<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
Commission file no. 1-5029
____________________
True North Communications Inc.
------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 36-108816
----------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
101 East Erie Street,
Chicago, Illinois 60611
----------------------------------- -------------
(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number: (312) 425-6500
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock, 33 1/3 cents per share par value,
outstanding as of November 5, 1999 was 48,202,414.
<PAGE>
TRUE NORTH COMMUNICATIONS INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Income for
the Three and Nine Months Ended September 30, 1999 and 1998. 3
Condensed Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and December 31, 1998. 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 1998. 5
Notes to Unaudited Condensed Consolidated Financial
Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 18
Item 6. Exhibits and Reports on Form 8-K. 18
2
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues $356,722 $303,075 $1,015,820 $910,084
------------ ------------ ------------- ------------
Operating Expenses:
Salaries and employee benefits 220,124 188,407 640,004 575,565
Office and general 101,338 84,627 289,573 259,370
Restructuring and other charges 76,400 4,344 76,400 4,344
------------ ------------ ------------- ------------
Total operating expenses 397,862 277,378 1,005,977 839,279
------------ ------------ ------------- ------------
Operating Income (Loss) (41,140) 25,697 9,843 70,805
Other Income (Expense) (968) 149 (1,870) (7,443)
------------ ------------ ------------- ------------
Income (Loss) Before Taxes, Minority
Interest and Equity Income (42,108) 25,846 7,973 63,362
Provision (Benefit) For Taxes (11,283) 12,197 10,502 29,869
------------ ------------ ------------- ------------
Income (Loss) Before Minority Interest
and Equity Income (30,825) 13,649 (2,529) 33,493
Minority Interest Expense (1,235) (943) (2,014) (3,246)
Equity Income 410 518 1,100 4,307
------------ ------------ ------------- ------------
Net Income (Loss) $(31,650) $ 13,224 $ (3,443) $ 34,554
============ ============ ============= ============
Per Share Information:
- ----------------------
Basic earnings (loss) per share $ (0.66) $ 0.29 $ (0.07) $ 0.76
============ ============ ============= ============
Average common shares outstanding 47,763 45,852 46,996 45,613
============ ============ ============= ============
Diluted earnings (loss) per share $ (0.66) $ 0.28 $ (0.07) $ 0.73
============ ============ ============= ============
Average common shares outstanding,
assuming dilution 47,763 47,734 46,996 47,595
============ ============ ============= ============
Cash dividends per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45
============ ============ ============= ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- -----------------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 122,317 $ 88,685
Short-term investments 15,800 --
Marketable securities 6,406 143,863
Accounts receivable, net 995,034 873,675
Other current assets 114,299 76,173
---------- ----------
Total current assets 1,253,856 1,182,396
---------- ----------
NONCURRENT ASSETS:
Property and equipment, net 139,712 129,815
Goodwill, net 484,769 413,395
Investment in affiliated companies 27,009 22,335
Other noncurrent assets 47,073 41,137
---------- ----------
Total noncurrent assets 698,563 606,682
---------- ----------
Total assets $1,952,419 $1,789,078
========== ==========
CURRENT LIABILITIES:
Accounts payable $ 996,605 $1,016,919
Short-term bank borrowings 193,551 115,452
Liability for federal and foreign taxes 11,383 23,467
Current portion of long-term debt 7,109 43,353
Accrued expenses 212,387 149,297
---------- ----------
Total current liabilities 1,421,035 1,348,488
---------- ----------
NONCURRENT LIABILITIES:
Long-term debt 39,777 15,300
Liability for deferred compensation 62,069 69,193
Other noncurrent liabilities 122,839 52,491
---------- ----------
Total noncurrent liabilities 224,685 136,984
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 15,981 15,479
Paid-in capital 269,127 231,899
Retained earnings 45,705 70,496
Unrealized gain on marketable securities, net of tax 2,667 5,102
Cumulative translation adjustment (24,272) (14,220)
Less-Treasury stock (195) (5,150)
Less-Deferred compensation (2,314) --
---------- ----------
Total stockholders' equity 306,699 303,606
---------- ----------
Total liabilities and stockholders' equity $1,952,419 $1,789,078
========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net income (loss) $ (3,443) $ 34,554
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 39,315 35,625
Equity income (686) (4,306)
Restructuring and other charges, net of tax 50,200 -
Other 12,590 757
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (59,304) (41,249)
Other current assets (19,400) (13,269)
Accounts payable and accrued expenses (90,237) (102,881)
-------- ---------
Net cash used by operating activities (70,965) (90,769)
-------- ---------
Cash flows provided (used) by investing activities:
Purchases of property and equipment (35,494) (23,819)
Acquisitions and investments in businesses (72,945) (77,299)
Purchases of short-term investments (15,800) -
Proceeds from sale of marketable securities 140,864 -
-------- ---------
Net cash provided (used) by investing activities 16,625 (101,118)
-------- ---------
Cash flows provided (used) by financing activities:
Payments of long-term debt (38,313) (13,467)
Additions to long-term debt 26,545 137,913
Increase (decrease) in short-term bank borrowings 78,099 48,015
Proceeds from issuance of common stock 12,728 13,813
Proceeds from initial public offering of subsidiary 42,048 -
Cash dividends paid (21,348) (20,017)
Payments for purchases of common stock (10,424) (2,994)
-------- ---------
Net cash provided by financing activities 89,335 163,263
-------- ---------
Effects of exchange rates on cash and cash equivalents (1,363) 642
-------- ---------
Net increase (decrease) in cash and cash equivalents 33,632 (27,982)
Cash and cash equivalents at beginning of year 88,685 109,285
-------- ---------
Cash and cash equivalents at end of period $122,317 $ 81,303
======== =========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions, except per share amounts)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by True North Communications Inc. (True North) without audit, and
include all adjustments, consisting only of normal recurring accruals, which
True North considers necessary for a fair presentation. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in True North's 1998 Annual
Report on Form 10-K.
The operating results presented herein are not necessarily indicative of
the results for the year or other interim periods.
2. Restructuring and Other Charges
In September 1999, management of True North committed to a formal plan to
restructure its operations and recorded a $76.4 million pre-tax charge ($50.2
million after-tax or $1.05 per basic share) in the third quarter, 1999. The
charge relates primarily to the costs to reduce employee positions and exit
facilities in connection with the combination and integration of True North's
two independent worldwide advertising agency networks. Bozell Worldwide's
international operations, along with Bozell Detroit and Bozell Costa Mesa, will
combine with FCB Worldwide and operate under the FCB Worldwide name. The
restructuring initiatives also include the sale or closing of certain
underperforming business units.
A summary of the components of the restructuring charge is as follows:
<TABLE>
<CAPTION>
<S> <C>
Severance and termination benefits $41.4
Lease terminations and other exit costs 24.2
Impairment loss on sale or closing of business units 10.8
-----
$76.4
=====
</TABLE>
The involuntary severance and termination benefits portion of the charge
amounts to $41.4 million and reflects the elimination of approximately 640
positions worldwide, primarily in international locations. The employee groups
affected include executive and regional management, administrative, account
management, creative and media production personnel. True North anticipates that
the severance actions will be completed during 2000.
The charge of $24.2 million associated with lease terminations and other
exit costs represents primarily the closure, abandonment and downsizing of
office space globally, including approximately 30 international locations. The
costs include $13.5 million of remaining lease obligations net of estimated
sublease income, as well as $5.9 million of impairment charges pertaining to
leasehold improvements and fixed assets that will no longer be used in the
combined operation. These actions are expected to be completed by mid-to-late
2000, with the cash portion of the charge to be paid out over the remaining
lease periods, which range from one to five years.
The impairment loss on sale or closing of certain business units amounts to
$10.8 million and results from the decision to sell two business units, one in
the U.S., and one in the United Kingdom, and the closing of four other business
units and joint ventures, including the R/GA Digital Studios, which specializes
in digital production for advertising and film companies. The impairment loss
was computed based upon the difference between the estimated sales proceeds (if
any) and the carrying value of the related assets and investments and primarily
represents the impairment of goodwill associated with such units. These sales or
closures are expected to be completed by mid 2000.
6
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(Amounts in millions, except per share amounts)
During the third quarter of 1998, True North reorganized its Poppe-Tyson
subsidiary prior to its merger with Modem Media into Modem Media.Poppe-Tyson,
Inc. The impact of the reorganization was a charge of $4.3 million. These costs
included severance, the write-down of computer equipment that was not being used
in the ongoing operations to net realizable value, and the costs to buyout
minority shareholders. To neutralize the earnings impact of these reorganization
costs, during the third quarter of 1998, True North sold a portion of its
investment in DoubleClick, Inc., resulting in a gain of $4.4 million, which has
been included as an element of "Other Income (Expense)."
3. Acquisitions
In February 1999, True North issued approximately 1.2 million shares of its
Common Stock for all the outstanding capital stock of The Financial Relations
Board, Inc. ("FRB"), a Chicago-based investor relations firm. This acquisition
has been accounted for as a pooling of interests and, accordingly, the
consolidated financial statements have been restated for all periods prior to
the acquisition.
The following summarizes the separate results of True North and FRB prior
to the restatement:
<TABLE>
<CAPTION>
True North FRB Combined
----------------- ------------------ -------------------
<S> <C> <C> <C>
Year Ended December 31, 1998:
Revenues $1,242.3 $32.0 $1,274.3
Net Income (Loss) 36.1 (8.9) 27.2
Year Ended December 31, 1997:
Revenues $1,204.9 $35.1 $1,240.0
Net Income (Loss) (50.0) 0.1 (49.9)
</TABLE>
Included in the 1998 results of FRB are approximately $7.5 million of
merger related costs and other expense adjustments.
Prior to the merger, FRB operated as an S-Corporation, therefore, their
results do not reflect corporate income taxes. Pro-forma net income for FRB,
assuming income taxes were charged (or credited) to operations, would be $(4.8
million) and $.01 million for the years ended December 31, 1998 and 1997,
respectively.
In the first nine months of 1999, the cost of businesses acquired by True
North in transactions accounted for as purchases was $51.1 million, including
0.2 million shares of Common Stock and 0.2 million shares of treasury stock. The
excess of the purchase price over the fair value of net tangible assets acquired
was $46.8 million and is being amortized over periods not exceeding 40 years.
7
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(Amounts in millions, except per share amounts)
4. Comprehensive Income
True North classifies its comprehensive income, which includes foreign
currency translation adjustments and unrealized gains and losses on marketable
securities available for sale, as a separate component of stockholders' equity.
Total comprehensive income for the three and nine months ended September 30,
1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $(31.7) $ 13.2 $ (3.4) $34.6
Foreign currency translation 1.5 4.9 (10.1) 1.9
Unrealized gains (loss) on marketable
securities 0.9 (15.6) (2.4) 2.7
------------ ------------ ------------ ------------
Total comprehensive income (loss) $(29.3) $ 2.5 $(15.9) $39.2
============ ============ ============ ============
</TABLE>
5. Marketable Securities
True North's marketable securities consisted of:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
Publicis SA $ - $140.9
DoubleClick, Inc. 3.0 3.0
Other 3.4
--------- ---------
$6.4 $143.9
========= =========
</TABLE>
True North has designated its investments in the above securities as
available-for-sale and the investments are carried at fair value, with any
unrealized gains or losses, net of tax, reported as a separate component of
comprehensive income.
On June 14, 1999, True North sold its entire investment in Publicis SA for
net cash proceeds of $135.3 and realized a pre-tax gain of $1.4 million ($0.8
million after-tax or $0.02 per share).
During the first nine months of 1999, True North sold 0.1 million shares
(adjusted for a 2 for 1 stock split) of DoubleClick, Inc. for net cash proceeds
of $5.5 million and realized a pre-tax gain of $5.1 million ($2.9 million after-
tax or $0.06 per share).
6. Contingencies
On December 2, 1997, Mazda Motor of America, Inc. ("Mazda"), a former
client of the Company's subsidiary, Foote, Cone & Belding Advertising, Inc.
("FCB"), initiated an arbitration against FCB before the American Arbitration
Association in Los Angeles, California. Mazda seeks indemnity and reimbursement
for liabilities it incurred or expects to incur in connection with automobile
lease advertising that aired in 1996 and 1997. Mazda is currently seeking from
FCB approximately $9.0 million in damages, exclusive of interest, costs and
attorneys' fees, arising from (a) Mazda's settlement of false advertising claims
asserted by the Federal Trade Commission ("FTC"), various state attorneys
general, and a class of consumers and (b) Mazda's settlement on or about
September 30, 1999 of claims asserted by the FTC and various state attorneys
generals, which
8
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(Amounts in millions, except per share amounts)
alleged that Mazda violated the consent orders entered in the previous FTC and
state attorneys general actions. FCB intends to defend Mazda's claims
vigorously. In addition, FCB has filed a counterclaim in the arbitration seeking
approximately $5.5 million in unpaid commission for planning and placing
advertising during the final months of FCB's relationship with Mazda. The
arbitration hearing is scheduled to commence on January 24, 2000.
On November 6, 1998, Publicis SA announced its intention to convert True
North's 26.5% investment in Publicis Communication to approximately 0.8 million
of its publicly traded shares. Despite True North's objections, this transaction
was approved by the shareholders of Publicis SA and Publicis Communication in
special shareholders' meetings held in December 1998 and closed shortly
thereafter. As a result, True North owned approximately 8.8% of Publicis SA,
which was recorded as an "available-for-sale security" in marketable securities.
The book value of True North's 26.5% investment in Publicis Communication
at the date of conversion was $164.5 million. The fair value of the Publicis SA
shares (based upon a December 14, 1998 Publicis closing price of $169.15 per
share) was $134.0 million. Accordingly, True North recorded a pre-tax loss of
$30.5 million in the fourth quarter of 1998 as a result of the involuntary
conversion of its investment in Publicis Communication to shares of Publicis SA.
In addition, True North recorded a deferred tax obligation of approximately $3.1
million upon the exchange. As a result, the after tax impact of this transaction
was a loss of approximately $33.7 million.
As described in Note 5, on June 14, 1999, True North sold its entire
investment in Publicis SA.
On May 5, 1999 Publicis SA, a greater than 5% shareholder, filed
counterclaims in international arbitration proceedings which had been instituted
by True North with the London Court of International Arbitration. Publicis SA
seeks damages in the amount of 382 million French Francs (approximately $62
million) for among other things, the alleged breaches of the May 1997 Separation
Agreement between the parties and other actions which Publicis SA alleges
creates liabilities associated with the arbitration proceedings. The
counterclaims follow True North's direct claims against Publicis SA in the
amount of $106 million for alleged breaches by Publicis SA of its obligations
under the May 1997 Separation Agreement and for additional compensation for its
investment in Publicis Communication. True North believes it has meritorious
defenses to Publicis' counterclaims and intends to vigorously defend them. The
parties have also submitted claims for their respective attorney's fees and
expenses. True North and Publicis appeared before the arbitration tribunal from
September 27 through October 9, 1999 and presented evidence with regard to their
respective claims. The tribunal informed the parties that no decision with
regard to such claims would likely be issued until after the new year.
True North is a party to several other lawsuits incidental to its business.
It is not possible at the present time to estimate the ultimate liability, if
any, of True North with respect to litigation matters; however, management
believes that any ultimate liability will not be material in relation to True
North's consolidated results of operations or financial position.
7. Subsidiary Initial Public Offering
Effective February 10, 1999, a majority-owned subsidiary of True North,
Modem Media. Poppe Tyson, Inc. ("MMPT") completed an initial public offering
("IPO") of its common stock. The number of shares issued was 3.0 million at a
price of $16 per share, with net proceeds totaling $42.0 million. As a result of
the IPO, True North now owns approximately 50% of MMPT, down from its previous
70% ownership, and controls approximately 80% of the related stockholder votes.
MMPT will use the proceeds from the IPO for working capital and capital
expenditures.
As a result of this transaction, True North recorded a $2.6 million gain,
net of $2.0 million of deferred income taxes, as a credit to stockholders'
equity.
9
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(Amounts in millions, except per share amounts)
In May 1999, True North and MMPT entered into a stockholders' agreement
("Stockholders' Agreement") which stipulates, among other things, that upon the
earlier of (i) the date True North and its affiliates no longer own at least 35%
of the outstanding capital stock of MMPT and (ii) June 30, 2000, True North
agrees that it and its affiliates will convert all of their shares of Class B
common stock of MMPT into shares of Class A common stock of MMPT and thereby
entitled to only one vote per share versus the five votes per share of Class B
common stock.
In August 1999, True North and MMPT entered into a registration rights
agreement that contains provisions granting the holders of Class B common stock
the right to participate in any underwritten public offering that MMPT may
initiate, subject to certain limitations. In addition, the agreement also
provides the holders of Class B common stock the right to initiate the
registration of their securities, subject to certain timing and other
limitations.
8. Stock-Based Compensation Plans
Effective in 1998, True North initiated a Restricted Stock Program for
certain key employees whereby participants of the program can elect to exchange
one-third of their cash incentive compensation for 115% of such cash
compensation payable in restricted stock of the Company. One-third of the shares
vest upon grant and the remaining shares vest equally over the following two
years.
During the first nine months of 1999, 0.2 million shares of restricted
stock were issued. The shares issued under this plan were recorded at their
market value on date of grant with a corresponding charge to stockholders'
equity for the unearned portion. The unearned portion is being amortized as
compensation expense on a straight-line basis over the vesting period.
10
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Amounts in millions, except per share amounts)
Certain statements contained in this Form 10-Q under the caption
"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 True North 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 True North that
True North's plans and objectives will be achieved.
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS 1998
- -------------------------------------------------
Results of Operations
- ---------------------
The net loss for the third quarter of 1999 was $31.7 million or $0.66 per
share on a diluted basis. This compares to net income of $13.2 million or $0.28
per share in the corresponding quarter of 1998. Excluding the impact of two pre-
tax unusual charges ($76.4 million in 1999 primarily for the FCB/Bozell
realignment; and $4.3 million in 1998 for the Modem Media.Poppe Tyson pre-IPO
reorganization) and gains on the sales of DoubleClick securities ($1.1 million
in 1999 and $4.4 million in 1998), net income for the third quarter ended
September 30, 1999 was $17.9 million or $0.36 diluted per share, compared with
$13.2 million or $0.28 diluted per share in the year-ago quarter. The results
for 1998 have been restated to reflect True North's February, 1999 pooling of
interests transaction with FRB.
Consolidated revenues increased $53.6 million or 17.7% to $356.7 million in
the third quarter of 1999 from $303.1 million in the comparable period in 1998.
Revenues from the U.S. operations increased $47.1 million or 21.1% to $270.4
million while international revenues increased 8.2% to $86.3 million.
Approximately one-half of the worldwide growth in revenues was due to
acquisitions while changes in foreign currency rates had a slight negative
impact on international operations. Excluding acquisitions, divestitures and the
effects of foreign currency translation, consolidated revenues increased by 8.8%
from the prior year.
Salaries and related benefits increased $31.7 million or 16.8% in the third
quarter of 1999 compared to the same year ago period. Excluding the impact of
acquisitions, divestitures and foreign exchange variances, total salaries and
related benefits increased 7.9%.
Office and general expenses increased by 19.7% or $16.7 million in the
third quarter of 1999 over 1998. Excluding the impact of acquisitions,
divestitures and foreign exchange variances, this expense category increased
10.2%, primarily attributable to normal growth and Y2K compliance costs.
11
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(Amounts in millions, except per share amounts)
In September 1999, management of True North committed to a formal plan to
restructure its operations and recorded a $76.4 million pre-tax charge ($50.2
million after-tax or $1.05 per basic share) in the third quarter, 1999. The
charge relates primarily to the costs to reduce employee positions and exit
facilities in connection with the combination and integration of True North's
two independent worldwide advertising agency networks. Bozell Worldwide's
international operations, along with Bozell Detroit and Bozell Costa Mesa, will
combine with FCB Worldwide and operate under the FCB Worldwide name. The
restructuring initiatives also include the sale or closing of certain
underperforming business units.
A summary of the components of the restructuring charge is as follows:
<TABLE>
<CAPTION>
<S> <C>
Severance and termination benefits $41.4
Lease terminations and other exit costs 24.2
Impairment loss on sale or closing of business units 10.8
-----
$76.4
=====
</TABLE>
The involuntary severance and termination benefits portion of the charge
amounts to $41.4 million and reflects the elimination of approximately 640
positions worldwide, primarily in international locations. The employee groups
affected include executive and regional management, administrative, account
management, creative and media production personnel. True North anticipates that
the severance actions will be completed during 2000.
The charge of $24.2 million associated with lease terminations and other
exit costs represents primarily the closure, abandonment and downsizing of
office space globally, including approximately 30 international locations. The
costs include $13.5 million of remaining lease obligations net of estimated
sublease income, as well as $5.9 million of impairment charges pertaining to
leasehold improvements and fixed assets that will no longer be used in the
combined operation. These actions are expected to be completed by mid-to-late
2000, with the cash portion of the charge to be paid out over the remaining
lease periods, which range from one to five years.
The impairment loss on sale or closing of certain business units amounts to
$10.8 million and results from the decision to sell two business units, one in
the U.S., and one in the United Kingdom, and the closing of four other business
units and joint ventures, including the R/GA Digital Studios, which specializes
in digital production for advertising and film companies. The impairment loss
was computed based upon the difference between the estimated sales proceeds and
the carrying value of the related assets and investments and primarily
represents the impairment of goodwill associated with such units. These sales or
closures are expected to be completed by mid 2000.
True North anticipates expense savings of close to pre-tax $25.0 million on
an annualized basis, with approximately half of such savings occurring in 2000
and the full amount realized in 2001 and thereafter.
During the third quarter of 1998, True North reorganized its Poppe-Tyson
subsidiary prior to its merger with Modem Media into Modem Media.Poppe-Tyson,
Inc. The impact of the reorganization was a charge of $4.3 million. These costs
included severance, the write-down of computer equipment that was not being used
in the ongoing operations to net realizable value, and the costs to buyout
minority shareholders. To neutralize the earnings impact of these reorganization
costs, during the third quarter of 1998, True North sold a portion of its
investment in DoubleClick,
12
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(Amounts in millions, except per share amounts)
Inc., resulting in a gain of $4.4 million, which has been included as an element
of "Other Income (Expense)."
Other Income (Expense) for both comparable periods was as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Interest income $ 1.8 $ 1.7
Interest expense (3.9) (5.9)
Gain on sale of marketable securities and other 1.1 4.3
---- -----
$(1.0) $ 0.1
===== =====
</TABLE>
Interest expense decreased by $2.0 million in the third quarter of 1999
versus 1998 due primarily to lower average debt levels resulting from the use of
the proceeds of the June, 1999 sale of True North's holdings in Publicis SA to
reduce short term borrowings.
The effective tax rate in the third quarter of 1999 was a benefit of 26.8%
versus 47.2% in 1998. The 1999 benefit rate was negatively impacted by the
components of the restructuring charge, including the write off of intangible
assets and lower foreign tax rates. Excluding the restructuring and other
charges, the effective rate was 43.5%. The effective rate in 1998 was negatively
impacted by losses of foreign subsidiaries with no corresponding tax benefit.
Minority interest expense was $1.2 million in three months ended September
30, 1999 compared to $0.9 million in 1998. This increase is due primarily to
favorable operating results at MMPT partially offset by lower net income in
certain Latin American and European operations.
Equity income decreased by $0.1 million as a result of the Company no
longer reflecting an equity pick-up in its investment in Publicis Communication.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS 1998
- ------------------------------------------------
Results of Operations
- ---------------------
The net loss for the first nine months of 1999 was $3.4 million or $0.07
per share on a diluted basis. This compares to net income of $34.6 million or
$0.73 per share in the corresponding period of 1998. The results for 1998 have
been restated to reflect True North's February 1999 pooling of interests with
FRB. Excluding the impact of two pre-tax unusual charges ($76.4 million in 1999
primarily for the FCB/Bozell realignment; and $4.3 million in 1998 for the Modem
Media.Poppe Tyson pre-IPO reorganization) and gains on the sales of DoubleClick
securities ($5.1 million in 1999 and $4.4 million in 1998), net income for the
nine-month period ended September 30, 1999 was $43.9 million or $0.90 diluted
per share, compared with $34.5 million or $0.73 diluted per share in the first
nine months of last year.
13
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(Amounts in millions, except per share amounts)
Consolidated revenues increased $105.7 million or 11.6% to $1,015.8 million
in the first nine months of 1999 from $910.1 million in the comparable period in
1998. Revenues from the U.S. operations increased $87.8 million or 13.1% to
$758.5 million while international revenues increased 7.5% to $257.3 million.
Approximately two-thirds of the worldwide growth in revenues was due to
acquisitions while changes in foreign currency rates had a slight negative
impact on international operations. Excluding acquisitions, divestitures and the
effects of foreign currency translation, consolidated revenues increased by 5.1%
period over period.
Salaries and related benefits increased $64.4 million or 11.2% in the first
nine months of 1999 compared to the same year ago period. Excluding the impact
of acquisitions, divestitures and foreign exchange variances, total salaries and
related benefits increased 5.3%.
Office and general expenses increased by 11.6% or $30.2 million in the
first nine months of 1999 over 1998. Excluding the impact of acquisitions,
divestitures and foreign exchange variances, this expense category increased
4.6%.
As discussed earlier, True North recorded a pre-tax charge of $76.4 million
($50.2 million or $1.07 per basic share) in the third quarter of 1999.
Other Income (Expense) for both comparable periods was as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Interest income $ 5.3 $ 3.8
Interest expense (13.8) (16.6)
Gain on sale of marketable securities and other 6.6 5.4
------ -------
$ (1.9) $ (7.4)
====== =======
</TABLE>
Interest income increased by $1.5 million in the first nine months of 1999
compared to 1998 due primarily to investment income at MMPT from the proceeds
from its initial public offering in February, 1999. Interest expense decreased
by $2.8 million in the first nine months of 1999 versus 1998 due primarily to
lower debt levels. During the first nine months of 1999, True North recognized a
pre-tax gain of $1.4 million ($0.8 million after-tax or $0.02 per share) on the
sale of its holdings in Publicis SA and a pre-tax gain of $5.1 million ($2.9
million or $0.06 per share) on the sale of a portion of its holdings in
DoubleClick, Inc.
The 1999 effective tax rate for the nine months ended September 30, 1999
was impacted by the restructuring charge, including the write off of intangible
assets and lower foreign tax rates. Excluding the negative impact from the
restructuring charge, the effective tax rate in the first nine months of 1999
was 43.5% versus 47.1% in 1998. The effective rate in 1998 was negatively
impacted by losses of foreign subsidiaries with no corresponding tax benefit.
Minority interest expense was $2.0 million in the nine months ended
September 30, 1999 compared to $3.2 million in 1998. This decrease is due
primarily to lower operating results in certain Latin American and European
operations.
14
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(Amounts in millions, except per share amounts)
Equity income decreased by $3.2 million as a result of True North no longer
reflecting an equity pick-up in its investment in Publicis Communication.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1999, True North's cash and cash equivalents totaled
$122.3 million, which is an increase of $33.6 million over the 1998 year-end
balances of $88.7 million. The increase is due primarily to the proceeds
received by MMPT from the February 1999 initial public offering of its common
stock.
Operating Activities
- --------------------
True North's funds from operating activities consist primarily of net
income adjusted for non-cash items, including depreciation and amortization, and
changes in operating assets and liabilities.
The net cash used by operating activities in the first nine months of 1999
was $71.0 million. This reflects payments typically made in the first half of
the year for bonuses and contributions to profit sharing plans for the prior
years performance. It also includes production costs of client commercials,
which will be shown later in the year with such costs billed to clients when the
commercials are completed.
Investing Activities
- --------------------
True North's net capital expenditures for property and equipment were $35.5
million for the first nine months of 1999. These expenditures were primarily
related to the Company's worldwide investment in technology coupled with
leasehold improvements related to office moves.
In the first nine months of 1999, True North acquired several companies to
enhance its network, primarily in the U.S. These acquisitions were financed by
the issuance of 0.5 million shares of Common Stock and Treasury Stock and
additional short-term borrowings.
In the first nine month of 1999, True North has received $140.8 million of
proceeds from the sale of marketable securities.
Financing Activities
- --------------------
The net change in short-term bank borrowings reflects the use of the $135.3
million cash proceeds from the sale of True North's investment in Publicis SA to
reduce such borrowings offset by additional debt used to finance the acquisition
program and seasonal needs.
In May 1999, True North obtained two three year term loans totaling $25.0
million which refinanced similar loans expiring on May 24, 1999. A $15.0 million
loan carries a fixed interest rate of 6.52% and a $10.0 million loan carries a
fixed rate of 6.785%.
On May 27, 1999, True North extended its 364-day credit agreement for up to
$75.0 million of borrowings as part of its $250.0 million revolving credit
agreement. The terms of the extension include the payment of a commitment fee to
the bank of 0.07% and the increase in the spread over the Euro currency rate of
0.25%. At September 30, 1999, True North had $75.0 million outstanding under its
$175.0 million five year revolving credit facility.
15
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(Amounts in millions, except per share amounts)
At September 30, 1999, True North was in compliance with all covenants and
conditions related to these agreements.
Year 2000 Compliance
- --------------------
True North relies on both information technology ("IT") and non-IT computer
systems in its operations. Critical IT systems include True North's operating
and accounting systems, such as IT software applications that allow True North
to maintain client advertising information and to communicate with its vendors
and clients. The non-IT systems are primarily telecommunications systems and the
embedded microprocessors that control building systems, such as security
systems, lighting, fire and safety systems, and heating, ventilating and air
condition systems.
In 1997, True North began to address the year 2000 compliance issue (that
is, the fact that some systems may fail or produce inaccurate results using
dates in or around the year 2000). True North has formed a year 2000 task force
under its Chief Information Officer and this task force has developed a
comprehensive program to test the Company's principal hardware and software
applications for potential year 2000 problems. True North is assessing the
effect of the year 2000 compliance issue on its non-IT systems and intends to
replace non-IT systems as necessary to become year 2000 ready by December 1999.
True North licenses substantially all of its systems from third party
software vendors. True North has received confirmation of year 2000 compliance
status from suppliers of its primary business and financial systems. Internal
testing, to the extent practical, is being done to ensure that such systems will
function properly. True North has also retained outside consultants to assist in
the testing and remediation efforts. Testing and remediation of all systems is
scheduled to be completed prior to year end 1999.
True North is continuing to develop written contingency plans to address
the risks created by the year 2000 compliance issue. These plans include
procuring alternative vendors, if available, should True North conclude that an
existing supplier will not be year 2000 ready.
During 1998 and 1997, True North incurred less than $0.5 million of
expenses related to this issue in each year, and expects to incur an additional
$3.0 million to $3.5 million of such expenses in 1999. Capital spending to
replace non-compliant hardware and software is expected to be approximately $5.0
million in 1999. Funding for year 2000 remediation will be generated from on-
going operations and available borrowings under the Company's various credit
agreements.
True North is currently unaware of any events, trends, or conditions
regarding this issue that may have a material effect on True North's results of
operations, liquidity, and financial position. However, there can be no
assurance that year 2000 remediation by True North or third parties will be
properly and timely completed and failure to do so could have a material adverse
effect on True North's financial condition.
Item 3. 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
received LIBOR and paid a fixed interest rate of 6.1% on a notional amount of
$25.0 million in borrowing during the
16
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
(Amounts in millions, except per share amounts)
period from June 1994 to June 1999. 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 1998 and in the first nine months of 1999, True North derived over
25% 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.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal proceedings
Response to this item is incorporated by reference to Note 6 to the Registrant's
unaudited notes to financial statement in this Quarterly Report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Stockholders Agreement dated as of May 4, 1999, by and among True
North Communications Inc, Modem Media.Poppe Tyson, Inc., Gerald M.
O'Connell and Robert C. Allen, II.
10.2 Registration Rights Agreement dated as of August 1, 1999, by and
among Modem Media.Poppe Tyson, Inc., the holders of Class A Common
Stock listed on the signature page thereto and the holders of Class B
Common Stock listed on the signature page thereto.
(b) Reports on Form 8-K:
(1) Form 8-K filed on September 9, 1999, reported certain recent
events concerning the Registrant's realignment and restructuring of
agency operations.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRUE NORTH COMMUNICATIONS INC.
(Registrant)
Kevin J. Smith
-------------------------------
(Signature)
Kevin J. Smith
Senior Vice President
Chief Accounting Officer
Date: November 15, 1999
19
<PAGE>
EXHIBIT 10.1
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of May 4, 1999 by and among True North
Communications Inc., a Delaware corporation ("True North"), Modem Media . Poppe
Tyson, Inc., a Delaware corporation ("Modem Media"), and Gerald M. O'Connell and
Robert C. Allen, II (together, the "Modem Stockholders" and together with True
North, collectively referred to as the "Stockholders).
WHEREAS, True North, Modem Media, the Modem Stockholders and certain other
parties are party to an Amendment and Competition Agreement dated as of February
3, 1999 (the "Amendment") which amends the Amended and Restated Acquisition
Agreement, dated as of December 31, 1996 among such parties (the "Acquisition
Agreement"), and an Agreement and Plan of Merger, dated as of February 3, 1999
(the "Merger Agreement").
WHEREAS, True North and the Modem Stockholders are parties to a Letter of
Intent dated May 20, 1998 (the "Letter of Intent").
WHEREAS, Modem Media and the Stockholders desire to enter into this
Agreement for the purposes, among others, of establishing the composition of the
Board and making changes to the Acquisition Agreement, the Amendment and the
Letter of Intent.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. The parties hereto agree to the nomination and election to the Board
of Robert H. Beeby, Don Peppers and Joseph Zimmel.
2. Until the earlier of (i) the date on which True North and its
affiliates no longer own in the aggregate shares of capital stock of Modem Media
representing at least 35% of the outstanding capital stock of Modem Media and
(ii) December 31, 1999 (the earlier of such date being referred to herein as the
"Expiration Date"), Modem Media shall not, and the Modem Stockholders shall
cause Modem Media to not, without the prior written consent of a majority of the
members of the Board designated by True North, directly or indirectly:
(a) make any dividends or distributions on, or redemptions or
purchases of, any equity securities of Modem Media;
(b) issue equity securities in excess of 22.5% of the then-
outstanding equity securities of Modem Media;
(c) enter into any business other than the business conducted by
Modem Media, or fundamentally change the business of Modem Media, as of the date
hereof;
<PAGE>
(d) establish any subsidiary, partnership, corporation or any other
business enterprise or enter into any joint venture that would be material to
the business or operations of Modem Media;
(e) sell all or substantially all of the assets of Modem Media;
(f) make any acquisitions of or investments in the stock, assets or
business of any other entity in any form of transaction
aggregating in excess of $25 million in any one transaction or
$50 million in any 12-month period;
(g) (i) undertake a liquidation, dissolution, recapitalization or
reorganization of Modem Media or (ii) make any amendment to Modem
Media's Bylaws;
(h) increase or decrease the number of Board members;
(i) create any new committees of the Board or make any appointments
to committees of the Board;
(j) appoint or remove the Chief Executive Officer, Chief Financial
Officer or President of Modem Media; or
(k) agree to do any of the foregoing.
3. Until the Expiration Date, Modem Media shall not, and the Modem
Stockholders shall cause Modem Media to not, without the prior written consent
of a majority of the independent members of the Board, enter into any contract
or arrangement with any Modem Stockholder or any affiliate thereof.
4. Following the Expiration Date until such time as True North and its
affiliates no longer own in the aggregate shares of capital stock of Modem Media
representing at least 10% of the outstanding capital stock of Modem Media, each
Stockholder and Modem Media shall take all actions necessary in order to cause
the election to the Board of at least one director designated by True North.
5. Upon the earlier of (i) the date True North and its affiliates no
longer own in the aggregate shares of capital stock of Modem Media representing
at least 35% of the outstanding capital stock of Modem Media and (ii) June 30,
2000, True North agrees that it will, and will cause its affiliates to, convert
the shares of Class B Common Stock of Modem Media then owned by it and its
affiliates into shares of Class A Common Stock of Modem Media.
6. The parties hereto agree to enter into a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A.
7. (a) The parties hereto agree that, on the Expiration Date:
<PAGE>
(i) the Acquisition Agreement will be amended to delete Section
9.9 in its entirety;
(ii) the Amendment will be terminated in its entirety; and
(iii) the Letter of Intent will be amended to delete Section V
thereof in its entirety.
(b) After the Expiration Date, to the extent that it is in the mutual
interest of both parties, Modem Media, FCB Worldwide and Bozell
Worldwide will cooperate on any projects under such terms and
conditions as both parties mutually agree.
8. Until the date on which True North and its affiliates no longer own in
the aggregate shares of capital stock of Modem Media representing at least 15%
of the then-outstanding capital stock of Modem Media and for the remaining
quarters and final year end results for the year in which True North's ownership
falls below 15%, Modem Media will continue to timely provide True North with all
financial or tax information which True North requests in order to comply with
its public reporting requirements, its tax and other legal requirements.
9. This document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understanding, agreements or representations by or among the
parties, written or oral, with respect to such matters.
10. Paragraphs 2, 5 and 6 are subject to the ratification by True North's
Board of Directors at its next regularly scheduled meeting. True North's
management agrees to recommend this document for ratification.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first above written.
True North Communications Inc.
By:
----------------------------------
Its:
---------------------------------
Modem Media . Poppe Tyson, Inc.
By:
----------------------------------
Its:
---------------------------------
--------------------------------------
Gerald M. O'Connell
--------------------------------------
Robert C. Allen, II
<PAGE>
EXHIBIT 10.2
MODEM MEDIA . POPPE TYSON, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
August 1, 1999, by and among MODEM MEDIA. POPPE TYSON, INC., a Delaware
corporation (the "Company"), the holders of the Class A Common Stock of the
Company listed on the signature page (each a "Class A Holder") and the holders
of the Class B Common Stock of the Company listed on the signature page (each a
"Class B Holder" and, together with the Class A Holders, the "Holders").
RECITALS
A. The Class A Holders own shares of the Company's Class A Common Stock
(the "Class A Common Stock").
B. The Class B Holders own shares of the Company's Class B Common Stock
(the "Class B Common Stock").
C. The Company and True North Communications Inc. are parties to a
Stockholders Agreement dated as of the date hereof (the "Stockholders
Agreement").
D. The execution of this Agreement is contemplated by the Stockholders
Agreement.
E. The Company desires to enter into this Agreement and grant the Holders
the rights contained herein in order to fulfill such condition.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
Section
Certain Definitions
-------------------
Certain Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
1.1 "SEC" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
1.2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder, as
shall be in effect at that time.
<PAGE>
1.3 The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (as defined below), and the declaration or
ordering of the effectiveness of such registration statement.
1.4 "Registrable Securities" means (i) the shares of Class A Common Stock
owned by the Class A Holders; (ii) the shares of Class B Common Stock owned by
the Class B Holders; (iii) the shares of Class A Common Stock of the Company
issuable to the Class B Holders upon conversion of the Class B Common Stock; and
(iv) any other shares of the Company's Class A Common Stock or other Common
Stock issued as (or issuable upon conversion or exercise of any warrant, right
or other security which is issued as) a dividend or other distribution with
respect to or exchange for or replacement of the securities referred to in
clauses (i), (ii) and (iii) above by way of a stock dividend, stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which a Holder's rights under
this Agreement are not assigned; provided, however, that Registrable Securities
shall only be treated as Registrable Securities if and so long as, they have not
been (A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale.
1.5 "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder, all as the same
shall be in effect at the time
1.6 An "Affiliate" of an entity referenced herein shall mean (i) any
entity who controls, is controlled by, or is under common control with such
entity, (ii) any constituent partner or shareholder of such entity or (iii) with
respect to an individual, such individual's spouse, siblings, ancestors and
descendants (whether natural or adopted), any spouses of such siblings,
ancestors and descendants, any siblings of such ancestors and descendants, and
any trust established solely for the benefit of one or more of such individual's
spouse, siblings, ancestors and/or descendants.
Section 2.
Piggyback Rights
----------------
2.1 Notice of Registration. Subject to Section 2.4 below, if at any time
or from time to time, the Company shall determine to register any of its equity
securities, the Company will:
(i) promptly give to the Holders written notice thereof; and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), all the Registrable Securities (subject
to cutback as set forth in Section 2.2)
-2-
<PAGE>
specified in a written request or requests made within 30 days after receipt of
such written notice from the Company by any Holder.
2.2 Underwriting. In the case of an underwritten offering in which a
Holder has elected to include such Holder's shares, the right of any Holder to
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. If any Holder proposes to distribute its securities
through such underwriting, such Holder shall (together with the Company and any
other stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company; provided, however,
that, except as set forth in Section 8 hereof, no Holder shall be required to
make any representation or warranty to any underwriter (other than
representations and warranties regarding such Holder or such Holder's intended
method of distribution) or to undertake any indemnification obligation to the
Company or any underwriter with respect thereto. Notwithstanding any other
provision of this Section 2, if the managing underwriter notifies the Company in
writing that the number of securities proposed to be included in the
underwriting exceeds the number that can be sold in such underwriting without
adversely affecting the marketability of the offering, the managing underwriter
may limit the Registrable Securities to be included in such registration. The
Company shall so advise the Holder and the other stockholders distributing their
securities through such underwriting pursuant to piggyback registration rights
similar to this Section 2, and the number of shares of Registrable Securities
and other securities that may be included in the registration and underwriting
shall be allocated among the Holder and any other participating stockholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holder and other securities held by other stockholders
at the time of filing the registration statement; provided that the aggregate
amount of Registrable Securities held by each selling Holder included in the
offering shall not be reduced below 20% of the total amount of securities
included in that offering. To facilitate the allocation of shares in accordance
with the above provisions, the Company or the underwriters may round the number
of shares allocated to the Holder or other stockholders to the nearest 100
shares. If any Holder disapproves of the terms of any such underwriting, he or
she may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 180 days after the effective date
of the registration statement relating thereto.
2.3 Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
2.4 Limitations on Piggyback Rights. Notwithstanding the provisions of
this Section 2, no Holder shall have the right to have any Registerable
Securities included in a registration by the Company of securities in connection
with (i) a registration statement on Form S-8 (or my successor form) for
securities to be offered to or by employees of the Company pursuant to any
employee
-3-
<PAGE>
benefit plan; (ii) a registration statement on Form S-4 (or any successor form)
for securities to be offered in a Rule 145 or similar transaction; and (iii) the
registration for resale of securities of the Company issued in connection with
an acquisition of a business or assets related to a business having a purchase
price of not more than $25 million.
Section 3.
Demand Registration
-------------------
3.1 Demand Registration. If True North Communications Inc. ("True North"),
on behalf of any Class B Holder, requests registration of shares of Registerable
Securities held by the Class B Holders, then the Company will use commercially
reasonable efforts to cause such shares to be registered as soon as practicable;
provided, however, that (a) the Company shall not be required to effect any such
registration within 90 days prior to the proposed filing of, and 90 days
following the effective date of, a registration statement pertaining to an
underwritten public offering of the Company's securities unless such
registration statement was a registration contemplated in Section 2.4(iii) above
or in the last sentence of Section 5 below, (b) such registration obligation
shall be deferred for not more than 90 days if the Company furnishes the
requesting holders with a certificate of the Chief Executive Officer of the
Company stating that in the good faith judgment of the Company it would be
detrimental to the Company or its stockholders for a registration statement to
be filed in the near future, but the Company shall not be entitled to such
deferral more than twice in any 12-month period and (c) the Company shall not be
obligated to effect more than a total of two such demand registrations.
Notwithstanding the foregoing, True North shall not request registration of
shares of Registrable Securities or sell any shares of common stock of the
Company for a period of up to 180 days following an underwritten public offering
of the Company's Securities if requested in writing by the underwriters of such
offering and if all officers and directors of the Company agree to similar
restrictions on the sale of their shares; provided, however, that the foregoing
restrictions shall not apply to the registration and sale of up to 95,000 shares
of Registerable Securities.
3.2 Underwritten Public Offering. In the case of a registration pursuant
to this Section 3 that is proposed to be underwritten, the Company shall enter
into an underwriting agreement with an investment banking firm or firms
containing representations, warranties, indemnities and agreements then
customarily included by an issuer in underwriting agreements with respect to
secondary distributions. The Company shall not cause the registration under the
Securities Act of any other shares of its Common Stock to become effective
(other than registration of an employee benefit plan, or registration in
connection with any Rule 145 or similar transaction) during the period beginning
seven days prior to and ending 90 days after the effectiveness of such
registration, unless the underwriter or underwriters otherwise agree. Any
registration pursuant to this Section 3 that is proposed to be underwritten
shall be underwritten by an underwriter of nationally-recognized standing.
Section 4.
-4-
<PAGE>
Form S-3 Registration
---------------------
4.1 Registrations on Form S-3. Class B Holders shall be entitled to
request (an "S-3 Registration Request") an aggregate of two registrations of
Registrable Securities then owned by such requesting Class B Holders on a Form
S-3 registration statement under the Securities Act (an "S-3 Registration"). The
S-3 Registration Request must be made in writing and the S-3 Registration
Request shall: (i) specify the number of shares intended to be offered and sold;
(ii) describe the nature or method of the proposed offer and sale thereof; and
(iii) contain the undertaking of the requesting Holders to provide all such
information and materials and take all such action as may be required in order
to permit the Company to comply with all applicable requirements of the SEC and
to obtain any desired acceleration of the effective date of such registration
statement. The Company shall, as soon as practicable, file a S-3 Registration
and proceed to obtain all such qualifications and compliance as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of the requesting Holders' Registrable Securities as are specified
in the S-3 Registration Request, within 45 days after receipt of such written
notice by the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to this Section 4 if: (i) Form S-3 is not available for such offering by the
requesting Holders; (ii) the requesting Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate gross price to the public of less than $50 million (or such lesser
aggregate gross price to the public if such amount constitutes the aggregate
gross price of all remaining Registrable Securities then held by the Holders and
proposed to be registered); or (iii) the Company has, within the six-month
period preceding the date of such request, already effected a registration on
Form S-3 for any Holder pursuant to this Section 4. The Company shall use
commercially reasonable efforts to make Form S-3 available for the registration
of Registerable Securities pursuant to this Section 4.
4.2 Limitations. Notwithstanding the foregoing, if at the time of any
request to register Registrable Securities pursuant to this Section 4, the
Company is engaged, or has fixed plans to engage in any activity that, in the
good faith determination of the Company, would make it detrimental to the
Company or its stockholders for a registration statement to be filed in the near
future, then the Company may, at its option, direct that such request be delayed
for a period not in excess of 90 days from the effective date of such material
activity. Such rights to delay a request to file a registration statement may
not be exercised by the Company more than twice in any 12-month period. In
addition, if any event occurs or fact exists that results in the prospectus
included in any registration statement filed pursuant to this Section 4
containing an untrue statement of material fact or omitting any fact necessary
to make the statements therein not misleading, the Company shall have the right,
by written notice to the Holders, to suspend sales under the registration
statement until it has complied with the provisions of clause (viii) of Section
6 hereof, provided that the Company shall not have the right to suspend sales
under the registration statement pursuant to the immediately preceding sentence
for not more than 90 consecutive days or for more than 180 days in any 12-month
period.
-5-
<PAGE>
4.3 Duration of Effectiveness. A registration shall not count as one of
the permitted registrations under this Section 4 until it has become and remains
effective for a period of not less than 90 days; provided that, in any event,
the Company shall pay all expenses in connection with any such registration
whether or not it has become effective and whether or not such registration has
counted as one of the permitted registrations.
Section 5.
Other Registration Rights
-------------------------
Except as provided in this Agreement, the Company shall not grant to any
Persons the right to request the Company to register any equity securities of
the Company, or any securities convertible or exchangeable into or exercisable
for such securities, without the prior written consent of the holders of at
least 50% of the Class A Holders and of the Class B Holders; provided that the
Company may grant rights to other Persons to (i) participate in Piggyback
Registrations so long as such rights are subordinate to the rights of the
holders of Registrable Securities with respect to such Piggyback Registrations
and (ii) request registrations so long as the holders of Registrable Securities
are entitled to participate in any such registrations with such Persons pro rata
on the basis of the number of shares owned by each such holder. Notwithstanding
the foregoing or anything to the contrary in this Agreement, the parties hereto
acknowledge and agree that the Company may grant registration rights to General
Electric Capital Corporation with respect to up to 95,000 shares of Class A
Common Stock without regard to the provisions of this Agreement.
Section 6.
Obligations of Company
----------------------
Whenever the Company is required by the provisions of this Agreement to use
commercially efforts to effect the registration of the Registrable Securities,
the Company shall: (i) prepare and, as soon as possible, file with the SEC a
registration statement with respect to the Registrable Securities, and use
commercially efforts to cause such registration statement to become effective
and to remain effective until the earlier of the sale of the Registrable
Securities so registered or 180 days subsequent to the effective date of such
registration; (ii) furnish to counsel for the Holders prior to filing copies of
all registration statements proposed to be filed pursuant to the requirements of
this Agreement; (iii) notify Holders of the effectiveness of any registration
statement required to be filed pursuant to this Agreement; (iv) prepare and file
with the SEC such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to make and to
keep such registration statement effective and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of all
securities proposed to be registered in such registration statement until the
earlier of the sale of the Registrable Securities so registered or 180 days
subsequent to the effective date of such registration statement; (v) furnish to
any Holder
-6-
<PAGE>
such number of copies of any prospectus (including any preliminary prospectus
and any amended or supplemented prospectus), in conformity with the requirements
of the Securities Act, as such Holder may reasonably request in order to effect
the offering and sale of the Registrable Securities to be offered and sold, but
only while the Company shall be required under the provisions hereof to cause
the registration statement to remain current; (vi) use commercially reasonable
efforts to register or qualify the Registrable Securities covered by such
registration statement under the securities or blue sky laws of such states as
Holder shall reasonably request, maintain any such registration or qualification
current until the earlier of the sale of the Registrable Securities so
registered or 180 days subsequent to the effective date of the registration
statement, and take any and all other actions either necessary or reasonably
advisable to enable Holders to consummate the public sale or other disposition
of the Registrable Securities in jurisdictions where such Holders desire to
effect such sales or other disposition; (vii) take all such other actions either
necessary or reasonably desirable to permit the Registrable Securities held by a
Holder to be registered and disposed of in accordance with the method of
disposition described herein; (viii) notify each seller of Registrable
Securities, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, subject to Sections 3.1 and 4.2 above, at the
request of any such seller, the Company shall prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading; (ix) cause all such Registrable Securities to be listed
on each securities exchange on which similar securities issued by the Company
are then listed; (x) 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; (xi) 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 accountant to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
and, (xii) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order. Notwithstanding the foregoing, the Company shall not
be required to register or to qualify an offering of the Registrable Securities
under the laws of a state if as a condition to so doing the Company is required
to qualify to do business or to file a general consent to service of process in
any such state or jurisdiction, unless the Company is already subject to service
in such jurisdiction.
Section 7.
-7-
<PAGE>
Expenses of Registration
------------------------
The Company shall pay all of the fees and expenses incurred in connection
with any registration statement that is initiated pursuant to this Agreement,
including, without limitation, all SEC and blue sky registration and filing
fees, printing expenses, transfer agent and registrar fees, the fees and
disbursements of the Company's outside counsel and accountants. In addition, any
underwriting discounts, fees and disbursements of any additional counsel to the
Holders, selling commissions and stock transfer taxes applicable to the
Registrable Securities registered on behalf of Holders shall be borne by the
Holders of the Registrable Securities included in such registration.
Section 8.
Indemnification
---------------
8.1 The Company. To the extent permitted by law, the Company will
indemnify Holders and each person controlling Holders within the meaning of
Section 15 of the Securities Act, and each underwriter if any, of the Company's
securities, with respect to any registration, qualification or compliance which
has been effected pursuant to this Agreement, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse Holders and each person controlling Holders, and
each underwriter, if any, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by such Holder or
controlling person or underwriter seeking indemnification.
8.2 Holders. To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected (the
"Indemnifying Holder"), indemnify the Company, each of its directors and
officers and each person who controls the Company within the meaning of Section
15 of the Securities Act, and each underwriter, if any, of the Company's
securities with respect to any registration, qualification or compliance which
has been effected pursuant to this Agreement, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such
-8-
<PAGE>
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by such Indemnifying
Holder of any rule or regulation promulgated under the Securities Act applicable
to such Indemnifying Holder in connection with any such registration,
qualification or compliance, and the Indemnifying Holder will reimburse the
Company, such directors and officers and each person controlling Company and
each underwriter, if any, for any legal or any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, in
reliance upon and in conformity with written information furnished to the
Company by such Indemnifying Holder, provided that in no event shall any
indemnity under this Section 8.2 exceed the gross proceeds of the offering
received by such Indemnifying Holder.
8.3 Defense of Claims. Each party entitled to indemnification under this
Section 7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of the Indemnified Party by counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding, and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 8 unless
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party which consent shall not be unreasonably withheld, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. No
Indemnifying Party shall be required to indemnify any Indemnified Party with
respect to any settlement entered into without such Indemnifying Party's prior
written consent.
Section 9.
Termination of Rights
---------------------
-9-
<PAGE>
Unless otherwise specified herein, the rights and provisions of this
Agreement shall terminate as to all Holders on the third anniversary of the date
hereof; provided, however, that if the filing of any registration statement
required to be filed pursuant to this agreement is delayed or sales of
Registrable Securities are suspended, the termination date of the rights of the
Holders under this Agreement will be extended for a period of time equal to such
delay or suspension.
Section 10.
Miscellaneous
-------------
10.1 Assignment. The rights to cause the Company to register Registrable
Securities granted to the Class B Holders by the Company under this Agreement
may be transferred or assigned by the Class B Holders to (i) any corporation
owning not less than 75% of the equity interests of a Class B Holder or (ii) a
majority-owned subsidiary of a Holder; provided that the Company is given
written notice at the time of or within a reasonable time after said transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned; provided further, that the transferee or assignee
of such rights assumes the obligations of such Class B Holder under this
Agreement. The rights to cause the Company to register Registrable Securities
granted to the Class A Holders by the Company under this Agreement may be
transferred or assigned by the Class A Holders to an Affiliate of such Class A
Holder. Subject to the preceding two sentences, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Any transferee or assignee shall thereafter be treated
as a Holder, subject to the limitations herein. Until the Company receives
actual notice of any transfer or assignment, it shall be entitled to rely on the
then existing list of Holders and the failure to notify the Company of any
transfer or assignment shall not affect the validity of a notice properly given
by the Company to the Holders pursuant to lists maintained by the Company.
10.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements entered into
solely between residents of and to be performed entirely within, such state.
10.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
10.5 Notices.
(a) All notices, requests, demands and other communications under
this Agreement or in connection herewith shall be given to or made upon the
Holder at the addresses set
-10-
<PAGE>
forth in the Company's records and, if to the Company, at the address previously
furnished by the Company to the Holders, addressed to the attention of the Chief
Financial Officer.
(b) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Agreement shall be in writing,
and shall be sent by airmail, return receipt requested, or by facsimile with
confirmation of receipt, and shall be deemed to be given or made when receipt is
so confirmed.
(c) Any party may, by written notice to the other, alter its address
or respondent, and such notice shall be considered to have been given three (3)
days after the airmailing or faxing thereof.
10.6 Amendments and Waivers. Any term of this Agreement may be amended or
any right hereunder waived with the written consent of the Company and the
Holders of at least a majority of the outstanding Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10.6 shall be
binding upon the Holders and each transferee of the Registrable Securities, each
future holder of all such Registrable Securities, and the Company.
10.7 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
10.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to any Holder, shall be cumulative
and not alternative.
10.9 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof and any other written or oral agreements between the
parties hereto are expressly canceled.
10.10 No Inconsistent Agreements. The Company shall not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of the
day and year first above written.
COMPANY: CLASS A HOLDERS:
MODEM MEDIA . POPPE TYSON, INC.
By: /s/ G.M. O'Connell By: /s/ G.M. O'Connell
Name: G.M. O'Connell Name: G.M. O'Connell
Title: CEO
By: /s/ Robert Allen
Name: Robert Allen
By: /s/ Douglas Ahlers
Name: Douglas Ahlers
***
-12-
<PAGE>
CLASS B HOLDERS:
By: /s/ Gary Chester
Name: Gary Chester
Title: Vice President, Assistant Treasurer
Foote, Cone & Belding Advertising, Inc.
By: /s/ Gary Chester
Name: Gary Chester
Title: Vice President, Secretary Foote,
Cone & Belding, Inc.
By: /s/ Gary Chester
Name: Gary Chester
Title: Vice President, Treasurer R/GA
Media Group, Inc.
By: /s/ Gary Chester
Name: Gary Chester
Title: Secretary, TN Technologies, Inc.
By: /s/ Gary Chester
Name: Gary Chester
Title: Vice President, Taxes, True North
Communications Inc.
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND THE UNAUDITED
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS
DATA HAS BEEN RESTATED AS A RESULT OF A POOLING OF INTEREST TRANSACTION
CONSUMMATED IN THE FIRST QUARTER OF 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 81,303
<SECURITIES> 10,166
<RECEIVABLES> 861,017
<ALLOWANCES> 11,757
<INVENTORY> 0
<CURRENT-ASSETS> 1,044,871
<PP&E> 315,962
<DEPRECIATION> 195,717
<TOTAL-ASSETS> 1,780,981
<CURRENT-LIABILITIES> 1,220,754
<BONDS> 0
0
0
<COMMON> 231,477
<OTHER-SE> 74,622
<TOTAL-LIABILITY-AND-EQUITY> 1,780,981
<SALES> 0
<TOTAL-REVENUES> 910,084
<CGS> 0
<TOTAL-COSTS> 837,660
<OTHER-EXPENSES> (9,115)
<LOSS-PROVISION> 1,619
<INTEREST-EXPENSE> 16,558
<INCOME-PRETAX> 63,362
<INCOME-TAX> 29,869
<INCOME-CONTINUING> 34,554
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,554
<EPS-BASIC> 0.76
<EPS-DILUTED> 0.73
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 122,317
<SECURITIES> 22,206
<RECEIVABLES> 1,005,616
<ALLOWANCES> 10,582
<INVENTORY> 0
<CURRENT-ASSETS> 114,299
<PP&E> 341,387
<DEPRECIATION> 201,675
<TOTAL-ASSETS> 1,952,419
<CURRENT-LIABILITIES> 1,421,035
<BONDS> 0
0
0
<COMMON> 284,913
<OTHER-SE> 21,786
<TOTAL-LIABILITY-AND-EQUITY> 1,952,419
<SALES> 0
<TOTAL-REVENUES> 1,015,820
<CGS> 0
<TOTAL-COSTS> 1,004,051
<OTHER-EXPENSES> (11,906)
<LOSS-PROVISION> 1,926
<INTEREST-EXPENSE> 13,776
<INCOME-PRETAX> 7,973
<INCOME-TAX> 10,502
<INCOME-CONTINUING> (3,443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,443)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
