over the estimated useful life of the related
asset. The Company amortizes leasehold improvements over the lesser of the
estimated useful life of the asset or the life of the lease.
Income Taxes--Effective January 1, 1992, True North adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes".
At December 31, 1997, unremitted earnings of foreign subsidiaries and
affiliated companies were approximately $75,582. The Company does not provide
deferred taxes on these earnings because it permanently reinvests such
earnings in these operations.
Goodwill--True North amortizes goodwill over periods from ten to forty
years. Periodically, the Company reviews and, if necessary, adjusts the
carrying value for goodwill based upon current facts and circumstances and its
best estimate of undiscounted future cash flows of the related business.
Amortization of goodwill, including goodwill of affiliated companies, amounted
to $11,483 in 1995, $13,213 in 1996, and $14,466 in 1997.
Fair Value of Financial Instruments--The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, short-term bank
borrowings, and accrued expenses approximate fair value because of the short
maturity of those instruments. At December 31, 1997, True North estimates that
the fair value of its long-term debt is not materially different from its
financial statement carrying value. The fair value of long-term debt was
estimated using quoted market prices or discounted future cash flows.
True North owns approximately 5% of the outstanding common stock of
Shandwick plc, a publicly-held global advertising agency. Through June 30,
1997, True North accounted for this investment as a "trading security" and
recorded a loss of $424 in 1995 and gains of $1,440 and $37 in 1996 and 1997,
respectively, related to changes in market value related to this investment.
During 1997, True North designated this investment
13
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
as an "available for sale security". Accordingly, the related investment has
been reclassified from other current assets to other noncurrent assets. At
December 31, 1997, the book value of this investment of $4,531 was
approximately equal to its fair market value.
During 1993, True North entered into an interest rate swap contract with a
bank which became effective in June 1994. Under this arrangement, True North
receives LIBOR and pays a fixed interest rate of 6.1% on a notional amount of
$25,000 in borrowing during the period from June 1994 to June 1999. At
December 31, 1997, the carrying and fair market values of this interest rate
swap, which has been designated as a hedge against True North's $25,000 three
year term loan, were $323 and $(118), respectively.
Earnings Per Share--Basic earnings per share are computed using the weighted
average number of common shares outstanding during the year. Diluted earnings
per share are computed using the weighted average number of common shares
outstanding during the year and include the potential issuance of shares under
True North's stock option plans. The following table summarizes the
differences in the number of shares used in both calculations for the years
ended December 31, 1995, 1996, and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Basic................................................ 41,155 41,591 42,631
Diluted.............................................. 42,320 42,872 44,094
</TABLE>
Recently Issued Accounting Standards--In June 1997 the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive
Income", and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information". In February 1998 the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits". All
three statements are effective for fiscal years beginning after December 15,
1997. True North believes that the adoption of these new accounting standards
will not have a material impact on its financial statements.
2. ACQUISITIONS
On December 30, 1997 the Company consummated its acquisition of BJK&E by
issuing approximately 18,627 shares of its common stock in exchange for all
outstanding common stock of BJK&E. The Company also assumed and exchanged all
outstanding BJK&E stock options into options to purchase shares of the
Company's common stock. The transaction has been accounted for as a pooling of
interests.
All of the Company's financial data have been restated to include the
historical financial information of BJK&E. Prior to this transaction, BJK&E's
financial year ended on March 31. In 1997 BJK&E's fiscal year-end has been
changed to conform to the Company's fiscal year-end. The consolidated income
statements and statements of cash flows for the years ended December 31, 1995
and 1996 represent the results of True North for the years ended December 31,
1995 and 1996, and the results of BJK&E for the years ended March 31, 1996 and
1997. Based upon the differences in fiscal year-ends, BJK&E's results of its
U.S. operations for the three months ended March 31, 1997 have been included
in the Company's consolidated income statements for both 1996 and 1997. For
the three months ended March 31, 1997 BJK&E's U.S. operations recorded total
revenues pre-tax income, and net income of $113,758, $2,930 and $363,
respectively. Accordingly, the retained earnings in the consolidated
statements of stockholders' equity for the year ended December 31, 1996 have
been adjusted to reflect the net income of BJK&E for the three months ended
March 31, 1997. Similarly, the impact of conforming the fiscal periods of
BJK&E's U.S. operations has been reflected in the consolidated statement of
cash flows for the year ended December 31, 1996 under the caption, "Adjustment
to conform fiscal year of pooled entity". This adjustment relates principally
to the cyclical nature of the advertising business and the related change in
ratio of accounts receivable to accounts payable which occurs between the
first and fourth quarters of a calendar year.
As required in a pooling of interests business combination, the Company's
historical financial statements have been adjusted to conform the accounting
policies of both companies. The significant accounting policies of True North
and BJK&E differed in only two respects.
14
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
. In 1996 True North had accounted for Staff Accounting Bulletin No. 51,
"Accounting for Sales of Stock by a Subsidiary" ("SAB 51") gains and
losses through its income statement whereas BJK&E had accounted for such
gains and losses as changes in stockholders' equity. On a combined basis,
True North and BJK&E account for such gains and losses as changes in
shareholders' equity because True North believes that such accounting
treatment most accurately portrays the underlying economic substance of
these types of transactions.
. BJK&E had recognized revenues on print production costs as incurred
whereas True North had recorded revenues on print production costs when
these costs were billable. On a combined basis, True North and BJK&E
record revenues on production costs when such costs are billable because
True North believes that such accounting treatment most accurately
matches revenues with the related costs and expenses.
As a result, the historical results of the Company have been retroactively
conformed, consistent with the intent to present both entities as though they
had always been combined. The impact of these conformity adjustments was to
reduce True North's previously reported pre-tax and net income for the year
ended December 31, 1996 by $5,800 and $3,480, respectively, and BJK&E's
previously reported revenues, pre-tax income and net income for its 1996
fiscal year by $1,002, $1,002 and $601, respectively.
Separate and combined results of True North and BJK&E during the periods
preceding the merger were as follows:
<TABLE>
<CAPTION>
TRUE CONFORMITY
NORTH BJK&E ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Revenues....................... $439,053 $407,990 -- $847,043
Pre-tax income................. 14,751 22,682 -- 37,433
Net income..................... 19,653 9,402 -- 29,055
YEAR ENDED DECEMBER 31, 1996
Revenues....................... $493,050 $494,988 $(1,002) $987,036
Pre-tax income................. 19,214 30,154 (6,802) 42,566
Net income..................... 27,834 14,164 (4,081) 37,917
</TABLE>
On December 31, 1996, True North acquired a 64% interest in Modem Media
Advertising Limited Partnership ("Modem Media"), a technology-based marketing
communications firm, in exchange for an absolute obligation to issue 1,121 of
its common shares (issued on January 7, 1997) valued at $24,387, and a 36%
interest in the assets and operations of TN Technologies Inc. valued by
appraisal experts at $8,203. In addition, True North is obligated to make a
$16 million cash payment and a $4 million payment in shares of its common
stock to the former owners of this agency in the event that the combined
operations of Modem Media and TN Technologies Inc. (known as TN Technologies
Holding Inc.) are able to complete an initial public offering of its common
stock. The difference between the initial purchase price and the fair value of
assets acquired in this transaction amounting to $36,465 has been allocated to
goodwill and is being amortized over a twenty year period.
During 1995, 1996 and 1997, True North purchased several agencies located in
North America, Europe, Latin America and the Pacific Rim in addition to the
European agencies it obtained in its settlement with Publicis (see Note 5).
Agencies purchased during the latter part of 1995 and in 1996 contributed
$148,457 and $10,048 to True North's 1997 revenues and pretax income,
respectively. Had these acquisitions taken place on January 1 of the previous
years, consolidated revenues and income would not have been significantly
different from reported amounts.
15
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RESTRUCTURING AND MERGER-RELATED COSTS
As a result of its acquisition of BJK&E in the fourth quarter of 1997 (see
Note 2), True North recorded a pre-tax charge of $80,946 related to merger-
related costs and the impact of restructuring the combined operations. These
costs are summarized as follows:
<TABLE>
<CAPTION>
WRITE-
DOWN OF RESTRUCTURING
LONG- RESERVE AT
RESTRUCTURING LIVED CASH DECEMBER 31,
RESERVE ASSETS PAYMENTS 1997
------------- -------- -------- -------------
<S> <C> <C> <C> <C>
Anticipated loss on
subleases................ $11,097 -- (158) $10,939
Severance and other exit
costs.................... 38,740 -- (4,847) 33,893
Impaired long-lived
assets................... 14,237 (14,237) -- --
Merger-related transaction
costs.................... 16,872 -- (4,559) 12,313
------- -------- ------ -------
$80,946 $(14,237) (9,564) $57,145
======= ======== ====== =======
</TABLE>
The restructuring initiative involves the closure and/or merger of both U.S.
and international offices in all of True North's agency networks.
. The FCB Worldwide agency network closed two offices in Canada and the
United States as a result of a client conflict precipitated by the
merger. In addition, the FCB agency network restructured and merged its
Brazilian operations with a business acquired in the fourth quarter of
1997 and restructured its European agency network that was acquired or
received from the Publicis settlement (see Note 5) during 1997.
. The Bozell Worldwide agency network restructured operations in the United
States, Europe, Asia and the Pacific Rim. The U.S. restructuring
activities of this network were precipitated by changes in local business
conditions and the transfer of a client to the FCB agency network.
Restructuring activities outside of the United States principally
involved the elimination of facilities and/or operations which did not
meet Company financial objectives and were duplicative to other
facilities or offices existing in either the Bozell Worldwide or FCB
Worldwide agency networks.
. The BJK&E merger precipitated the cancellation of the planned initial
public offering ("IPO") of common stock of TN Technologies Holding Inc.
both due to the form of the BJK&E merger and because the Company is
currently contemplating plans to integrate this subsidiary with Poppe
Tyson. The cancellation of the IPO resulted in the write-off of related
transaction costs which could have been recovered in the event of an IPO.
In addition, a restructuring of this unit was initiated so that its
integration with Poppe Tyson can be completed. Similarly, staff
reductions and office closures were initiated in Poppe Tyson for the same
reason.
. True North also combined its media buying operations with the media
buying operations of BJK&E to achieve future cost savings resulting from
both economies of scale and a rationalization of media buying computer
systems. Similar combinations were commenced in several of the other
operations included in True North Diversified Services Companies.
These restructuring activities resulted in the identification of leased
facilities which the Companies does not require for its operations. As a
result, the Company has commenced actions to sublet these leased facilities
and has recorded its best estimate of the cumulative costs of these subleases
as an element of the restructuring charge. True North expects that it will
complete subleases for all of the related leased facilities by the end of
1998.
16
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
These restructuring activities include plans for the elimination of 604
positions within True North. As of December 31, 1997, 296 employees had been
terminated in accordance with the plans. True North expects that the remaining
terminations will be accomplished in 1998.
The write-down of long-lived assets primarily represents goodwill associated
with offices that have been closed or are to be sold as a part of the
restructuring plans. In the case of offices to be sold, True North has
computed the goodwill write-off as the difference between the estimated fair
value of the related business and its net tangible and intangible assets.
These sales are expected to be completed by the end of 1998.
4. OTHER CURRENT ASSETS
At December 31, 1996 and 1997, other current assets consisted of:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Expenditures billable to clients......................... $57,714 $53,960
Deferred taxes........................................... 8,705 19,853
Prepaid expenses and other current assets................ 21,901 17,781
------- -------
$88,320 $91,594
======= =======
</TABLE>
5. INVESTMENT IN AFFILIATED COMPANIES
The Company's investment in affiliated companies consists of:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Investment in Publicis Communication (20.8% in 1996
and 26.5% in 1997)................................... $ 76,495 $158,817
Investment in Publicis-FCB B.V........................ 114,861 --
Other................................................. 16,123 11,380
-------- --------
$207,479 $170,197
======== ========
</TABLE>
In June 1997, True North and Publicis consummated a settlement, whereby True
North exchanged its 49% interest in Publicis.FCB for agencies in France,
Greece, Portugal and the United Kingdom and an additional 5.7% interest in
Publicis Communication. The impact of this settlement was not material to True
North's consolidated financial statements.
Summarized financial information for affiliated companies is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Current assets......................................... $977,655 $891,199
Noncurrent assets...................................... 224,530 145,996
Current liabilities.................................... 861,777 790,509
Long-term debt......................................... 16 9
Other noncurrent liabilities........................... 90,698 18,704
Shareholders' equity................................... 249,694 227,973
Revenues............................................... 653,136 587,359
Pretax income.......................................... 76,559 72,385
Net income............................................. 42,237 42,941
</TABLE>
The Company's equity in the net tangible assets of these affiliated
companies was $82,092 at December 31, 1996 and $62,331 at December 31, 1997.
17
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SHORT-TERM BANK BORROWINGS AND LONG-TERM DEBT
Short-term bank borrowings consist principally of amounts borrowed under
domestic and international bank overdraft facilities, lines of credit and
multicurrency credit arrangements. Average aggregate short-term borrowings
were $77,540 in 1996 and $139,310 in 1997, and the maximum amount outstanding
was $136,621 in 1996 and $166,172 in 1997. The weighted average interest rate
for short-term borrowings was 7.1%, 6.5% and 6.5% in 1995, 1996 and 1997,
respectively.
Long-term debt consists of:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Senior bank term loans................................ $ 12,800 $ 6,800
15% senior subordinated notes......................... 16,000 --
Three year term loan.................................. 25,000 25,000
7.85%-11.5% obligations under capitalized leases...... 10,918 8,624
Other notes and obligations........................... 7,294 9,843
-------- --------
$ 72,012 $ 50,267
-------- --------
Less: portions due within one year.................... (16,094) (14,352)
-------- --------
$ 55,918 $ 35,915
======== ========
</TABLE>
Scheduled maturities of long-term debt are $14,352, $35,170, and $745 in
1998, 1999, and 2000, respectively.
On December 21, 1995 the Company entered into a Revolving Credit Agreement
totaling $90,000 with several banks. This agreement, which was amended during
1997 to extend its termination date from December 21, 1998 to May 31, 1999,
provides that True North may obtain loans bearing interest at a bid rate
(LIBOR or Fixed), a Reference Rate, or the Eurodollar rate plus a spread, and
requires a facility fee of .175% to .300%, depending upon the Company's
financial performance. During 1995, there were no borrowings under this
agreement. During 1996, the Company borrowed $12,000 under this agreement for
a six month period. These borrowings were repaid prior to December 31, 1996.
During 1997 True North borrowed and had outstanding debt of $55,000 at
December 31, 1997 under this agreement.
During 1997 True North entered into a short term revolving credit agreement
totaling $60,000 with three banks. The agreement, which expires on May 31,
1998, provides that True North may obtain loans bearing interest at a bid rate
(LIBOR or Fixed), a Reference Rate, or the Eurodollar rate plus a spread. The
agreement requires a Facility Fee of .15% to .275% depending upon the
Company's financial performance. During 1997, the Company did not borrow under
this agreement.
On June 22, 1994 the Company entered into a senior bank loan agreement which
allows the Company to borrow at floating rate interest and requires semiannual
principal payments. The agreement, which had an original termination date of
February 1, 1998, was amended in 1997 to extend the termination date to May 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 $80,000.
The senior bank term loan interest rate was 8.125% and 8.5% at December 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 certain of
the Company's U.S. subsidiaries. The borrowings are further secured by certain
accounts receivable, certain contract rights and certain other intangible
property with a maximum recourse to the banks as a secured party of $35,000.
At December 31, 1997 the Company had available borrowing capacity of $57,192
under this agreement.
18
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On May 24, 1996 the Company entered into a $25 million three year term loan
with two of its banks. The interest rate on this loan is fixed at 6.87%.
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 through November 2000. The
leases were for the acquisition of equipment.
In addition to these agreements, the Company had available at various banks
uncommitted lines of credit aggregating approximately $144,662 at December 31,
1997, of which $128,823 was unused. These other lines of credit are subject to
annual renewal and may be withdrawn at the option of the various banks. There
are no commitment fees or compensating balance requirements under these
arrangements. Interest rates are negotiated at the time of each borrowing.
The long-term debt agreements and Revolving Credit Agreement contain various
restrictive covenants and conditions which include, but are not limited to the
following: the Company must maintain a minimum net worth of $165,000, plus 50%
of Adjusted Net Income (as defined) from June 30, 1995, a current ratio of at
least .75:1, an indebtedness (as defined) to capitalization ratio of no
greater than .5:1, and a fixed charge coverage ratio of at least 1.5:1.
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.
At December 31, 1997, the Company was in compliance with, or had obtained
waivers for, all covenants and conditions related to these agreements.
The Company is currently negotiating with a group of banks to restructure
its credit agreements and senior bank loan agreement. The negotiations are
expected to be completed in May 1998.
7. CONTINGENCIES
True North is a party to several lawsuits incidental to its business. It is
not possible at the present time to estimate the ultimate liability, if any,
of the Company with respect to such litigation; however, management believes
that any ultimate liability will not be material in relation to the Company's
consolidated results of operations or financial position.
8. STOCK-BASED COMPENSATION PLANS
The Company has established various stock option plans for officers and key
employees. These plans provide for the issuance of options to purchase common
shares at fair market value on the date of grant. Options vest immediately, or
after three or five years and expire after ten years. The Company may grant
options for up to 12,114 shares under these plans. The Company had 4,334.9
options outstanding and not yet exercised at December 31, 1997.
19
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for stock
options awarded under these plans been determined consistent with FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Net Income (Loss): As reported......................... $37,917 $(50,046)
Pro forma...................................... 36,781 (51,485)
Basic EPS: As reported................................. $ .91 $ (1.17)
Pro forma...................................... .88 (1.21)
Diluted EPS: As reported............................... $ .88
Pro forma...................................... .86
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
A summary of the status of the Company's stock option plans at December 31,
1995, 1996 and 1997 and changes during the years then ended is presented in
the following table and narrative:
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ----------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 4,830.4 $ 8.55 5,189.6 $10.02 4,767.9 $11.71
Granted................. 1,014.0 15.56 677.9 18.86 812.0 20.49
Exercised............... (70.0) 10.69 (241.0) 11.39 (1,036.0) 2.76
Forfeited............... (584.8) 7.39 (858.6) 7.23 (209.0) 20.15
------- ------- --------
Outstanding at end of
year................... 5,189.6 $10.02 4,767.9 $11.71 4,334.9 $15.08
======= ======= ========
Exercisable at end of
year................... 959 $14.46 1,241.0 $16.14 2,653.9 $12.13
======= ======= ========
Weighted average fair
value of options
granted................ $ 5.45 $ 5.69 $ 6.63
====== ====== ======
</TABLE>
Of the 4,334.9 options outstanding at December 31, 1997, 1,570 have exercise
prices between $9.44 and $19.25, with a weighted average exercise price of
$15.97 and a weighted average remaining contract life of 5.79 years; 999 of
these options are exercisable. 1,699 options have exercise prices of between
$19.31 and $25.38, with a weighted average exercise price of $19.34 and a
weighted average remaining contract life of 7.27 years; 589 of these options
are exercisable. The remaining 1,065.9 options and warrants have exercise
prices between $.005 and $5.20, with a weighted average exercise price of
$4.63 and a weighted average remaining contract life of one year; all of these
options are exercisable.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for 1995, 1996 and 1997: risk-free interest rates of
7.20%, 5.72% and 6.01%; expected dividend yields of 2.17%, 2.70% and 2.93%;
expected life of 10 years; and expected volatility of 22.9%, 23.9% and 26.5%.
20
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. SHAREHOLDERS' RIGHTS PLAN
True North has a Shareholders' Rights Plan that is designed to protect
shareholders from unfair or coercive takeover practices. Under this plan, one
preferred stock purchase right exists for each outstanding share of common
stock. The rights, which expire in November 1998, are exercisable only if a
person or group (excluding True North) acquires 20% (25% in the case of
Publicis Communication and its affiliates) or more of True North's common
stock or announces a tender offer which would result in ownership of 30% or
more of True North's common stock. Each right entitles the holder to purchase
1/2,000 of a share of Series A Junior Participating Preferred Stock
("preferred stock") of the Company at a purchase price of $42.50, subject to
adjustment under certain conditions. At December 31, 1997, 45 shares of the
True North's unissued preferred stock were reserved for issuance upon exercise
of these rights.
Subject to certain conditions and limitations, in the event that True North
is acquired by a person or group, these rights (which have not otherwise been
exercised to acquire True North's preferred stock) entitle the holder to
acquire the common stock of the surviving entity at approximately 50% of fair
market value.
The Board of Directors has the flexibility to (i) redeem outstanding rights
at a rate of $.005 per right, (ii) adjust the thresholds at which these rights
become exercisable, and, (iii) exclude other persons or groups from triggering
the exercisability of these rights.
10. DISTRIBUTION OF EARNINGS AND ASSETS
Information about the Company's operations in different geographic areas for
1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
U. S.............................. $ 666,603 $ 788,110 $ 892,117
International..................... 180,440 198,926 312,770
---------- ---------- ----------
$ 847,043 $ 987,036 $1,204,887
========== ========== ==========
Income (Loss) before Provision for
Taxes:
U. S.............................. $ 51,117 $ 50,715 $ (23,989)
International..................... (13,684) (8,149) (22,115)
---------- ---------- ----------
$ 37,433 $ 42,566 $ (46,104)
========== ========== ==========
Net Income (Loss):
U. S.............................. $ 32,289 $ 27,176 $ (28,525)
International..................... (3,234) 10,741 (21,521)
---------- ---------- ----------
$ 29,055 $ 37,917 $ (50,046)
========== ========== ==========
Identifiable Assets:
U. S.............................. $ 785,026 $1,012,828 $ 978,224
International..................... 487,693 605,560 696,198
---------- ---------- ----------
$1,272,719 $1,618,388 $1,674,422
========== ========== ==========
</TABLE>
11. RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
True North provides retirement benefits to its participating U.S.
subsidiaries through two profit sharing plans, a savings plan, and a stock
purchase plan.
True North's annual contribution to one of its profit sharing plans is based
upon income, as defined in the plan, but may not exceed the amount permitted
as deductible expense under the Internal Revenue Code. The annual contribution
for the other True North profit sharing plan is determined annually by the
board of directors
21
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of one of its subsidiaries, but may not exceed the amount permitted as
deductible expense under the Internal Revenue Code. Under the stock purchase
plan and savings plan, True North matches 50% of employee contributions up to
the individual employee limits deductible under the Internal Revenue Code. The
combined profit sharing, savings and stock purchase plan provisions were
$11,044 in 1995, $12,380 in 1996, and $15,316 in 1997.
True North provides supplemental retirement benefits to employees of certain
of its U.S. subsidiaries through a supplemental pension plan. The supplemental
pension plan is integrated with one of the profit sharing plans and is
designed to provide employees, who retire at age 65 with 30 or more years of
service, annual retirement benefits of 45% of the highest five-year average
compensation during their last ten years of full-time employment. If a
retiring employee's profit sharing balance is not sufficient to fund the
minimum benefit described above, the pension plan provides the necessary
supplemental funding to bring the total benefit up to the level guaranteed by
the plans.
Net pension costs for the supplemental pension plan for 1995, 1996, and 1997
included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Service cost--benefits earned during the year.............. $ 110 $ 152 $ 148
Interest cost on projected benefit obligation.............. 212 190 171
Actual return on plan assets............................... (121) (150) (165)
Net amortization and deferral.............................. 40 39 18
----- ----- -----
$ 241 $ 231 $ 172
===== ===== =====
</TABLE>
The following table sets forth the funded status and amounts recognized for
the supplemental pension plan at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits................................................ $2,063 $1,890
Nonvested benefits............................................. 161 193
Additional amounts related to projected wage increases......... 460 271
------ ------
Actuarial present value of projected benefit obligations......... $2,684 $2,354
Plan assets at fair value........................................ 1,818 2,117
------ ------
Projected benefit obligation in excess of plan assets............ $ 866 $ 237
Unrecognized prior service cost.................................. 338 310
Unrecognized net loss (gain)..................................... 57 (639)
Unrecognized net transition obligation........................... 116 105
------ ------
Accrued period pension plan cost................................. $ 469 $ 461
====== ======
</TABLE>
A salary increase rate of 6% and an investment return rate of 8% were used
in 1995, 1996, and 1997. Discount rates of 8%, 7.25%, and 7.50%, were used in
1995, 1996, and 1997, respectively.
During 1997, the Company commenced plans to terminate its supplemental
pension plan effective December 31, 1997. The impact of this termination,
which is expected to be completed in 1998, will not have a material impact on
the results of operations or financial condition of True North.
22
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has entered into agreements whereby certain employee directors
and other employees are or will be eligible for part-time employment and/or
deferred compensation upon retirement from full-time employment. The
provisions for these agreements, which are charged to income over the
employment period of these individuals, were $16,280 in 1995, $20,612 in 1996,
and $17,088 in 1997.
True North provides limited postretirement medical and life insurance
benefits to employees who meet certain eligibility criteria. Prior to January
1, 1993, the Company accounted for such benefits on the cash basis. In 1993,
the company adopted the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", on a prospective basis. Under
this method, the Company is amortizing the actuarial present value of the
accumulated postretirement benefit obligation at January 1, 1993 over a twenty
year period. In addition, the Company provides for current year service costs,
interest costs and actuarially determined plan gains and losses.
The components of expense for these postretirement benefits for 1995, 1996,
and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- ------
<S> <C> <C> <C>
Service cost--benefits earned during the year............ $ 365 $ 389 $ 436
Interest cost on accumulated postretirement benefit
obligation.............................................. 583 497 521
Net amortization and deferral............................ 270 209 203
------ ------- ------
$1,218 $ 1,095 $1,160
====== ======= ======
</TABLE>
The following table sets forth the funded status and amounts recognized for
True North's postretirement benefit plans in its consolidated balance sheet at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees................................................... $ 3,295 $ 3,310
Fully eligible active participants......................... 2,217 1,055
Other active plan participants............................. 1,768 3,906
------- -------
Total accumulated postretirement benefit obligation.......... $ 7,280 $ 8,271
Plan assets at fair value.................................... -- --
------- -------
Accumulated postretirement benefit obligation in excess of
plan assets................................................. $ 7,280 $ 8,271
Unrecognized net transition obligation....................... (6,129) (5,792)
Unrecognized net gain........................................ 2,494 1,837
Unrecognized prior service cost.............................. (112) (105)
------- -------
Accrued postretirement benefit cost.......................... $ 3,533 $ 4,211
======= =======
</TABLE>
A discount rate of 7.9%, 7.6%, and 7.3% was used in 1995, 1996 and 1997,
respectively. The rate of increase in covered medical benefits used to
determine accumulated postretirement benefits was 9.8% in 1995, 9.2% in 1996,
and 8.7% in 1997. This rate is assumed to ratably decrease to 6.5% by 2003 and
remain constant thereafter. The medical benefits cost trend rate assumption
does not have a material effect on the amounts reported.
23
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. LEASE OBLIGATIONS
True North leases substantially all of its office facilities under operating
leases. Net rental expense on these leases was $65,737 in 1995, $73,535 in
1996 and $78,832 in 1997, after deducting sublease income of $23,784, $22,702,
and $19,979, respectively.
At December 31, 1997, the future minimum rental obligations for these leases
(net of sublease income of approximately $95,631) is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1998..................................... $ 75,496
1999..................................... 73,857
2000..................................... 65,559
2001..................................... 59,127
2002..................................... 49,258
Thereafter............................... 197,754
</TABLE>
13. FEDERAL, FOREIGN AND STATE INCOME TAXES
The domestic and foreign components of pretax income (loss) are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Domestic...................................... $45,070 $42,775 $(34,514)
Foreign....................................... (7,637) (209) (11,590)
------- ------- --------
$37,433 $42,566 $(46,104)
======= ======= ========
</TABLE>
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
U.S.--currently payable........................ $14,342 $21,875 $10,959
--deferred................................... (5,898) (7,067) (5,344)
Foreign........................................ 2,061 3,801 6,378
State.......................................... 6,770 5,574 (763)
------- ------- -------
$17,275 $24,183 $11,230
======= ======= =======
</TABLE>
Deferred and prepaid tax expense results from temporary differences in the
recognition of revenue and expense for tax and financial reporting purposes.
Deferred tax benefits (liabilities) as of December 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred compensation................................... $22,163 $21,305
Lease reserves.......................................... 9,510 18,699
Depreciation and amortization........................... (4,123) (1,784)
Safe harbor leases...................................... (4,453) (3,980)
Reserve for doubtful accounts........................... 2,627 4,040
Other, net.............................................. (1,463) (2,428)
Valuation allowances.................................... (1,837) (425)
------- -------
$22,424 $35,427
======= =======
</TABLE>
24
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net current deferred taxes as of December 31, 1996 and 1997 were $8,705 and
$19,853, respectively. Net non-current deferred taxes were $13,719 and
$15,574, respectively. Valuation allowances have been provided for potentially
unrealizable foreign tax loss carryforwards.
During 1995, True North settled outstanding obligations in several tax
jurisdictions on a favorable basis. As a result, True North recorded a
reversal of tax reserves amounting to $6,214 in 1995. The 1996 effective tax
rate was favorably impacted by the reversal of $1,000 of valuation allowance
related to net operating losses previously incurred by the Company's Canadian
operations. During 1996 True North was able to utilize these net operating
loss carryforwards to offset current taxable income. As a result, the related
valuation allowance was no longer required and so was reduced. In the fourth
quarter of 1997, True North established tax reserves of $7,000 related to its
plan to reorganize its foreign operations. The reconciliation of the U.S.
statutory rate to the effective income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- -----
<S> <C> <C> <C>
At statutory rate................................. 35.0 % 35.0 % 35.0 %
State taxes, net of federal tax benefit........... 11.8 8.5 1.1
Higher (lower) aggregate effective tax rate on
foreign operations............................... 6.4 3.4 (8.7)
Tax effect of nondeductible amortization.......... 8.2 11.2 (7.9)
Reorganization of foreign operations.............. -- -- (15.2)
Nondeductible transaction expenses................ -- -- (11.3)
Intangible write-offs............................. -- -- (13.9)
Reversal of excess tax reserves................... (16.6) -- --
Other............................................. 1.3 (1.3) (3.5)
----- ---- -----
46.1 % 56.8 % (24.4)%
===== ==== =====
</TABLE>
14. SUPPLEMENTAL CASH FLOW DATA
Interest and taxes paid in 1995, 1996, and 1997 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Interest.......................................... $14,485 $12,525 $18,292
Taxes............................................. 22,532 33,823 40,277
</TABLE>
15. RESERVE FOR BAD DEBTS
Changes in True North's reserve for bad debts for the years ended December
31, 1995, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
IMPACT OF
BALANCE AT PROVISION FOR CURRENCY
BEGINNING OF DOUBTFUL WRITE-OFFS, NET OF TRANSLATION AND BALANCE AT END
YEAR YEAR ACCOUNTS RECOVERIES ACQUISITIONS OF YEAR
---- ------------ ------------- ------------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
1995.................... $5,670 3,291 (3,607) 1,921 $ 7,275
1996.................... $7,275 2,441 (2,766) 555 $ 7,505
1997.................... $7,505 14,563 (12,087) 1,563 $11,544
</TABLE>
25
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The financial statements and related financial information included in this
annual report are the responsibility of management. They have been reported in
conformity with generally accepted accounting principles. In preparing these
financial statements, management has necessarily included some amounts which
are based on its best estimates and judgments. True North maintains systems of
internal accounting and financial control designed to provide reasonable
assurance that its assets are safeguarded against loss from unauthorized use
or disposition, and that transactions are executed and recorded in accordance
with established procedures. These systems of internal controls are reviewed,
modified and improved as changes occur in business conditions and operations.
Arthur Andersen LLP, our independent public accountants, are engaged to
audit and to report on our consolidated financial statements. In performing
their audit in accordance with generally accepted auditing standards, they
evaluate our systems of internal accounting control, review selected
transactions, and carry out other auditing procedures to the extent they
consider necessary in expressing their informed professional opinion on our
financial statements.
The Audit Committee, composed of nonemployee members of the Board of
Directors, meets periodically with management, the independent public
accountants, and the internal auditors. This Committee reviews audit plans and
assesses the adequacy of internal controls and financial reporting. Both the
independent public accountants and internal auditors have direct access to the
Audit Committee.
Bruce Mason Donald Seeley
Chief Executive Officer Chief Financial Officer
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders and Board of Directors of True North Communications Inc.:
We have audited the accompanying consolidated balance sheets of True North
Communications Inc. (a Delaware corporation) and Subsidiaries (the "Company")
as of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the statements of income, stockholders' equity or cash flows for the years
ended March 31, 1997 and 1996, of Bozell, Jacobs, Kenyon & Eckhardt, Inc.
("BJK&E"), a company acquired during 1997 in a transaction accounted for as a
pooling of interests, as discussed in Note 2. Such statements are included in
the consolidated financial statements of the Company and reflect total
revenues of 50% and 48%, for the years ended December 31, 1996 and 1995,
respectively, of the consolidated totals. The financial statements of BJK&E
were audited by other auditors whose reports have been furnished to us and our
opinion, insofar as it relates to amounts included for BJK&E, is based solely
upon the reports of the other auditors. We also did not audit the financial
statements of Publicis Communication for each of the three years in the period
ended December 31, 1997, the investment in which is reflected in the Company's
consolidated financial statements using the equity method of accounting. The
investment in Publicis Communication represents approximately 9% and 5% of
total assets as of December 31, 1997 and 1996, respectively. The equity in its
net earnings was $8,790,000, $5,109,000 and $2,906,000 for the years ended
December 31, 1997, 1996 and 1995, respectively of the consolidated totals. The
financial statements of Publicis Communication were audited by other auditors
whose reports have been furnished to us and our opinion, insofar as it relates
to the amounts included for Publicis Communication, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of True North Communications Inc. and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As described in Note 2 to the consolidated financial statements, the Company
has given retroactive effect to the change in accounting for sales of stock by
a subsidiary and for revenue recognition for print production costs.
Arthur Andersen LLP
Chicago, IL
March 25, 1998
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bozell, Jacobs, Kenyon & Eckhardt, Inc.:
We have audited the consolidated statements of operations, stockholders'
equity and cash flows of Bozell, Jacobs, Kenyon & Eckhardt, Inc. and
subsidiaries for the years 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 results of operations and cash
flows of Bozell, Jacobs, Kenyon & Eckhardt, Inc. and subsidiaries for the two
years 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
28
<PAGE>
EXHIBIT 18.1
March 25, 1998
True North Communications Inc.
101 East Erie Street
Chicago, IL 60611
Re: Form 10-K Report for the year ended December 31, 1997
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
In connection with a pooling of interests business combination between True
North Communications Inc. (the "Company") and Bozell, Kenyon, Jacobs & Eckhardt,
Inc. (BJK&E) in the year ended December 31, 1997, the Company's historical
financial statements have been retroactively adjusted to conform the accounting
policies of the pooled companies as follows:
. The Company changed its method of accounting for sales of stock by a
subsidiary. Previously, the Company accounted for these gains and losses
through the income statement. The Company has changed its method and
accounted for such gains and losses as changes in stockholders' equity.
According to the management of the Company, this change was made to more
accurately portray the underlying economic substance of these types of
transactions.
. The Company changed its method of recognizing revenue on print production
costs. BJK&E previously recognized revenue on print production costs as
these costs were incurred. The Company changed is method to recognize
revenue on print production costs when these costs were billable. According
to the management of the Company, this change was made to more accurately
match revenues with the related costs and expenses.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
Very truly yours,
Arthur Andersen LLP
<PAGE>
EXHIBIT 21.1
TRUE NORTH COMMUNICATIONS INC.
List of Domestic Companies
--------------------------
State
of Company Name % Ownership
Incorporation
Delaware FCB Worldwide L.L.C. 100.00
Delaware Foote, Cone & Belding Advertising, Inc. 100.00
Delaware Foote, Cone & Belding, Inc. 100.00
Delaware Krupp/Taylor Limited Partnership 100.00
Georgia Health Science Media Inc. 100.00
Delaware FCB International, Inc. 100.00
Delaware International Marketing & Advertising
Services, Corp. 100.00
Delaware True North International Inc. 100.00
Pennsylvania Tierney & Partners 100.00
Oregon Borders, Perrin & Norrander, Inc. 100.00
Delaware Market Growth Resources 100.00
Delaware RGA Media Group, Inc. 100.00
New York R/GA Mixed Media Inc. 100.00
Delaware Imaginary Forces (LLC) 19.20
Delaware RGA Digital Expansion Inc. 100.00
New York Publicidad Siboney Corporation 49.00
California Publicidad Siboney Inc. 49.00
Texas Publicidad Siboney Inc. 33.00
Texas Siboney USA, Inc. 33.00
Delaware FCB/Siboney Inc. 60.00
Delaware TN Technologies Inc. 100.00
Washington Christiansen, Fritsch, Giersdorf,
Grant & Sperry, Inc. 100.00
Connecticut Modem Media, Inc. 100.00
Connecticut Modem Media Advertising Limited Partnership 100.00
<PAGE>
FCB Worldwide LLC
List of Foreign Companies
-------------------------
Country Company Name % Ownership
of
Incorporation
Argentina Pragma/FCB 70.00
Argentina Espacios S.A. 11.67
Argentina XYZ Produciones 70.00
Australia Foote, Cone & Belding Australia Pty Ltd. 100.00
Australia Shorter/FCB Pty Ltd. 100.00
Australia FCB Melbourne Pty. Limited 100.00
Australia FCB Adelaide Pty Ltd. 100.00
Australia Forbes Macfie Hansen Pty. Ltd. 100.00
Australia True North Communications Pty. Ltd. 100.00
Australia FCB Sydney Pty. Ltd. 100.00
Australia FCB Superannuation Pty Ltd. 100.00
Canada FCB/ Canada, Ltd. 100.00
Canada Mondialis Communication Marketing 100.00
Canada Programmes Inc. 100.00
Canada Generations Research, Inc. 100.00
Canada 702284 Ontario Ltd. 100.00
Canada Interface Direct Inc. 100.00
Canada Dome Advertising 100.00
Canada Valtona Marketing Ltd. 100.00
Canada TNC Canada Inc. 100.00
Canada Harrod & Mirlin Ltd. 100.00
Canada TNT Interactive Inc. 100.00
Hong Kong Foote, Cone & Belding, Ltd. 100.00
Hong Kong Park Advertising Ltd. 100.00
Hong Kong MNC/FCB (HK) Limited 100.00
Hong Kong Megacom Holdings Limited 70.00
China FCB/Megacom Limited 66.50
Hong Kong True North Communications (HK) Ltd. 100.00
Hong Kong TN Technologies Ltd. 100.00
Mauritius Adcom 100.00
India ULKA 51.00
Japan FCB (Japan) K.K. 100.00
Malaysia FCB Malaysia Sdn. Bhd. 100.00
New Zealand FCB (NZ Holdings) Ltd. 100.00
New Zealand Foote, Cone & Belding Ltd. 100.00
Philippines Barona Property Holdings Inc. 30.00
Philippines Santiago & Puno Advertising Inc. 30.00
<PAGE>
FCB Worldwide LLC
List of Foreign Companies
-------------------------
Country Company Name % Ownership
of
Incorporation
Puerto Rico Foote, Cone & Belding, Inc. 100.00
Puerto Rico Park Advertising, Inc. 100.00
South Africa FCB Holdings (South Africa) Pty, Ltd. 100.00
South Africa Park Advertising Pty, Ltd. 28.56
South Africa Lindsay Smithers - FCB Holdings (Pty) Ltd. 24.00
South Africa Lindsay Smithers/FCB Pty, Ltd. 24.00
South Africa Jonsson Advertising (Pty) Ltd. 22.10
South Africa Lindsay Smithers Group Management Service
(Pty) 24.00
South Africa Lindsay Smithers Staff Investments 24.00
South Africa GMVZ Advertising Pty. Ltd. 28.56
South Africa Partnership In Advertising (Namibia)
(Pty) Ltd. 28.56
South Africa Lindsay Smithers Design Pty Ltd. 24.00
South Africa FCB Global Media (Pty) Ltd 24.00
South Africa FCB Impact (Pty) Ltd. 24.00
South Africa Important Dates (Pty) Ltd. 14.40
South Africa Admark Trust 24.00
South Africa Publicis SA (Pty) Ltd. 24.00
South Africa Optimedia SA (Pty) Ltd. 24.00
Taiwan Foote, Cone & Belding (Taiwan) Ltd. 100.00
Thailand Prakit/ FCB Ltd. 31.18
Thailand Impact Communication Co., Ltd. 49.00
Thailand MNC/FCB Ltd. 100.00
Trinidad Hernandez/FCB LTD. 60.00
Brazil Giovanni/FCB 60.00
Chile Israel & De Bianchi/Foote, Cone &
Belding S.A. 70.00
Colombia FCB/PUMA 100.00
Colombia Artefilme 100.00
Costa Rica FCB de Costa Rica, S.A. 100.00
Domin. Republic FCB / Impact 100.00
Ecuador Foote, Cone & Belding - Ecuador 100.00
El Salvador Artefilme Sociedad Anonima 100.00
Guatemala Publicidade Siboney S.A. 100.00
Honduras FCB/Honduras S.A. 100.00
<PAGE>
FCB Worldwide LLC
List of Foreign Companies
-------------------------
Country Company Name % Ownership
of
Incorporation
Mexico Arellano Publicidad 71.00
Mexico FCB de Mexico S.A. 100.00
Peru Mayo/FCB Publicidade S.A. 60.00
Venezuela Foote, Cone & Belding Publicidad, C.A. 100.00
Venezuela Publics Publicidad, C.A. 100.00
Venezuela TN Medios, C.A. 100.00
Venezuela AJL Park 100.00
Netherlands True North Holding Netherlands B.V. 100.00
Belgium Publicis Direct FCB 100.00
France Foote, Cone & Belding S.A. 99.80
France Empir Media S.A. 99.80
France Empir S.A. 99.80
France AXE Publicite 99.70
France Kenya 52.89
France Kenya Institutional 34.38
Greece Gnomi/FCB 39.92
Portugal FCB do Portugal Publicidade, COA.,
Lisboa 83.00
United Kingdom FCB Advertising Limited 100.00
United Kingdom FCB International Ltd. 100.00
United Kingdom TN Technologies Ltd. 100.00
Turkey Yaratim/FCB Reklam Hitzmetleri Ve Tic A.S. 0.007
Germany Erste "Borderless Ad" GmbH 100.00
Germany Kramer-Pape Wilkens GmbH 25.00
Germany Media Satel 100.00
Germany Zweite "Borderless Ad" GmbH 100.00
Germany ComInterest Holding GmbH 100.00
Netherlands Wilkens Group BV 100.00
Spain Wilkens Advertising SA 80.00
Netherlands FCB B.V. Amsterdam 74.50
Italy Dorland Wilkens 35.00
Italy New Time Verona 35.00
Italy Mast S.r.l. 35.00
Italy Dorland Wilkens 35.00
Czech Republic Wilkens Prague 85.00
Poland Wilkens Warsaw 75.00
Portugal Wilkens Lisboa 15.00
Italy Wilkens Italia 100.00
Netherlands Wilkens Group Netherlands BV 100.00
Spain CICM 100.00
Spain Tapsa 100.00
Spain Comm. Financiera S.I. 90.00
<PAGE>
FCB Worldwide LLC
List of Foreign Companies
-------------------------
Country Company Name % Ownership
of
Incorporation
Spain Marin Asociados 22.50
United Kingdom FCB Europe Ltd. 100.00
United Kingdom FCB Management Services Ltd. 100.00
Germany Wilkens GmbH 97.00
Germany Wilkens Ayer Direct 67.90
Hungary Wilkens Budapest 97.00
Germany Wilkens Frankfurt
Werbeagentur GmbH 97.45
Germany ICW Copartner Werbeagentur
GmbH 81.97
Germany APR Wilkens Agentur for
Public Relations GmbH 74.69
France Publicis Communication S.A. 26.50
Netherlands Publicis/FCB Europe B.V. 26.50
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
List of Domestic Companies
--------------------------
State Of Company Name % Ownership
Incorporation
Delaware Bozell, Jacobs, Kenyon & Eckhardt, Inc. 100.00
New York Bozell Sawyer Miller Group, Inc. 100.00
Delaware BJK&E Holding, Inc. 100.00
New York Delcar Digital L.L.C. 80.00
New York Strategy XXI Group ltd. 20.00
Delaware McCracken Brooks Communications, Inc. 100.00
Texas Temerlin McClain, Inc. 100.00
Delaware Bozell Worldwide, Inc. 100.00
New York Bozell Worldwide, Inc. 100.00
Delaware Graham Gregory Bozell L.L.C. 40.00
Florida Bozell, Inc. 100.00
Texas Custom Production Service, Inc. 100.00
Delaware Bozell Worldwide Holdings, Inc. 100.00
Delaware MET Solutions L.L.C. 90.00
California
Partnership Bozell Yuguchi 50.00
Delaware Bozell Specialized Advertising, Inc. 100.00
Delaware Poppe Tyson, Inc. 94.00
Delaware PTI Sub, Inc. 94.00
Delaware Neterra Inc. 94.00
Delaware Decision Tree, Inc. 94.00
California Accent Software, Inc. 94.00
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
List of Foreign Companies
-------------------------
Country Company Name % Ownership
of
Incorporation
Argentina Bozell Vasquez 65.00
Australia Bozell Worldwide 100.00
Austria Bozell - Kobza 60.00
Belgium Bozell Worldwide Brussels 100.00
Brazil Bozell Brazil 70.00
British Virgin
Islands Bozell Ibero Americana 60.46
Canada Bozell Worldwide 100.00
Canada Bozell Holdings Canada 100.00
Canada Bozell Retail 100.00
France Groupe Bozell 100.00
France FLB Pacific 99.80
France 20/20 Media 49.84
France Bozell Terre-Lune 70.00
France Formes et Facons 66.00
France Bozell Iceberg 100.00
France Golden Gate 54.92
France Telemaque 100.00
Hong Kong Bozell Asia (Holding) Ltd. 100.00
Hong Kong Bozell Ltd. 100.00
Hong Kong Pope Kiernan & Black 100.00
Hong Kong CAL/Bozell Holdings Ltd. 100.00
China CAL-Bozell Int'l. Adv. Comm. 50.00
India MAA Comm. Bozell 30.00
Italy BJK&E (H) Italiana, Srl. 100.00
Italy Bozell Italia 80.00
Japan Bozell Worldwide 100.00
Korea Cheil Bozell 30.00
Malaysia Bozell Worldwide Sdn Bhd 47.86
Malaysia Grant Adv. Sdn Bhd 20.00
Mexico Bozell SA de CV 100.00
Mexico Artest 100.00
Mexico CPV Publicidad 99.90
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
List of Foreign Companies
-------------------------
Country Company Name % Ownership
of
Incorporation
Mexico Interimagen 100.00
Mexico Bozell Healthcare 99.00
Mexico Publicidad Tiempo Espacio 99.90
Mexico Poppe Tyson 98.00
Mexico BJK&E Internacional 99.00
Netherlands Bozell Europe (H) b.v. 100.00
Netherlands Bozell BK&P 100.00
Netherlands BMCH b.v. 100.00
Netherlands Bozell Design 100.00
Netherlands Bell Production b.v. 100.00
Netherlands CCE b.v. 100.00
Germany Bozell Holding GmbH 90.00
Germany Bozell Werbeagentur 59.00
Germany Bozell Direct Friends 59.00
Germany Producta GmbH 59.00
Germany Meditel GmbH 59.00
Germany Die Seite GmbH 59.00
Germany GDW GmbH 59.00
Portugal NMP 100.00
Portugal Bozell Portugal, Publ., S.A. 100.00
Switzerland BJK&E Holdings AG 100.00
Switzerland Bozell Leutenegger Krull 51.00
United Arab
Emirates Bozell Prime 49.00
Philippines Bozell Worldwide 30.00
Portugal Publimeios - Exploracao S.A. 33.33
Portugal Publibus, S.A. 33.33
Spain Bozell Espana 51.00
Singapore Bozell Advertising PTE 100.00
Sri Lanka Minds Lanka 40.00
Taiwan Bozell Taiwan 80.00
United Kingdom Bozell UK Group Ltd. 100.00
United Kingdom Delany Fletcher Bozell 100.00
United Kingdom Cyclope Productions Ltd. 100.00
United Kingdom SCW Bozell (Holdings) Ltd. 100.00
United Kingdom 20/20 Media Ltd. 44.90
United Kingdom Bozell UK Ltd. 100.00
United Kingdom Lewis Gaoe Bozell 100.00
United Kingdom Bozell Marketing Services 100.00
<PAGE>
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
List of Foreign Companies
-------------------------
Country Company Name % Ownership
of (Foreign)
Incorporation
United Kingdom Poppe Tyson International 100.00
United Kingdom Charles Barker PLC 100.00
United Kingdom Delaney Fletcher Delany 100.00
United Kingdom Bray Leino Ltd. 100.00
United Kingdom CSS International Holdings Plc. 25.00
United Kingdom CSS International Ltd. 25.00
United Kingdom CSS Promotions Ltd. 25.00
United Kingdom CSS Hospitality Ltd. 25.00
United Kingdom CSS Design Ltd. 19.25
United Kingdom CSS Aerosigns Ltd. 25.00
United Kingdom CSS Business Promotions Ltd. 25.00
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of True North Communications Inc.
As independent public accountants, we hereby consent to the incorporation by
reference of our reports incorporated by reference to this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (File No.'s
33-15126, 33-41128, 33-41129, 33-48523, 33-54273, 33-54279 and 333-41189).
Arthur Andersen LLP
Chicago, Illinois,
March 30, 1998.
<PAGE>
Exhibit 23.2
[KPMG Peat Marwick LLP LOGO APPEARS HERE]
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
ACCOUNTANTS' CONSENT
The Board of Directors
True North Communications Inc.:
We consent to the use of our reports incorporated by reference in the
Registration Statement (No. 33-15126) filed on Form S-8, Registration Statement
(No. 33-41128) filed on Form S-8, and Registration Statement (No. 33-48523)
filed on Form S-8 of True North Communications Inc. of our reports dated May 16,
1997, relating to the consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the two-year period ended March
31, 1997, which reports appear in the December 31, 1997 Form 10-K of True North
Communications Inc.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Omaha, Nebraska
March 25, 1998
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL 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 attorney-in-fact and
agent, with full power of substitution and resubstitution, in any and all
capacities, to sign the Annual Report on Form 10-K of True North
Communications Inc. for its fiscal year ended December 31, 1997 and any and
all amendments thereto, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of 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 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. This Power of Attorney
shall be effective from the date on which it is signed until January 1, 1999.
Name Date Signed
---- -----------
- -----------------------------------
Bruce Mason
/s/ Charles D. Peebler, Jr. February 2, 1998
- -----------------------------------
Charles D. Peebler, Jr.
/s/ Richard S. Braddock February 2, 1998
- -----------------------------------
Richard S. Braddock
/s/ David A. Bell February 10, 1998
- -----------------------------------
David A. Bell
/s/ Donald M. Elliman, Jr. February 2, 1998
- -----------------------------------
Donald M. Elliman, Jr.
/s/ W. Grant Gregory February 3, 1998
- -----------------------------------
W. Grant Gregory
/s/ Leo-Arthur Kelmenson February 9, 1998
- -----------------------------------
Leo-Arthur Kelmenson
/s/ Richard P. Mayer February 2, 1998
- -----------------------------------
Richard P. Mayer
/s/ Michael E. Murphy January 31, 1998
- -----------------------------------
Michael E. Murphy
<PAGE>
/s/ J. Brendan Ryan February 9, 1998
- -----------------------------------
J. Brendan Ryan
/s/ Stephen T. Vehslage February 2, 1998
- -----------------------------------
Stephen T. Vehslage
- -----------------------------------
Ali Wambold
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the financial statements for the year ended December 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 109,033
<SECURITIES> 0
<RECEIVABLES> 808,798
<ALLOWANCES> 11,544
<INVENTORY> 0
<CURRENT-ASSETS> 997,881
<PP&E> 298,307
<DEPRECIATION> (173,895)
<TOTAL-ASSETS> 1,674,422
<CURRENT-LIABILITIES> 1,232,283
<BONDS> 0
0
0
<COMMON> 213,647
<OTHER-SE> 54,180
<TOTAL-LIABILITY-AND-EQUITY> 1,674,422
<SALES> 0
<TOTAL-REVENUES> 1,204,887
<CGS> 0
<TOTAL-COSTS> 1,226,845
<OTHER-EXPENSES> (10,500)
<LOSS-PROVISION> 14,563
<INTEREST-EXPENSE> 20,083
<INCOME-PRETAX> (46,104)
<INCOME-TAX> 11,230
<INCOME-CONTINUING> (50,046)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,046)
<EPS-PRIMARY> (1.17)<F1>
<EPS-DILUTED> 0<F1><F2>
<FN>
<F1>Caption altered to conform with FAS 128 financial statement presentation.
<F2>Registrant reported a loss for 1997. Hence presentation of EPS on a diluted
basis is inapplicable.
</FN>
</TABLE>
