<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File No. 1-5029
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TRUE NORTH COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
Delaware 36-1088161
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
101 East Erie Street, Chicago, 60611-2897
Illinois (Zip code)
(Address of principal executive
offices)
Registrant's telephone number: (312) 425-6500
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, par value 33
1/3 cents per share New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference or included in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value of Common Stock, 33 1/3 cents par value, held by
non-affiliates of the Registrant, as of March 24, 1999 was $1,288,199,880.
The number of shares of Common Stock, 33 1/3 cents par value, outstanding as
of March 24, 1999 was 46,843,632.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to stockholders for the year
ended December 31, 1998 are incorporated by reference into Parts I and II of
this Form 10-K.
Portions of the Registrant's Proxy Statement relating to its annual meeting
of stockholders scheduled to be held on May 26, 1999 are incorporated by
reference into Part III of this Form 10-K.
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<PAGE>
Certain statements contained in Registrant's 1998 Annual Report To
Shareholders under the captions "ABOUT TRUE NORTH" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
constitute "forward-looking statements" within the meaning of Section
21E(i)(1) of the Securities Exchange Act of 1934. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of the Company to be materially different
from any future results expressed or implied by these statements. Such factors
include, among other things, the following: general economic and business
conditions, changes in demand for the Company's services, changes in
competition, the ability of the Company to integrate acquisitions or complete
future acquisitions, interest rate fluctuations, dependence upon and
availability of qualified personnel, and changes in government regulation. In
light of these and other uncertainties, the forward-looking statements
included in this document should not be regarded as a representation by the
Company that the Company's plans and objectives will be achieved.
PART I
ITEM 1. BUSINESS
General--Response to this item is incorporated by reference to the 1998
Financial Report portion of the Registrant's Annual Report to shareholders for
fiscal year ended December 31, 1998 (the "1998 Financial Report") on pages 1
and 2.
Revenues--Response to this item is incorporated by reference to page 2 of
the 1998 Financial Report.
Clients--The Registrant and its subsidiaries (the "Company") consider their
relations with their clients to be satisfactory. Due to the nature of the
business, however, any client could at some time in the future reduce its
advertising budget, or transfer to another agency all or part of its
advertising presently placed through the Company. Representation of a client
does not necessarily mean that all advertising for that client is handled by
the Company exclusively. In many cases, the Company handles the advertising of
only a portion of a client's products or services or only the advertising in
particular geographic areas.
Competition--The advertising agency business is highly competitive, with
agencies of all sizes competing primarily on the basis of quality of service
to attract and retain clients and personnel. Advertisers are able to move from
one agency to another with relative ease, in part because accounts are
terminable on short notice, usually 90-180 days. Competition for clients by
large agencies is limited somewhat because many advertisers prefer not to be
represented by an agency which handles competing products or services for
other advertisers.
Regulation--Federal, state and local governments and governmental agencies
in recent years have adopted statutes and regulations affecting the
advertising activities of advertising agencies and their clients. For example,
statutes and regulations have prohibited television advertising for certain
products and have regulated the form and content of certain types of
advertising for many consumer products. The Federal Trade Commission ("FTC")
and various State Attorneys General have also required proof of accuracy of
advertising claims with respect to various products and, in its enforcement
policies, are seeking to establish more stringent standards with respect to
advertising practices. The FTC and State Attorneys General have the authority
to investigate and to institute proceedings against advertisers and their
advertising agencies for deceptive advertising. Proposals have also been made
for the adoption of additional statutes and regulations which would further
restrict the advertising activities of advertising agencies and their clients.
The effect on the advertising business of future application of existing
statutes or regulations, or the extent, nature or effect of future legislation
or regulatory activity with respect to advertising, cannot be predicted.
Financial Information about Foreign and Domestic Operations--Response to
this item is incorporated by reference to pages 2 and 23 of the 1998 Financial
Report.
2
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ITEM 2. PROPERTIES
Virtually all of the Company's operations are conducted in leased premises.
The Company's physical property consists primarily of leasehold improvements,
furniture, fixtures and equipment. However, the Company does own office
buildings in Puerto Rico and the Dominican Republic, neither of which is
material to the Company's consolidated financial statements.
Further information regarding the Company's leased premises, which it
considers to be adequate for its current operations, is incorporated by
reference to note 13 of Registrant's consolidated financial statements on
pages 24 and 25 of the 1998 Financial Report.
ITEM 3. LEGAL PROCEEDINGS
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 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. To date, Mazda seeks approximately
$2.5 million in damages arising from Mazda's settlement of claims asserted by
the Federal Trade Commission ("FTC"), various state attorneys general, and a
class of consumers. Mazda has informally indicated that it will seek
indemnification for costs it may incur to settle or defend additional claims
which may be asserted by the FTC and various state attorneys general. FCB has
filed a counterclaim in the arbitration seeking approximately $5 million in
unpaid commissions 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.
In addition, response to this item is incorporated by reference to notes 6
and 8 of Registrant's consolidated financial statements on pages 18 and 21 of
the 1998 Financial Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Response to this item is incorporated by reference to page 2 of the 1998
Financial Report.
ITEM 6. SELECTED FINANCIAL DATA
Response to this item is incorporated by reference to page 3 of the 1998
Financial Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Response to this item is incorporated by reference to pages 3 through 9 of
the 1998 Financial Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Response to this item is incorporated by reference to page 8 of the 1998
Financial Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Response to this item is incorporated by reference to pages 3 and 10 through
29 of the 1998 Financial Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
3
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Directors of the Registrant contained under
the heading "Proposal I--Election of Directors" in the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 26, 1999
(the "Proxy Statement") is incorporated herein by reference. Information with
respect to executive officers of the Registrant who are not also Directors or
nominees to the Board of Directors is included below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Kenneth J. Ashley 56 Vice President, Treasurer
Dorian J. Cougias 38 Executive Vice President,
Chief Information Officer
Bruce Mason 59 Chief Executive Officer
Terry D. Peigh 45 Executive Vice President,
Director of TN Services
Dale F. Perona 53 Senior Vice President, Secretary
Kevin J. Smith 44 Senior Vice President,
Chief Accounting Officer
Richard P. Sneeder, Jr. 49 Vice President, Controller
Theodore J. Theophilos 45 Executive Vice President of
Corporate Development and
Business Affairs
</TABLE>
Mr. Ashley has served as Vice President, Treasurer of the Company since
October 1997. Prior thereto he was Chief Investment Officer and Treasurer of
Thorndale Farm L.L.C., a private investment company, from 1996 to 1997, and
Secretary and Treasurer of CCH Incorporated from 1993 to 1996.
Mr. Cougias has served as Executive Vice President, Chief Information
Officer of the Company since September 1998. Prior thereto he was Chief
Information Officer of Fallon McElligott Advertising from 1995 to September
1998.
Mr. Mason has served as Chief Executive Officer of the Company since 1991.
Prior thereto Mr. Mason held other senior executive positions with the
Company.
Mr. Peigh has served as Executive Vice President, Director of TN Services
since 1998. Prior thereto he was a Senior Vice President and a Worldwide
Account Director of Foote, Cone & Belding Advertising, Inc., a subsidiary of
the Company.
Mr. Perona has served as Senior Vice President and Secretary of the Company
since November 1993. Prior thereto Mr. Perona held other senior executive
positions with the Company.
Mr. Smith has served as Senior Vice President, Chief Accounting Officer
since July 1998. Prior thereto he was Executive Vice President, Chief
Financial Officer and Chief Executive Officer of Midcom Communications Inc. (a
telecommunications company) from 1997 to July 1998 and Chief Executive Officer
of Alexis, Inc. (an insurance services company) from 1992 to 1996.
Mr. Sneeder has served as Vice President, Controller since January 1999.
From 1994 to 1997 he was Vice President and Controller, and from 1985 to 1994
he was Assistant Controller, of Alexander & Alexander Services Inc. (an
international risk management, insurance brokerage and human resources
management consulting company).
4
<PAGE>
Mr. Theophilos has served as Executive Vice President of Corporate
Development and Business Affairs of the Company since May 1998 and as
Executive Vice President, General Counsel of the Company from October 1996
until May 1998. Prior thereto he was Senior Vice President and General Counsel
of A.C. Nielsen Company from 1995 to 1996, and a partner of Sidley & Austin (a
law firm) from 1986 to 1995.
There are no family relationships between any of Registrant's executive
officers.
Information concerning compliance with Section 16(a) of the Securities and
Exchange Act of 1934 required by Item 10 contained under the heading
"Additional Information - Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Except for information referred to in Item 402(a)(8) of Regulation S-K, the
information contained under the headings "Executive Compensation" and "Board
Structure and Compensation" in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Stock Ownership" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item 14(a)(1)--List of Financial Statements: The following consolidated
financial statements of the Registrant and the Independent Public Accountant's
Report covering these financial statements, appearing in the 1998 Financial
Report on pages 10 through 29, are incorporated herein by reference in Item 8:
Consolidated Balance Sheets--December 31, 1997 and 1998
Consolidated Statements of Income--Years ended December 31, 1996, 1997 and
1998
Consolidated Statements of Stockholders' Equity--Years ended December 31,
1996, 1997 and 1998
Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1997
and 1998
Notes to Consolidated Financial Statements--December 31, 1998
Reports of Independent Public Accountants
The audited financial statements of Publicis Communication, a 50% or less
owned foreign affiliate of the Registrant, were not available at the time this
Form 10-K was filed. Registrant will file these financial statements by
amendment to this Form 10-K by no later than June 30, 1999.
Item 14(a)(2)--Schedules: Are not submitted because they are not required or
because the required information is included in the financial statements or
notes thereto.
Item 14(a)(3)--Index of Exhibits: The index of exhibits immediately precedes
the exhibits filed with the Securities and Exchange Commission.
Item 14(b)--Reports on Form 8-K:
In a report filed on Form 8-K, dated November 5, 1998, the Registrant
reported certain recent events concerning its Rights Agreement under Item 5 -
"Other Events."
In a report filed on Form 8-K, dated February 25, 1999, the Registrant
reported certain recent events concerning board of directors appointments and
management retirements under Item 5 - "Other Events."
In a report filed on Form 8-K, dated March 12, 1999, the Registrant reported
certain recent events concerning its stock repurchase program, fourth quarter,
1998 operating results and new Chairman and Chief Executive Officer under Item
5 - "Other Events."
5
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 1999
True North Communications Inc.
/s/ Bruce Mason
By: _________________________________
Bruce Mason
Chief Executive Officer
(Principal Executive Officer)
/s/ Donald Seeley
By: _________________________________
Donald Seeley
Executive Vice President,
Chief Financial Officer
/s/ Kevin J. Smith
By: _________________________________
Kevin J. Smith
Senior Vice President
Chief Accounting Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
to the Power of Attorney filed with the Securities and Exchange Commission,
this report has been signed below by the following persons (constituting a
majority of the members of the Board of Directors of the Registrant) on behalf
of the Registrant.
Signature and Title Signature and Title
David A. Bell* Richard P. Mayer*
_____________________________________ _____________________________________
David A. Bell Richard P. Mayer
Ronald W. Bess* Michael E. Murphy*
_____________________________________ _____________________________________
Ronald W. Bess Michael E. Murphy
Donald M. Elliman, Jr.* Charles D. Peebler, Jr.*
_____________________________________ _____________________________________
Donald M. Elliman, Jr. Charles D. Peebler, Jr.
W. Grant Gregory* J. Brendan Ryan*
_____________________________________ _____________________________________
W. Grant Gregory J. Brendan Ryan
Leo-Arthur Kelmenson* Marilyn R. Seymann*
_____________________________________ _____________________________________
Leo-Arthur Kelmenson Marilyn R. Seymann
/s/ Bruce Mason Stephen T. Vehslage*
_____________________________________ _____________________________________
Bruce Mason Stephen T. Vehslage
/s/ Theodore J. Theophilos
*By: ________________________________
Theodore J. Theophilos
as Attorney-in-Fact
Date: March 30, 1999
6
<PAGE>
INDEX OF EXHIBITS
4.1 Registrant's Restated Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3(i) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
4.2 Certificate of Ownership and Merger changing Registrant's name to
True North Communications Inc. (incorporated by reference to
Exhibit (3)(i) to Registrant's Current Report on Form 8-K filed
December 9, 1994).
4.3 Certificate of Designation of Series B Junior Participating Preferred
Stock of True North Communications Inc., filed in Delaware on
November 5, 1998 (incorporated by reference to Exhibit 4.3 to
Registrant's Registration Statement on Form S-3 filed December 7,
1998 (File No. 333-68485)).
4.4 Registrant's Bylaws, as restated on March 4, 1998 (incorporated
by reference to Exhibit 4.4 to Registrant's Post-Effective Amendment
No. 1 on Form S-8 dated March 17, 1998 to Registrant's Registration
Statement on Form S-4, filed November 26, 1997 (File No. 333-41189)).
4.5 Certificate of Amendment of Restated Certificate of Incorporation,
filed in Delaware on December 30, 1997 (incorporated by reference
to Exhibit 4.6 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
4.6 Rights Agreement dated as of November 4, 1998 between Registrant
and the First Chicago Trust Company of New York, as Rights Agent
(incorporated by reference to Exhibit 4 to Registrant's Current
Report on Form 8-K dated November 4, 1998).
10.1#* Registrant's Stock Option Plan.
10.2# The Bozell, Jacobs, Kenyon & Eckhardt, Inc. Stock Option Plan,
established effective March 30, 1992, as amended (incorporated by
reference to Exhibit 4.5 to Registrant's Post-Effective Amendment No. 1
on Form S-8 dated March 17, 1997 to Registrant's Registration Statement
on Form S-4, filed November 26, 1997).
10.3#* Amendment to the Bozell, Jacobs, Kenyon & Eckhardt, Inc. Stock Option
Plan effective as of August 1, 1998.
10.4# Registrant's Outside Directors Stock Option Plan (incorporated by
reference to Appendix A to Registrant's Definitive Proxy Statement
for its Annual Meeting of Stockholders held on May 30, 1992).
<PAGE>
10.5# Amendment to Registrant's Outside Director Stock Option Plan
(incorporated by reference to Exhibit 4.11 to Registrant's Registration
Statement on Form S-8 filed May 19, 1998 (File No. 333-52989)).
10.6# Employment Agreement between Bruce Mason and Registrant, dated as
of July 30, 1997 (incorporated by reference to Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.7# Employment Agreement between J. Brendan Ryan and Registrant, dated as
of December 31, 1996 (incorporated by reference to Exhibit 10.4 to
Registrant's Current Report on Form 8-K dated June 10, 1997).
10.8# Employment Agreement between Theodore J. Theophilos and Registrant,
dated as of May 1, 1998 (incorporated by reference to Exhibit 10.4 to
Registrant's Registration Statement on Form S-3 filed June 23, 1998
(File No. 333-57495)).
10.9# Asset Protection Plan between Bruce Mason and Registrant, dated
June 4, 1996 (incorporated by reference to Exhibit 10.10 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.10# Asset Protection Plan between J. Brendan Ryan and Registrant, dated
June 5, 1996 (incorporated by reference to Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.11# Asset Protection Plan between Theodore J. Theophilos and Registrant,
dated October 18, 1996 (incorporated by reference to Exhibit 10.15 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996).
10.12# Employment Agreement between Donald L. Seeley and Registrant, dated
May 1, 1998 (incorporated by reference to Exhibit 10.3 to Registrant's
Registration Statement on Form S-3 filed June 23, 1998 (File No.
333-57495)).
10.13# Asset Protection Plan between Donald L. Seeley and Registrant, dated
July 1, 1998 (incorporated by reference to Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998).
10.14# Employment Agreement between Charles D. Peebler, Jr. and Registrant,
dated as of July 30, 1997 (incorporated by reference to Exhibit 10.12
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
<PAGE>
10.15#* Separation Agreement between Richard S. Braddock and Registrant, dated
as of January 31, 1999.
10.16# Employment Agreement between Valentine J. Zammit and
Registrant, dated June 26, 1997, as amended on July 25, 1997
(incorporated by reference to Exhibit 10.14 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.17# Employment Agreement between Leo-Arthur Kelmenson and Registrant, dated
March 30, 1992 as amended as of July 13, 1992, June 30, 1993, February
3, 1995 and July 30, 1997 (incorporated by reference to Exhibit 10.15 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.18# Employment Agreement between David A. Bell and Registrant, dated
September 13, 1985, as amended on February 8, 1988, June 1992, May 1996
and July 30, 1997 (incorporated by reference to Exhibit 10.16 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.19 Agreement dated as of May 10, 1997 among Publicis S.A., a societe
anonyme organized and existing under the laws of France, Publicis
Communication, a societe anonyme organized and existing under the laws
of France and Publicis FCB Europe B.V., a company organized under the
laws of the Netherlands, on the one hand, and Registrant, FCB
International, Inc., a Delaware corporation and True North Holdings
Netherlands B.V., a company organized under the laws of the
Netherlands, on the other hand (incorporated by reference to Exhibit
10.1 to Registrant's Current Report on Form 8-K dated May 19, 1997)
10.20 Pooling Agreement dated as of May 19, 1997 among Publicis S.A., a
societe anonyme organized and existing under the laws of France,
Publicis Communication, a societe anonyme organized and existing under
the laws of France and Registrant (incorporated by reference to Exhibit
10.2 to Registrant's Current Report on Form 8-K dated May 19, 1997).
10.21 Share Repurchase and Share Exchange Agreement dated May 19, 1997 among
FCB International, Inc., a Delaware corporation, Registrant, True North
Holding B.V., a company organized under the laws of the Netherlands,
Publicis Communication, a societe anonyme organized and existing under
the laws of France, and Publicis FCB Europe B.V., a company organized
under the laws of the Netherlands (incorporated by reference to Exhibit
10.1 to Registrant's Current Report on Form 8-K dated June 10, 1997).
10.22 Registrant Rights Agreement Between Registrant and The Northwestern
Mutual Life Insurance Company, dated as of July 30, 1997 (incorporated
by reference to Exhibit 10.20 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1997).
<PAGE>
10.23 364-Day Credit Agreement, dated as of May 29, 1998 among Registrant,
the initial lenders named therein and Citibank, N.A., as Administrative
Agent (incorporated by reference to Exhibit 10.1 to Registrant's
Registration Statement on Form S-3 filed June 23, 1998 (File No.
333-57495)).
10.24 Five-Year Credit Agreement, dated as of May 29, 1998 among Registrant,
the initial lenders named therein and Citibank, N.A., as Administrative
Agent (incorporated by reference to Exhibit 10.2 to Registrant's
Registration Statement on Form S-3 filed June 23, 1998 (File No.
333-57495)).
10.25#* Employment Agreement between Terry D. Peigh and Registrant dated as of
April 16, 1998.
10.26#* Employment Agreement between Ronald W. Bess and Registrant entered into
in January 1997.
10.27#* Amendment to Employment Agreement between Ronald W. Bess and
Registrant, effective March 1, 1999.
11.1* Statement re Computation of Per Share Earnings.
13.1* Portions of Registrant's Annual Report to Shareholders incorporated by
reference into this Annual Report on Form 10-K.
21.1* Subsidiaries of Registrant.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of KPMG Peat Marwick LLP.
24.1* Power of Attorney.
27.1* Financial Data Schedule.
- ---------------------
* Filed herewith.
# Management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 10.1
TRUE NORTH COMMUNICATIONS INC.
(FORMERLY, FOOTE, CONE & BELDING COMMUNICATIONS, INC.)
______________
STOCK OPTION PLAN
(Amended and Restated Effective May, 1999)
I. Purpose. This Plan is an amendment and restatement, effective May,
1999, of the stock option plan initially adopted by FOOTE, CONE & BELDING
COMMUNICATIONS, INC. (the "Corporation") on the 24th day of October, 1968, in
order that employees of, and certain other key individuals who perform services
for, the Corporation or its subsidiaries may be given an inducement to acquire a
proprietary interest in the Corporation and an added incentive to advance the
interests of the Corporation. Awards granted under the Plan may include (i)
options to purchase shares of the Corporation's common stock in the form of
incentive stock options or non-qualified stock options, (ii) stock appreciation
rights and (iii) restricted stock awards.
II. Stockholders. This Plan has been approved by the stockholders of the
Corporation.
III. Stock. The Corporation may, by action of the Compensation Committee of
the Board of Directors of the Corporation (the "Board" and the "Committee"),
grant awards of stock options, stock appreciation rights and restricted stock
under the Plan; provided that no more than 700,000 shares of the Corporation's
common stock may be subject to awards of restricted stock under the Plan and no
more than 15,814,000 shares of the Corporation's common stock may be subject to
all awards under the Plan (inclusive of shares issued and awards granted under
the Corporation's Outside Director Stock Option Plan). For the purposes of
complying with Section 162(m) of the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder, the maximum number of shares of the
Corporation's common stock with respect to which options or stock appreciation
rights may be granted during any calendar year to any person shall be 300,000.
To the extent that an outstanding award or any portion thereof expires,
terminates unexercised or is canceled, the total number of shares of the
Corporation's common stock subject to such award shall become available for
future awards under the Plan, irrespective of whether a portion of such award
has been exercised. Shares of the Corporation's common stock to be delivered
under the Plan shall be made available from the Corporation's authorized but
unissued common stock or the Corporation's treasury stock, as the Corporation
may determine.
IV. Eligibility for Participation. All employees of, and other individuals
(other than directors who are not employees of the Corporation) who perform
services for, the Corporation or any subsidiary corporation shall be eligible to
participate in this Plan. The term "subsidiary corporation" means any
corporation in which this Corporation has a direct or indirect interest equal to
20% or more of the total combined voting power of all classes of stock of such
corporation. The Corporation and the foregoing subsidiary corporations are
hereinafter collectively called the "Companies" and individually a "Company."
<PAGE>
Anything to the contrary notwithstanding, only employees of the Companies
shall be eligible to receive incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Stock
Options") and no Incentive Stock Option shall be granted under this Plan to an
otherwise eligible participant if, immediately after the Incentive Stock Option
is granted, he or she owns (including the stock under the Incentive Stock Option
award) directly or indirectly 10% or more of the total combined voting power or
value of all classes of stock of the Corporation. In addition, to the extent
that the aggregate fair market value (determined as of the date of grant) of
shares of the Corporation's common stock with respect to which options
designated as Incentive Stock Options are exercisable for the first time by an
option holder during any calendar year (under the Plan or any other plan of a
Company) exceeds $100,000, such options shall not constitute Incentive Stock
Options.
V. Date of Grant. Unless the Committee shall by resolution otherwise
expressly provide, the date upon which the Board or the Committee acts to grant
an award shall, for all purposes of this Plan or of the award agreement entered
into pursuant to such action, be deemed the date upon which such award is
granted. From and after such date the participant to whom such action is
granted shall have all rights of an award holder as provided in this Plan,
without regard to the date upon which a formal written agreement evidencing the
grant shall be executed and delivered. Whenever an award is granted under the
Plan to a participant, written notice of such grant shall be forthwith given to
him or her, pursuant to Article IX hereof.
VI. Price. The price of the common stock of the Corporation offered to any
participant under this Plan by the grant of an option to him or her to purchase
such stock shall be such amount as the Committee shall determine; provided,
however, that such price shall be in no event less than 100% of the fair market
value of such stock on the date of the grant of the option.
VII. Time of Exercise. Except as hereinafter specified, each option granted
under this Plan shall be exercisable at such time as the Committee shall
determine when granting such option; provided however, that each such option
shall become exercisable upon a "change in control" (as defined below) of the
Corporation. "Change in control" shall mean (i) an acquisition (other than
directly from the Corporation) of 15% or more of the beneficial interest in the
voting stock of the Corporation by a party other than the Corporation or a
Corporation-sponsored benefit plan, or (ii) a change in the Board as a result of
which the current directors (together with the successors they nominate or
approve for nomination) cease to be a majority of the Board.
VIII. Expiration of Options. Shares with respect to which a stock option is
granted shall not be available for grant of a subsequent stock option to the
same participant by cancellation or surrender of such prior stock option. Any
stock option granted under this Plan shall by its terms expire no later than 10
years after the date of its grant, and anything herein to the contrary
notwithstanding, no exercise as to any shares covered by such option shall be
honored on or after the tenth anniversary of the date of grant.
2
<PAGE>
IX. Notice of Grant. When any grant of any award under this Plan is made to
any participant by the Committee, the participant shall be promptly notified of
such grant. As soon thereafter as practicable a formal award agreement shall be
executed by and between the Corporation and the participant subject to the same
conditions and limitations as this Plan.
X. Termination of Employment or Service. All the terms relating to the
exercise, cancellation or other disposition of an option or stock appreciation
right and all the terms relating to the satisfaction of performance measures,
the termination of the restriction period or any cancellation or forfeiture of a
restricted stock award upon a termination of employment with or service to the
Companies of the holder of such option, stock appreciation right or restricted
stock award whether by reason of permanent incapacity to render services to such
Companies of the general nature for which the individual is employed by or
engaged to perform for such Companies (which incapacity shall be deemed to exist
only upon a duly licensed physician's written certification of it)
("Disability"), retirement, death or other termination, shall be determined by
the Committee. Such determination shall be made at the time of the grant of
such option, stock appreciation right or restricted stock award and shall be
specified in the formal written agreement relating to such option, stock
appreciation right or restricted stock award. Notwithstanding the foregoing, an
Incentive Stock Option shall expire and become null and void no later than (i)
one year after the date of Disability or death with respect to any termination
as a result of Disability or death and (ii) 90 days after the date of
termination with respect to any other termination; and within such period the
participant or his or her executor, administrator, legal representative,
designated beneficiary or similar person ("personal representative"), as the
case may be, may exercise the Incentive Stock Option to the extent the Incentive
Stock Option is exercisable at the date of termination.
XI. Manner of Exercise. Each exercise of an option granted hereunder shall
be made by the delivery by the participant (or his or her personal
representative, as the case may be) of written notice of such election to the
Corporation, at such office as it may designate by agreement with the
participant, stating the number of shares with respect to which the option is
being exercised. No shares shall be issued until full payment therefor shall
have been made as provided below. Delivery of the shares may be made at the
office of the Corporation or at the office of a transfer agent appointed for the
transfer of shares of the Corporation, as the Corporation shall determine.
Shares shall be registered in the name of the participant or his or her personal
representative, as the case may be. Neither a participant nor his or her
personal representative shall have any of the rights of a stockholder as to the
shares with respect to which the option is being exercised, until the shares are
issued as herein provided. In the event of any failure to take and pay for the
number of shares specified in the notice of election on the date stated therein,
the option shall terminate as to such number of shares, but shall continue with
respect to any remaining shares subject to the option as to which exercise has
not yet been made. Anything herein to the contrary notwithstanding, if any law
or regulation of the Securities and Exchange Commission or of any other body
having jurisdiction shall require the Corporation or a participant to take any
action in connection with the shares specified in a notice of election before
such shares can be delivered to such participant, then the date stated therein
for the delivery of the shares shall be postponed until the fifth business day
next following the completion of such action.
3
<PAGE>
(a) Payment in Cash. If the shares as to which the option is being
exercised are to be paid for entirely in cash, such notice shall specify a
date, not less than 10 nor more than 15 days after the date of the mailing of
such notice, on which the shares will be taken and payment made therefor. On
the date specified in the notice of election, the Corporation shall deliver,
or cause to be delivered, to the participant stock certificates for the number
of shares with respect to which the option is being exercised, against payment
therefor and (if applicable) delivery to the Corporation of the certification
described in Article XV below.
(b) Request to Make Payment in Shares of the Corporation. As to each
participant, if requested by such participant or his or her personal
representative and approved by the Corporation management responsible for the
day-to-day administration of the Plan, payment may be made by transfer to the
Corporation of previously owned whole shares of the Corporation (which the
participant has held for at least six months prior to the delivery of such
shares, or which the participant purchased on the open market, and in each
case for which the participant has good title, free and clear of all liens and
encumbrances) or any combination of cash and such shares of the Corporation,
having a fair market value, determined as of the close of business on the day
preceding the transfer, equal to, but not exceeding, the full option price of
the shares with respect to which the option is being exercised. Each request
to exercise the payment alternative provided for hereunder shall be made by
the delivery by the participant (or his or her personal representative, as the
case may be) of written notice of such request to the Corporation, at such
office as it may designate by agreement with the participant, stating the
number of shares with respect to which the option is being exercised and that
the participant desires to make payment by reason of such exercise in the
shares of common stock or, if a combination of common stock and cash, the
proportions thereof. The Corporation shall respond promptly to any such
request. In no event will the denial of a participant's request to make
payment of all or a portion of the option price in shares of the Corporation
abridge the participant's rights to make payment as specified in Article XI(a)
above.
XII. Stock Appreciation Rights. The Corporation may, by action of the
Committee, grant stock appreciation rights in connection with all or part of any
option granted under the Plan, either concurrently with the grant of such option
or at any time thereafter prior to the exercise or expiration of such option;
provided, however, that any stock appreciation right related to an Incentive
Stock Option shall be granted at the same time that the Incentive Stock Option
is granted. Such stock appreciation rights shall be evidenced by stock
appreciation rights agreements not inconsistent with and subject to the same
conditions and limitations as this Plan. A stock appreciation right shall be
exercisable at such time as the Committee shall determine when granting such
right, but shall not be exercisable with respect to any shares before the time
the participant could exercise his or her option to purchase such shares under
his or her related stock option. The stock appreciation right shall entitle the
participant, in the event of his or her exercise of such right, to receive,
without payment to the Corporation (other than applicable withholding taxes) the
excess of the fair market value, on the date of such exercise, of the shares as
to which the right is exercised over the option price of such shares. Such
excess shall be paid (i) in shares of common stock by the transfer and delivery
to the
4
<PAGE>
participant of that number of shares having an aggregate fair market value on
the date of such exercise equal to such excess, or (ii) if requested by the
participant and approved by the Committee, in cash or partially in cash and
partially in shares. The stock appreciation right shall expire if and to the
extent that the stock option issued in connection with it is exercised. Upon
exercise of a stock appreciation right the shares covered by the related option
shall not be available for the grant of further options under this Plan. Each
exercise of a stock appreciation right shall be made by the delivery by the
participant (or his or her personal representative, as the case may be) of
written notice of such election to the Committee, in care of the Secretary of
the Corporation, 101 East Erie Street, Chicago, Illinois 60611, identifying the
related stock option, stating the number of shares with respect to which the
stock appreciation right is being exercised and stating whether the participant
desires to receive by reason of such exercise shares of common stock or cash or,
if a combination of both, the proportions thereof. For purposes of this Plan,
the date of exercise shall be the date when such notice of election is received.
As soon as practical after the date of such receipt, the Corporation shall
deliver or cause to be delivered to such participant, upon the participant's
payment of the applicable withholding taxes, stock certificates for the number
of shares requested in the notice of exercise, or if requested by the
participant and approved by the Committee, cash or cash and stock certificates
for shares as so approved.
XIII. Restricted Stock Awards. The Committee may, in its discretion, grant
restricted stock awards to such eligible individuals as may be selected by the
Committee. Restricted stock awards shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem advisable.
(a) Number of Shares and Other Terms. The number of shares of the
Corporation's common stock subject to a restricted stock award and the
performance measures (if any) and restriction period applicable to a
restricted stock award shall be determined by the Committee.
(b) Vesting and Forfeiture. The formal written agreement relating to a
restricted stock award shall provide, in the manner determined by the
Committee in its discretion, and subject to the provisions of the Plan, (i)
for the vesting of the shares of the Corporation's common stock subject to
such award (A) if specified performance measures are satisfied or met during
the specified restriction period or (B) if the holder of such award remains
continuously in the employment of or service to a Company during the specified
restriction period and (ii) for the forfeiture of the shares of the
Corporation's common stock subject to such award (A) if specified performance
measures are not satisfied or met during the specified restriction period or
(B) if the holder of such award does not remain continuously in the employment
of or service to a Company during the specified restriction period.
(c) Share Certificates. During the restriction period, a certificate or
certificates representing a restricted stock award may be registered in the
holder's name and may bear a legend indicating that the ownership of the
shares of the Corporation's common stock represented by such certificate is
subject to the restrictions, terms and conditions of the Plan and the formal
written agreement relating to the restricted stock award. All such
certificates shall be deposited with the
5
<PAGE>
Corporation, together with stock powers or other instruments of assignment
(including a power of attorney), each endorsed in blank with a guarantee of
signature if deemed necessary or appropriate by the Corporation, which would
permit transfer to the Corporation of all or a portion of the shares of the
Corporation's common stock subject to the restricted stock award in the event
such award is forfeited in whole or in part. Upon termination of any
applicable restriction period (and the satisfaction or attainment of
applicable performance measures) and subject to the Corporation's right to
require payment of any taxes in accordance with Article XIX, a certificate or
certificates evidencing ownership of the requisite number of shares of the
Corporation's common stock shall be delivered to the holder of such award.
(d) Rights with Respect to Restricted Stock Awards. Unless otherwise set
forth in the formal written agreement relating to a restricted stock award,
and subject to the terms and conditions of a restricted stock award, the
holder of such award shall have all rights as a stockholder of the
Corporation, including, but not limited to, voting rights, the right to
receive dividends and the right to participate in any capital adjustment
applicable to all holders of the Corporation's common stock; provided,
however, that a distribution with respect to shares of the Corporation's
common stock, other than a distribution in cash, shall be deposited with the
Corporation and shall be subject to the same restrictions as the shares of the
Corporation's common stock with respect to which such distribution was made.
XIV. Action to Prevent Dilution. If any change is made in the stock subject
to this Plan by reason of stock dividends, a stock split-up or similar corporate
action, appropriate actions shall be taken by the Committee as to the number of
shares and price per share of the stock subject to this Plan or to any award
granted hereunder and to the maximum number of shares of the Corporation's
common stock with respect to which awards may be granted under this Plan during
any calendar year to any person in order to prevent dilution.
XV. Securities Registration. In the event that at any time the Plan is not
registered by the Corporation under the Securities Act of 1933, as amended, the
issuance of shares under said Plan shall be subject to the following provision:
a participant shall certify to the Corporation in such form as it shall require
that he or she will receive and hold such shares for investment and not with a
view to resale or distribution thereof to the public.
XVI. Employment Obligations. The grant of an award under this Plan shall not
impose any obligation on any of the Companies to continue the employment of any
participant. Participation in this Plan shall not affect the eligibility of any
participant for any profit sharing, bonus, insurance, pension, or other extra
compensation plan which any of the Companies may have heretofore adopted or may
at any time hereafter adopt for any employees and other key individuals who
perform services therefor.
XVII. Assignment and Designation of Beneficiary. Any option or stock
appreciation right granted under the Plan shall, by its terms, be exercisable
during the lifetime of the participant only by the participant. Any award
granted under the Plan shall not be assigned, pledged or hypothecated
6
<PAGE>
in any way, shall not be subject to execution, and shall not be transferable by
the participant otherwise than by will or the laws of descent and distribution
or to be designated beneficiary in the event of the participant's death. Any
attempt at assignment, transfer, pledge, hypothecation or other disposition of
any award granted hereunder contrary to the provisions hereof, and the levy of
any attachment or similar proceedings upon any option or stock appreciation
right, shall be null and void. A participant may file with the Corporation a
written designation of one or more persons as such participant's beneficiary or
beneficiaries (both primary and contingent) in the event of the participant's
death. To the extent an outstanding option or stock appreciation right granted
hereunder is exercisable, such beneficiary or beneficiaries shall be entitled to
exercise such option or stock appreciation right.
Each beneficiary designation shall become effective only when filed in writing
with the Corporation during the participant's lifetime on a form prescribed by
the Corporation. The spouse of a married participant domiciled in a community
property jurisdiction shall join in any designation of a beneficiary other than
such spouse. The filing with the Corporation of a new beneficiary designation
shall cancel all previously filed beneficiary designations. If a participant
fails to designate a beneficiary, or if all designated beneficiaries of a
participant predecease the participant, then each outstanding option hereunder
held by such participant, to the extent exercisable, may be exercised by such
participant's executor, administrator, legal representative or similar person.
XVIII. Liquidation. Upon the complete liquidation of the Corporation, any
outstanding awards heretofore granted under this Plan shall be deemed canceled.
In the event of the complete liquidation of the Company (other than the
Corporation) employing the participant or for which he or she performs services
or in the event such Company ceases to be a subsidiary of the Corporation, any
outstanding awards granted hereunder shall be deemed canceled unless the
participant shall become employed by or commences to render services to another
Company (including the Corporation) concurrently with such event.
XIX. Withholding Requirements. The Corporation shall have the right to
require, prior to the issuance or delivery of any shares of the Corporation's
common stock, payment by the holder of the award of any federal, state, local or
other taxes which may be required to be withheld or paid in connection with the
award. At the request of a participant or his or her personal representative,
and subject to approval by the Corporation, the Corporation may satisfy any such
tax withholding obligations by withholding from the number of shares to be
delivered to the participant that number of shares (based on the then fair
market value of the shares) equal to the amount of such tax to be withheld. In
the alternative, and subject to approval by the Corporation, the participant may
deliver to the Corporation in whole or partial satisfaction of such tax
withholding obligations, previously owned whole shares to which the participant
has good title, free and clear of all liens and encumbrances, which shall be
valued for such purpose at the then fair market value of such shares.
XX. Governing Law. Awards granted under this Plan shall be construed and
shall take effect in accordance with the laws of the State of Illinois.
7
<PAGE>
XXI. Amendment and Construction. The Board may supplement, amend, suspend or
discontinue this Plan at any time for any reason whatsoever; provided, however,
unless the Board specifically otherwise provides, any revision or amendment that
would cause this Plan to fail to comply with any applicable law or regulation if
such revision or amendment were not approved by the stockholders of the
Corporation shall not become effective unless and until the approval of the
stockholders of the Corporation is obtained; and provided, further, however,
that no award under this Plan may be altered or canceled, except in accordance
with its terms, without the written consent of the participant to whom such
award was granted. The Committee shall have the exclusive authority to
administer this Plan and to construe the terms of this Plan and any award
granted under it.
XXII. Term of the Plan. No award shall be granted hereunder after 10 years
from May 26, 1999.
8
<PAGE>
EXHIBIT 10.3
ACTION BY UNANIMOUS WRITTEN CONSENT
OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS OF
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
Adopting an amendment to the BJK&E Stock Option Plan to permit option holders
to use True North shares to pay all or a portion of the exercise price or tax
withholding obligations that arise upon the exercise of stock options and to
provide that the True North Compensation Committee shall oversee the operation
and administration of this Plan
WHEREAS, Bozell, Jacobs, Kenyon & Eckhardt, Inc. (the "Company") has
established and maintains the Bozell, Jacobs, Kenyon & Eckhardt, Inc. Stock
Option Plan (the "Plan");
WHEREAS, upon consummation of the transaction pursuant to which the
Company became a wholly-owned subsidiary of True North Communications Inc.
("True North"), each outstanding stock option under the Plan was converted into
an option to purchase Common Stock of True North; and
WHEREAS, pursuant to its authority under Article XVIII of the Plan,
this Compensation Committee of the Board of Directors of the Company wishes to
adopt an amendment to the Plan to permit option holders to use shares of True
North Common Stock to pay all or a portion of the exercise price or tax
withholding obligations that arise upon the exercise of outstanding stock
options and to provide that the Compensation Committee of the Board of Directors
of True North shall oversee the operation and administration of the Plan.
NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended,
effective August 1, 1998, by adding the following new Article XXI to the end
thereof:
"ARTICLE XXI.
True North Merger
-----------------
Effective December 30, 1997, the Company has become a wholly-owned
subsidiary of True North Communications Inc. ("True North"), and each optionee
executed an Option Assumption Agreement pursuant to which such optionee's
outstanding options under the Plan have been converted into options to purchase
True North Common Stock. Notwithstanding Article IX or any other provision of
the Plan to the contrary, the manner of exercise of outstanding options under
the Plan shall be subject to the provisions of Article XII of the True North
Stock Option Plan (the "True North Plan") (which Article is attached hereto as
<PAGE>
Exhibit 1), such that, as an alternative to making cash payments, optionees may
request to make payments in "mature" already-owned shares of True North Common
Stock. Also notwithstanding any provisions of the Plan to the contrary, an
optionee may satisfy any tax withholding obligations that arise upon the
exercise of his or her options in accordance with the provisions of Article XXI
of the True North Plan (attached hereto as Exhibit 2), such that such optionee
may request to satisfy such obligation through the delivery of already-owned
True North shares or by directing True North to withhold a certain number of
shares from the shares to be delivered to the optionee upon such option
exercise.
Notwithstanding Article XVIII or any other provision of the Plan to the
contrary, the Compensation Committee of the Board of Directors of True North
shall have the responsibility for and the authority to oversee the operation and
administration of the Plan and, in accordance therewith, shall have the
authority to amend, modify or terminate the Plan at any time; provided that any
such action shall not adversely affect options theretofore granted.
To the extent the provisions of this Article XXI are inconsistent with
any existing stock option agreements governing outstanding options under the
Plan, the terms of this Article XXI shall control so as to apply to such
outstanding options the expanded manner of exercise and tax withholding features
set forth above.";
FURTHER RESOLVED, that the appropriate officers of the Company are
hereby authorized and directed to perform any acts that in their opinion are
necessary or advisable in order to carry out the intent and purposes of the
foregoing resolutions; and
FURTHER RESOLVED, that this consent may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Dated:
------------------------------
- ------------------------------- -------------------------------
J. Thomas Christofferson Donald M. Elliman
- ------------------------------- -------------------------------
W. Grant Gregory Kenneth C. Nichols
Being all the members of the Compensation Committee of the Board of Directors of
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
<PAGE>
EXHIBIT 1
---------
XII. Manner of Exercise. Each exercise of an option granted hereunder
shall be made by the delivery by the participant (or his personal
representative, as the case may be) of written notice of such election to the
Corporation, at such office as it may designate by agreement with the
participant, stating the number of shares with respect to which the option is
being exercised. No shares shall be issued until full payment therefor shall
have been made as provided below. Delivery of the shares may be made at the
office of the Corporation or at the office of a transfer agent appointed for the
transfer of shares of the Corporation, as the Corporation shall determine.
Shares shall be registered in the name of the participant or his personal
representative, as the case may be. Neither a participant nor his personal
representative shall have any of the rights of a stockholder as to the shares
with respect to which the option is being exercised, until the shares are issued
as herein provided. In the event of any failure to take and pay for the number
of shares specified in the notice of election on the date stated therein, the
option shall terminate as to such number of shares, but shall continue with
respect to any remaining shares subject to the option as to which exercise has
not yet been made. Anything herein to the contrary notwithstanding, if any law
or regulation of the Securities and Exchange Commission or of any other body
having jurisdiction shall require the Corporation or a participant to take any
action in connection with the shares specified in a notice of election before
such shares can be delivered to such participant, then the date stated therein
for the delivery of the shares shall he postponed until the fifth business day
next following the completion of such action.
(a) Payment in Cash. If the shares as to which the option is being
exercised are to be paid for entirely in cash, such notice shall specify a
date, not less than ten (10) nor more than fifteen (15) days after the date
of the mailing of such notice, on which the shares will be taken and
payment made therefor. On the date specified in the notice of election, the
Corporation shall deliver, or cause to be delivered, to participant stock
certificates for the number of shares with respect to which the option is
being exercised, against payment therefor and (if applicable) delivery to
the Corporation of the certification described in Article XIII below.
(b) Request to Make Payment in Shares of the Corporation. As to each
participant, if requested by such participant or his personal
representative and approved by the Corporation, payment may be made by
transfer to the Corporation of previously owned whole shares of the
Corporation (which the participant has held for at least six months prior
to the delivery of such shares [or which the participant purchased on the
open market] and in each case for which the participant has good title,
free and clear of all liens and encumbrances) or any combination of cash
and such shares of the Corporation, having a fair market value, determined
as of the close of business on the day preceding the transfer, equal to,
but not exceeding, the full option price of the shares with respect to
which the option is being exercised. Each request to exercise the payment
alternative provided for hereunder shall be made by the delivery by the
participant (or his personal representative, as the case may be) of written
notice of such request to the Corporation, at such office as it may
designate by agreement with the participant, stating the number of shares
with respect to which the option is being exercised and that the
participant desires to make payment by reason of such exercise in the
shares of common stock or, if a combination of common stock and cash, the
proportions thereof. The Corporation shall respond promptly to any such
request. In no event will the denial of a participant's request to make
payment of all or a portion of the option price in shares of the
Corporation abridge the participant's rights to make payment as specified
in Article XII(a) above.
<PAGE>
EXHIBIT 2
---------
XXI. Withholding Requirements. The Corporation shall have the right to
require, prior to the issuance or delivery of any shares of the Corporation's
common stock, payment by the holder of the award of any federal, state, local or
other taxes which may be required to be withheld or paid in connection with the
award. At the request of a participant or his personal representative, and
subject to approval by the Corporation, the Corporation may satisfy any such tax
withholding obligations by withholding from the number of shares to be delivered
to the participant that number of shares (based on the then fair market value of
the shares) equal to the amount of such tax to be withheld. In the alternative,
and subject to approval by the Corporation, the participant may deliver to the
Corporation in whole or partial satisfaction of such tax withholding
obligations, previously owned whole shares to which the participant has good
title, free and clear of all liens and encumbrances, which shall be valued for
such purpose at the then fair market value of such shares.
<PAGE>
EXHIBIT 10.15
SEPARATION AGREEMENT
--------------------
This SEPARATION AGREEMENT (the "Agreement") dated January 31, 1999 (the
"Separation Date"), is entered into by and between RICHARD S. BRADDOCK (the
"Executive") and TRUE NORTH COMMUNICATIONS INC., a Delaware corporation (the
"Company").
WHEREAS, the Executive and the Company desire to provide for, among
other things, the termination of the Executive's employment with the Company,
the termination of the Executive's membership on the Company's Board of
Directors, and the financial and other terms relating to such termination; and
WHEREAS, the Executive and the Company desire to enter into this
Agreement to specify the terms and conditions relating to the Executive's
termination and to settle any issues relating to the Employment Agreement
between the Company and the Executive dated July 30, 1997 (the "Employment
Agreement").
NOW, THEREFORE, the parties hereto agree as follows:
1. Resignation as Non-Executive Chairman and Director. Effective as of
the Separation Date, (a) the Executive's employment with the Company is
terminated by mutual agreement, and (b) the Executive hereby resigns as
non-executive Chairman and a director of the Company and, to the extent
applicable, as an officer, director, trustee, agent, representative, fiduciary,
partner, designee or the like, of any and all affiliates of the Company.
2. Payments to and Benefits for the Executive. In exchange for the
Executive's agreement to enter into this Agreement, the Company will pay or
provide to the Executive the following benefits:
(a) For the 12-month period ending January 31, 2000, the
Executive will receive as severance the gross amount of $400,000 (less required
federal, state and local tax withholdings), which amount will be paid in
semi-monthly installments in accordance with the Company's normal payroll
procedures.
(b) The Executive will receive a bonus of $200,000 (less
required federal, state and local tax withholdings) for calendar year 1998, to
be paid in 1999 at the time other 1998 senior executive bonuses are paid.
(c) The Executive shall continue to receive medical, dental
and life insurance benefits through January 31, 2000, in accordance with the
senior executive arrangements that are currently applicable to him; provided,
however, that the Executive's coverage shall be subject to any underlying plan
changes that are generally applicable to senior executives of the Company.
(d) The Executive will retain the use of his current office at
Foote, Cone & Belding Worldwide in New York through April 30, 1999.
<PAGE>
(e) The Executive will receive one-half of his current annual
car allotment for the six-month period beginning February 1, 1999 and ending
July 31, 1999 (subject to required federal, state and local tax withholdings).
(f) Pursuant to a separate agreement with the Executive's
administrative assistant, she will continue to receive salary and benefits
through July 31, 1999.
3. Existing Stock Options. All stock options heretofore granted by the
Company to the Executive shall be treated in accordance with the underlying
stock option agreements. Pursuant to the terms of Section 5(a) of the Stock
Option Agreement governing the stock option for 50,000 shares granted to the
Executive on July 30, 1997, such stock option shall remain exercisable for one
year following the Separation Date.
4. Phantom Stock.
--------------
(a) If the per share closing price of the Company's common
stock is at or below $23.0625 on any business day that coincides with or
precedes the Separation Date (the "Conditional Grant Date"), then the phantom
stock benefit described in Section 3(c) of the Employment Agreement will be
canceled and in lieu thereof the Company will grant to the Executive an option
to purchase 150,000 shares of Company common stock. This stock option will be
granted and will be fully vested as of the Conditional Grant Date, the exercise
price will be the closing price of Company common stock on the Conditional Grant
Date, and this stock option will expire on March 31, 2001. All other terms of
this stock option will be consistent with the True North Communications Inc.
Stock Option Plan.
(b) If the per share closing price of the Company's common
stock is not at or below $23.0625 on any business day that coincides with or
precedes the Separation Date, then the phantom stock benefit described in
Section 3(c) of the Employment Agreement shall remain in effect, subject to the
following modifications and clarifications:
(i) 150 phantom stock units shall be vested as of
the Separation Date, and no further units shall become vested thereafter.
(ii) The Valuation Date on which the phantom stock
benefit will be measured shall be chosen by the Executive; provided that the
Valuation Date must be the last business day of a calendar quarter occurring on
or before March 31, 2001.
(iii) The phantom stock benefit shall expire on March
31, 2001.
(c) Notwithstanding the remainder of this Section 4, upon the
mutual agreement of the Executive and the Company, the phantom stock benefit may
be settled as of any mutually agreeable Valuation Date and the Company may grant
to the Executive the stock option described in subsection (a) above; provided
that the per share exercise price of such stock option shall be no less than the
per share market value of Company common stock on the date of grant.
5. Consulting Services. The Executive shall be available to be called
upon by Donald L. Seeley and Theodore J. Theophilos to consult regarding the
Modem Media.Poppe Tyson, Inc. IPO and related issues regarding that company.
2
<PAGE>
6. Noncompetition; Nonsolicitation; Confidentiality.
-------------------------------------------------
(a) Covenant Not to Compete. Except with the prior written
consent of the Board of Directors of the Company:
(i) From the Separation Date through February 1,
2000 (the "Non-Compete Period"), the Executive shall not engage in any
activities, whether as employer, proprietor, partner, stockholder (other than
the holder of less than 5% of the stock of a corporation the securities of which
are traded on a national securities exchange or in the over-the-counter market),
director, officer, employee or otherwise, in competition with (A) the businesses
conducted at the date hereof by the Company or any of its affiliates or (B) any
business in which the Company or any of its affiliates is substantially engaged
at any time during the Non-Compete Period; provided that the Executive's
employment with Priceline.com shall not in and of itself violate the terms of
this Section 6(a)(i);
(ii) during the Non-Compete Period, the Executive
shall not solicit, directly or indirectly, any existing business relationship of
clients of the Company in which the Company is substantially engaged at any time
during his employment with the Company or during the Non-Compete Period; and
(iii) during the Non-Compete Period, the Executive
shall not induce or attempt to persuade any employee of the Company (other than
the Executive's current administrative assistant) to terminate the employee's
employment relationship with the Company.
(b) Confidential Information and Trade Secrets. The Executive
shall not, at any time make use of any bidding information (or computer programs
thereof) of the Company or its affiliates, nor divulge any trade secrets or
other confidential information of the Company or its affiliates, except to the
extent that such information becomes a matter of public record, is published in
a newspaper, magazine or other periodical available to the general public or as
the Company may so authorize in writing; and, on or as soon as practicable after
the Separation Date, the Executive shall surrender to the Company all records
and other documents obtained by him or entrusted to him during the course of his
employment and Board membership with the Company (together with all copies
thereof) which pertain specifically to any of the businesses covered by the
covenants in Section 6(a)(i) or which were paid for by the Company; provided,
however, that the Executive may retain copies of such documents as necessary for
the Executive's personal records for federal income tax purposes.
(c) Scope of Covenants; Remedies. The following provisions
shall apply to the covenants of the Executive contained in this Section:
(i) the covenants set forth in Section 6(a)(i)
and (ii) shall apply within all territories in which the Company is actively
engaged in the conduct of business during the Non-Compete Period, including,
without limitation, the territories in which customers are then being solicited;
and
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(ii) each party intends and agrees that if in
any action before any court or agency legally empowered to enforce the covenants
contained in Section 6(a) and (b) any term, restriction, covenant or promise
contained therein is found to be unreasonable and accordingly unenforceable,
then such term, restriction, covenant or promise shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.
7. Nondisparagement; Cooperation.
------------------------------
(a) The Executive shall not, at any time make any statement,
publicly or privately, that would disparage the Company, any of its businesses
or any director or officer of the Company or such businesses or would have a
deleterious effect upon the interests of the Company or such businesses or the
stockholders or other owners of any of them; provided, however, that the
Executive shall not be in breach of this restriction if such statements consist
solely of private statements made to persons other than clients or competitors
of the Company (or their representatives) or members of the press or the
financial community that do not have an adverse effect upon the Company; and
provided further that nothing contained in this Section 7(a) or in any other
provision of this Agreement shall preclude the Executive from making any
statement in good faith that is required by law, regulation or order of any
court or regulatory commission, department or agency.
(b) The Company shall not authorize any person to make any
statement, publicly or privately, that would disparage the Executive; provided,
however, that the Company shall not be in breach of this restriction if such
statements consist solely of (i) private statements made to any officers,
directors or employees of the Company or (ii) private statements made to persons
other than clients or competitors of the Company (or their representatives) or
members of the press or the financial community that do not have a material
adverse effect upon the Executive; and provided further that nothing contained
in this Section 7(b) or in any other provision of this Agreement shall preclude
any officer, director, employee, agent or other representative of the Company
from making any statement in good faith that is required by any law, regulation
or order of any court or regulatory commission, department or agency.
8. Enforcement.
------------
(a) The parties hereto agree that the Company would be damaged
irreparably in the event that any provision of Section 6 or 7 of this Agreement
were not performed in accordance with its terms or were otherwise breached and
that money damages would be an inadequate remedy for any such nonperformance or
breach. Accordingly, the Company and its successors or permitted assigns shall
be entitled, in addition to other rights and remedies existing in their favor,
to an injunction or injunctions to prevent any breach or threatened breach of
any of such provisions and to enforce such provisions specifically (without
posting a bond or other security). Each of the parties agrees that he or it will
submit himself or itself to the personal jurisdiction of the courts of the State
of Illinois in any action by the other party to enforce an arbitration award
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against him or it or to obtain interim injunctive or other relief pending an
arbitration decision.
(b) The Executive acknowledges and agrees that in the event
that he breaches any of the provisions of Section 6 or 7 of this Agreement, (i)
the Company shall not be obligated to commence or continue any payments or
benefits provided for hereunder, and (ii) the Executive shall be obligated to
pay to the Company its costs and expenses in enforcing this Agreement and
defending against any lawsuit (including court costs, expenses and reasonable
legal fees).
9. Release and Waiver.
-------------------
(a) As a material inducement to the Company to enter into this
Agreement, the Executive knowingly and voluntarily releases, acquits and forever
discharges the Company, its divisions and affiliates and each of their
predecessors, successors, assigns, agents, directors, officers, employees,
representatives, and all persons acting by, through, under or in concert with
any of them (hereinafter referred to collectively as the "Releasees"), from any
and all charges, complaints, claims, liabilities, obligations, promises,
agreements, controversies, damages, actions, causes of action, suits, rights,
demands, costs, losses, debts and expenses of any nature whatsoever (upon any
legal or equitable theory, whether contractual, common-law, statutory, federal,
state, local or otherwise), known or unknown, suspected or unsuspected, which,
from the beginning of the world up to and including the Separation Date, exists,
have existed, or may hereafter arise, which and which the Executive or his
heirs, executors, administrators, successors and assigns ever had, now has or at
any time hereafter may have, own or hold against each or any of the Releasees;
provided, however, that the foregoing release does not extend to any benefits to
be provided to the Executive pursuant to this Agreement or to the Executive's
benefits under the True North Communications Inc. Retirement Plan, the True
North Communications Inc. Stock Purchase Integration Plan and the True North
Communications Inc. Directors' Deferred Fee Plan.
(b) This release and waiver includes but is not limited to:
(i) any claims for wrongful termination,
defamation, invasion of privacy, intentional infliction of emotional distress,
or any other common law claims;
(ii) any claims for the breach of any written,
implied or oral contract between you and the Company, including but not limited
to any contract of employment;
(iii) any claims of discrimination, harassment or
retaliation based on such things as age, national origin, ancestry, race,
religion, sex, sexual orientation, or physical or mental disability or medical
condition; and
(iv) any claims for payments of any nature,
including but not limited to wages, overtime pay, vacation pay, severance pay,
commissions, bonuses and benefits or the monetary equivalent of benefits, but
not including the filing of an administrative charge, any claims for
unemployment or workers' compensation benefits, or for the consideration being
provided to you pursuant to Paragraph 1 of this Agreement.
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This release and waiver includes all claims that you have or that may arise
under the common law and all federal, state and local statutes, ordinances,
rules, regulations and orders, including but not limited to any claim or cause
of action based on Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Family and Medical Leave Act, the
Americans with Disabilities Act, the Civil Rights Acts of 1866, 1871 and 1991,
the Rehabilitation Act of 1973, the Employee Retirement Income Security Act of
1974, the Vietnam Era Veterans' Readjustment Assistance Act of 1974, Executive
Order 11246, the Illinois Human Rights Act, the Illinois Wage Payment and
Collection Act, the Cook County Human Rights Ordinance, and the Chicago Human
Rights Ordinance, as each of them has been or may be amended. The Executive
further waives any right to any form of recovery or compensation from any legal
action brought by him or on his behalf in connection with his employment or
termination of employment with the Company.
The Executive acknowledges that he has not assigned any of his rights to make
the aforementioned claims or demands. By signing this Agreement and Release, the
Executive is forever giving up his rights to make the aforementioned claims or
demands.
(c) This Agreement shall not in any way be construed as an
admission by the Company or the Executive that the Releasees, on the one hand,
or the Executive, on the other hand, has acted wrongfully against the other or
that the Releases, on the one hand, or the Executive, on the other hand, has any
valid claims whatsoever against the other, and the Company, on the one hand, and
the Executive, on the other hand, specifically denies any liability to or
wrongful acts against the other.
(d) The Executive acknowledges that he has been given a period
of at least 21 days to review and consider the terms and conditions of this
Agreement. After executing this Agreement, the Executive shall have seven days
to revoke this Agreement; but he may only do so by delivering a writing
indicating this revocation and returning all sums paid pursuant to this
Agreement to the Company no later than the close of business on the seventh day
following the date the Executive executes this Agreement. If the Executive
revokes this Agreement it shall not be effective or enforceable.
10. Press Release. The Executive and Company management shall mutually
agree on any press release issued to announce the Executive's resignation.
11. Taxation. All payments and benefits under this Agreement shall
be subject to all applicable taxes and withholding.
12. Arbitration; Certain Costs. Any dispute or controversy between the
Company and the Executive, whether arising out of or relating to this Agreement,
the breach of this Agreement, or otherwise, shall be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Rules then in effect and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitrator shall have the authority to award any remedy or relief that a court
of competent jurisdiction could order or grant, including, without limitation,
the issuance of an injunction. However, either party may, without inconsistency
with this arbitration provision, apply to any court having jurisdiction over
such dispute or
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controversy and seek interim provisional, injunctive or other equitable relief
until the arbitration award is rendered or the controversy is otherwise
resolved. Except as necessary in court proceedings to enforce this arbitration
provision or an award rendered hereunder, or to obtain interim relief, neither a
party nor an arbitrator may disclose the existence, content or results of any
arbitration hereunder without the prior written consent of the Company and the
Executive. The Company and the Executive acknowledge that this Agreement
evidences a transaction involving interstate commerce. Notwithstanding any
choice of law provision included in this Agreement, the United States Federal
Arbitration Act shall govern the interpretation and enforcement of this
arbitration provision.
13. Advice of Counsel. The Executive represents and warrants to the
Company that he has conferred extensively with his own attorneys regarding the
provisions of this Agreement prior to entering into it, that he has carefully
read and fully understands all of the provisions of this Agreement, and that he
is entering into this Agreement voluntarily.
14. Entire Agreement; Amendments. This Agreement (a) sets forth the
entire agreement between the parties hereto with respect to the subject matter
hereof, superseding any and all prior agreements, understandings or arrangements
between the parties and (b) may not be amended or modified in any respect other
than by a writing executed by the parties hereto. Specifically, except as
specifically provided in this Agreement, the Employment Agreement shall have no
further force or effect after the Separation Date. No benefits shall be provided
to the Executive (including Part-Time Directors Plan benefits), except those
benefits specifically provided for under this Agreement.
15. Governing Law. This Agreement will be governed by and construed and
enforced under the laws of the State of Illinois, without regard to its conflict
of laws rules.
16. Severability. In the event that any one or more of the provisions
of this Agreement is held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions will not in any way be
affected or impaired thereby. If any one or more of the provisions contained in
this Agreement is held to be excessively broad as to duration, geographical
scope, activity or subject, such provisions will be construed by limiting and
reducing them so as to be enforceable to the maximum extent compatible with
applicable law.
17. Binding Effect. This Agreement shall inure to the benefit of, and
shall be binding upon, the parties hereto and their respective successors,
assigns, heirs, and legal representatives.
18. Notices. All notices and other communications which are required or
may be given under this Agreement shall be in writing and shall be deemed to
have been duly given if delivered or mailed, first class registered or certified
mail, return receipt requested, postage prepaid;
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If to the Executive, to:
Richard S. Braddock
10 Gracie Square
New York, New York 10028
212-879-0649
If to the Company, to:
True North Communications Inc.
FCB Center
101 East Erie
Chicago, Illinois 60611-2897
Attention: Theodore J. Theophilos
312-425-6590
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TRUE NORTH COMMUNICATIONS INC.
By:
----------------------------- ------------------------------
Richard Mayer, Richard S. Braddock
Chairman of the Compensation Committee
Dated: Dated:
----------------------------- -------------------------
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EXHIBIT 10.25
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of April 16, 1998 between True
North Communications Inc., a Delaware corporation (the "Company"), and Terry D.
Peigh (the "Executive").
WHEREAS, the Company is a global communications holding
company with ownership interests in subsidiaries, affiliates and joint ventures
that are engaged in the advertising agency business, the multimedia production
business, the business of planning and buying of media time and space and
related businesses; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement to provide for the employment of the Executive by the Company
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree as follows:
1. Employment. The Company hereby employs the Executive and
the Executive hereby agrees to be employed by the Company upon the terms and
subject to the conditions contained in this Agreement. The initial term of
employment of the Executive by the Company pursuant to this Agreement (the
"Initial Term") shall commence on the date hereof (the "Effective Date") and,
unless earlier terminated, shall end on the third annual anniversary of the
Effective Date; provided that the term of this Agreement shall automatically be
extended for three additional years as of the day immediately following the end
of the Initial Term and as of the day immediately following the end of each
subsequent three-year extended term hereof unless the Company shall have
terminated the automatic extension provisions of this sentence by giving written
notice to the Executive at least 60 days prior to the then applicable
termination date. (The Initial Term and any extension of the term of this
Agreement pursuant to this Section 1 are collectively referred to herein as the
"Employment Period.")
2. Position and Duties. The Company shall employ the Executive
during the Employment Period in the position of Executive Vice President in
charge of the TN Services operations. The Executive shall report directly to the
Company's Chief Executive Officer (the "Company CEO") and shall be a member of
the Management Board of the Company. Subject to the powers, authority and
responsibilities vested in the Board of Directors of the Company (the "Board"),
in duly constituted committees of the Board and in the Company CEO, the
Executive shall have responsibility for and shall oversee the operations of the
True North corporate entity and the diversified services companies. During the
Employment Period, the Executive shall perform faithfully and loyally and to the
best of the Executive's abilities his duties hereunder, shall devote his full
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business time, attention and efforts to the affairs of the Company and shall use
his reasonable best efforts to promote the interests of the Company.
Notwithstanding the foregoing, the Executive may engage in charitable, civic or
community activities, provided that they do not interfere with the performance
of the Executive's duties hereunder and, with the prior approval of the Board,
may serve as a director of any business corporation; provided that such service
does not violate the terms of any of the covenants contained in Section 7
hereof.
3. Compensation.
-------------
(a) Annual Base Salary. With respect to the Employment Period,
the Company shall pay to the Executive an annual base salary at the rate of
$250,000 per annum in accordance with the Company's regular payroll practices.
The annual base salary shall be reviewed periodically in accordance with
guidelines applicable to the Company's senior executives generally.
(b) Incentive Compensation. During the Employment Period, the
Executive shall be entitled to participate in the Company's Performance Program,
as such Program applies to similarly situated senior executives and as such
Program may be amended from time to time.
(c) Other Benefits. During the Employment Period, the
Executive shall be entitled to participate in the Company's employee benefit
plans that are generally available to senior executives of the Company from time
to time. All benefits referred to in this Section 3(c) are hereinafter referred
to as the "Employee Benefits."
(d) Expense Reimbursement. During the Employment Period, the
Company shall reimburse the Executive for all proper expenses incurred by him in
the performance of his duties hereunder in accordance with the Company's
policies and procedures.
4. Termination of Employment Period.
---------------------------------
(a) Qualifying Termination. For purposes of this Agreement,
"Qualifying Termination" means (i) termination of the Executive's employment by
the Company without Cause (as defined in subsection (b) below), (ii) expiration
of this Agreement at the end of the Initial Term or at the end of any extension
of the term hereof pursuant to a written notice given by the Company to the
Executive in accordance with Section 1 hereof; (iii) termination of the
Executive's employment by the Company on account of the Executive having become
unable (as determined by the Company in good faith) to perform regularly his
duties hereunder by reason of illness or incapacity for a period of more than
six consecutive months (termination for "Disability"), (iv) termination of the
Executive's employment on account of the Executive's death, or (v) termination
of the Executive's employment by the Executive due to the occurrence, without
the Executive's express written consent, of any of the
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following events: (1) the assignment to the Executive of any duties that either
(A) are inconsistent in any material respect with the Executive's position,
duties, responsibilities or status with the Company at the date of this
Agreement (or subsequent hereto if such new position(s), duties,
responsibilities or status are agreed to by the Executive) or (B) result in a
material diminution of the Executive's responsibilities, (2) a material adverse
change in the Executive's reporting responsibilities, titles or offices with the
Company, (3) a material breach of the Company's obligations set forth in this
Agreement, (4) a material decrease in the Executive's base salary, or (5) any
requirement of the Company that the location where the Executive is based be
materially changed.
For purposes of this Agreement, an isolated, insubstantial and inadvertent
action taken by the Company in good faith and which is remedied by the Company
promptly (the later of 60 days or as soon as reasonably practicable) after
receipt of written notice thereof given by the Executive shall not constitute a
basis for a Qualifying Termination.
(b) Definition of Cause. For purposes of this Agreement,
"Cause" means (i) a material breach by the Executive of the duties and
responsibilities of the Executive hereunder (other than as a result of
incapacity due to physical or mental illness), which is not remedied within 30
days (or sooner, as specified in a written notice, if the Company, in its good
faith judgment, determines that the period must be shorter to avoid harm to the
Company) after receipt of written notice from the Company specifying such
breach, (ii) the willful engaging by the Executive in conduct that is
demonstrably and materially injurious to the business, reputation, character or
community standing of the Company, (iii) the willful and continued failure of
the Executive to perform substantially his duties under the Agreement, which
failure is not remedied within 60 days (or sooner, as specified in a written
notice, if the Company, in its good faith judgment, determines that the period
must be shorter to avoid harm to the Company) after receipt of written notice
from the Company specifying such failure, or (iv) the engaging by the Executive
in dishonest, fraudulent or unethical conduct or in other egregious conduct
involving serious moral turpitude to the extent that in the reasonable judgment
of the Board, the Executive's reputation and credibility no longer conform to
the standards expected of the Company's executives.
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5. Consequences of Termination of Employment Period.
-------------------------------------------------
(a) Benefits Upon Termination. If the Employment Period
terminates for any reason, the Executive (or the Executive's executor,
administrator or other legal representative, as the case may be) shall be
entitled to receive the following benefits:
(i) within 30 days after the amount in question is reasonably
determinable (1) salary payable through the date of termination of
employment, (2) unpaid annual incentive compensation and not yet
granted stock options for the calendar year immediately preceding the
date of such termination, and (3) reimbursement of proper expenses
incurred through the date of such termination;
(ii) subject to and in accordance with the then existing terms
of the Company's Earnings Performance Plan, payment of
previously-granted earnings performance units, if any; and
(iii) participation (by the Executive or the Executive's
qualified dependents, as the case may be) in all other applicable
benefit plans or programs in accordance with the provisions thereof
applicable to terminated employees (or their qualified dependents, as
the case may be).
(b) Additional Benefits Upon Qualifying Termination. If the
Employment Period terminates for a reason set forth in Section 4(a), the
Executive (or the Executive's executor, administrator or other legal
representative, as the case may be) shall be entitled to receive the following
additional benefits:
(i) within 30 days after the amount in question is reasonably
determinable, annual incentive compensation and stock options for the
calendar year in which such termination shall have occurred, prorated
through the date of such termination based on actual results of
operations for such full calendar year;
(ii) if the Qualifying Termination is for any reason other
than death or Disability:
(1) each stock option granted to the Executive by the
Company then held by the Executive shall on the date
of such termination be 100% vested;
(2) for a period of three years commencing on the day
immediately following the date of termination of the
employment of the Executive (the "Severance Period"),
the Executive shall be entitled to receive (A)
salary, at the rate payable on the date of such
termination, payable in accordance with the Company's
normal payroll policies and (B) within 30 days after
the amount in question is reasonably determinable,
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annual incentive compensation at the higher of (x)
the rate payable to the Executive for the calendar
year in which such termination shall have occurred or
(y) the average of the rates payable to the Executive
for the three calendar years immediately preceding
the year in which such termination shall have
occurred; and
(3) during the Severance Period, the Executive shall be
entitled to participate in life insurance, medical
and dental benefits and other Employee Benefits on
terms no less favorable than on the termination date,
subject to modifications of general application to
all similarly situated employees; and
(iii) provided that this Section 5(b)(iii) does not conflict
with the terms of the stock option grant, each stock option granted to
the Executive by the Company then held by the Executive shall be
exercisable to the extent it is vested at the date of termination by
the Executive or the Executive's executor, administrator or other legal
representative, as the case may be, for up to three years after the
date of termination, but in no case beyond a date 10 years following
the date of grant of such option.
(c) Termination after a Change in Control. If the Company's
Asset Protection Plan is in full force and effect on terms at least as favorable
to the Executive as in effect on the date hereof, then (i) in the event of a
Qualifying Termination, as defined in the Company's Asset Protection Plan, the
Executive shall be entitled to payments in accordance with the Company's Asset
Protection Plan, and (ii) the Asset Protection Plan shall supersede this
Agreement, and no payments shall be made under this Agreement, if termination
occurs after a Change in Control, as defined in the Company's Asset Protection
Plan, and payments are made pursuant to the terms of the Asset Protection Plan;
it being expressly understood, however, that the Executive's rights independent
of this Agreement under the applicable components of the Company's Performance
Program and under stock options held by the Executive shall not be affected.
(d) Option to Return to FCB Worldwide. During the Initial
Term, if the Executive is not permitted to continue in the position with the
Company provided for herein (as described in Section 2 above) for any reason
other than his death, Disability or termination for Cause, the Executive will be
offered a position with the Chicago office of Foote, Cone & Belding Worldwide,
LLC ("FCB") at materially the same compensation as described in Section 3 above
and with the corporate title of Executive Vice President. Absent his termination
for Cause, the Executive shall be permitted to remain in that position through
the end of the Initial Term. Thereafter, the employment of the Executive by FCB
and the
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terms thereof shall be subject to the discretion of FCB management. If the
circumstances under which the Executive's right to return to FCB would have
resulted in a Qualifying Termination (but for such return to FCB), the
Qualifying Termination benefits described in (b) above shall apply as of the
date the Executive is no longer employed by the Company or FCB and shall
continue through the three-year anniversary of the effective date of the
Executive's return to FCB (i.e., the date of his termination from the Company).
If such three-year anniversary precedes the date the Executive is no longer
employed by FCB, then no Qualifying Termination Benefits will apply.
6. Federal and State Withholding. The Company shall deduct
from the amounts payable to the Executive pursuant to this Agreement the amount
of all required federal and state withholding taxes in accordance with the
Executive's Form W-4 on file with the Company and all applicable social security
and Medicare taxes.
7. Noncompetition; Nonsolicitation; Confidentiality.
-------------------------------------------------
(a) Covenant Not to Compete. Except with the prior written
consent of the Board:
(i) during the Employment Period, the Executive shall not
engage in any activities, whether as employer, proprietor, partner,
stockholder (other than the holder of less than 5% of the stock of a
corporation the securities of which are traded on a national securities
exchange or in the over-the-counter market), director, officer,
employee or otherwise, in competition with (1) the businesses conducted
at the date hereof by the Company or (2) any business in which the
Company is substantially engaged at any time during the Employment
Period;
(ii) during the Employment Period and during the Severance
Period, the Executive shall not solicit, directly or indirectly, any
existing business relationship of clients of the Company existing at
the end of the Employment Period in which the Company is substantially
engaged at any time during the Employment Period or the Severance
Period; and
(iii) during the Employment Period and during the Severance
Period, the Executive shall not induce or attempt to persuade any
employee of the Company to terminate the employee's employment
relationship with the Company.
(b) Confidential Information and Trade Secrets. The Executive
shall not, at any time during the Employment Period or thereafter, make use of
any bidding information (or computer programs thereof) of the Company, nor
divulge any trade secrets or other confidential information of the Company,
except to the extent that such information becomes a matter of public record, is
published in a newspaper, magazine or other periodical available to the general
public or as the Company may so authorize in writing; and when the Executive
shall cease to be employed by the Company, the Executive
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shall surrender to the Company all records and other documents obtained by him
or entrusted to him during the course of his employment hereunder (together with
all copies thereof) which pertain specifically to any of the businesses covered
by the covenants in Section 7(a)(i) or which were paid for by the Company;
provided, however, that the Executive may retain copies of such documents as
necessary for the Executive's personal records for federal income tax purposes.
(c) Scope of Covenants; Remedies. The following provisions
shall apply to the covenants of the Executive contained in this Section:
(i) the covenants set forth in Sections 7(a)(i) and 7(a)(ii)
shall apply within all territories in which the Company is actively
engaged in the conduct of business during the Employment Period,
including, without limitation, the territories in which customers are
then being solicited;
(ii) without limiting the right of the Company to pursue all
other legal and equitable remedies available for violation by the
Executive of the covenants contained in Sections 7(a) and 7(b),
including the cessation and recovery of payments and benefits paid and
provided under this Agreement, it is expressly agreed that such other
remedies cannot fully compensate the Company for any such violation and
that the Company shall be entitled to injunctive relief to prevent any
such violation or any continuing violation thereof;
(iii) each party intends and agrees that if in any action
before any court or agency legally empowered to enforce the covenants
contained in Sections 7(a) and 7(b) any term, restriction, covenant or
promise contained therein is found to be unreasonable and accordingly
unenforceable, then such term, restriction, covenant or promise shall
be deemed modified to the extent necessary to make it enforceable by
such court or agency; and
(iv) the covenants contained in Sections 7(a) and 7(b) shall
survive the conclusion of the Executive's employment by the Company.
8. Nondisparagement; Cooperation. (a) The Executive shall not,
at any time during the Employment Period or the Severance Period or thereafter,
make any statement, publicly or privately, which would disparage the Company,
any of its businesses or any director or officer of the Company or such
businesses or would have a deleterious effect upon the interests of the Company
or such businesses or the stockholders or other owners of any of them; provided,
however, that the Executive shall not be in breach of this restriction if such
statements consist solely of (i) private statements made to any officers,
directors or employees of the Company by the Executive in the course of carrying
out his duties
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pursuant to this Agreement or, to the extent applicable, his duties as a
director or officer of the Company or (ii) private statements made to persons
other than clients or competitors of the Company (or their representatives) or
members of the press or the financial community that do not have a material
adverse effect upon the Company; and provided further that nothing contained in
this Section 8(a) or in any other provision of this Agreement shall preclude the
Executive from making any statement in good faith which is required by law,
regulation or order of any court or regulatory commission, department or agency.
(b) The Company shall not, at any time during the Employment
Period or the Severance Period or thereafter, authorize any person to make or
allow, nor shall the Company condone the making of, any statement, publicly or
privately, which would disparage the Executive; provided, however, that the
Company shall not be in breach of this restriction if such statements consist
solely of (i) private statements made to any officers, directors or employees of
the Company or (ii) private statements made to persons other than clients or
competitors of the Company (or their representatives) or members of the press or
the financial community that do not have a material adverse effect upon the
Executive; and provided further that nothing contained in this Section 8(b) or
in any other provision of this Agreement shall preclude any officer, director,
employee, agent or other representative of the Company from making any statement
in good faith which is required by any law, regulation or order of any court or
regulatory commission, department or agency.
9. Enforcement. The parties hereto agree that the Company
would be damaged irreparably in the event that any provision of Section 7 or 8
of this Agreement were not performed in accordance with its terms or were
otherwise breached and that money damages would be an inadequate remedy for any
such nonperformance or breach. Accordingly, the Company and its successors or
permitted assigns shall be entitled, in addition to other rights and remedies
existing in their favor, to an injunction or injunctions to prevent any breach
or threatened breach of any of such provisions and to enforce such provisions
specifically (without posting a bond or other security). Each of the parties
agrees that he or it will submit himself or itself to the personal jurisdiction
of the courts of the State of Illinois in any action by the other party to
enforce an arbitration award against him or it or to obtain interim injunctive
or other relief pending an arbitration decision.
10. Survival. Sections 7, 8 and 9 of this Agreement shall
survive and continue in full force and effect in accordance with their
respective terms, notwithstanding any termination of the Employment Period.
11. Arbitration; Certain Costs. Any dispute or controversy
between the Company and the Executive, whether arising out of or relating to
this Agreement, the breach of this Agreement, or otherwise, shall be settled by
arbitration administered by the
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American Arbitration Association in accordance with its Commercial Rules then in
effect and judgment on the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. The arbitrator shall have the authority
to award any remedy or relief that a court of competent jurisdiction could order
or grant, including, without limitation, the issuance of an injunction. However,
either party may, without inconsistency with this arbitration provision, apply
to any court having jurisdiction over such dispute or controversy and seek
interim provisional, injunctive or other equitable relief until the arbitration
award is rendered or the controversy is otherwise resolved. Except as necessary
in court proceedings to enforce this arbitration provision or an award rendered
hereunder, or to obtain interim relief, neither a party nor an arbitrator may
disclose the existence, content or results of any arbitration hereunder without
the prior written consent of the Company and the Executive. The Company and the
Executive acknowledge that this Agreement evidences a transaction involving
interstate commerce. Notwithstanding any choice of law provision included in
this Agreement, the United States Federal Arbitration Act shall govern the
interpretation and enforcement of this arbitration provision.
12. Notice. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when personally delivered or five days after deposit in the United States
mail, certified and return receipt requested, postage prepaid, addressed (a) if
to the Executive, to the most recent address then shown on the employment
records of the Company, and if to the Company, to True North Communications
Inc., 101 East Erie Street, Chicago, Illinois 60611-2897, Attention: Secretary,
or (b) to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is determined to be
invalid, illegal or unenforceable in any respect under applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of this
Agreement or the validity, legality or enforceability of such provision in any
other jurisdiction, but this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
14. Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes and preempts any prior understandings, agreements
or representations by or between the parties, written or oral, which may have
related in any manner to the subject matter hereof.
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15. Successors and Assigns. This Agreement shall be
enforceable by the Executive and the Executive's heirs, executors,
administrators and legal representatives, and by the Company and its successors
and permitted assigns. Any successor or permitted assign of the Company shall
assume by instrument delivered to the Executive the liabilities of the Company
hereunder. This Agreement shall not be assigned by the Company other than to a
successor pursuant to a merger, consolidation or transfer of all or
substantially all of the capital stock or assets of the Company.
16. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to principles of conflict of laws.
17. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
TRUE NORTH COMMUNICATIONS INC.
By:
-------------------------------------
Bruce Mason,
Chief Executive Officer
By:
-------------------------------------
Richard P. Mayer,
Chairman of the Compensation
Committee of the Board of Directors
EXECUTIVE:
----------------------------------------
Terry D. Peigh
Agreed and Approved as to
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Section 5(d)
FOOTE, CONE & BELDING WORLDWIDE, LLC
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J. Brendan Ryan,
Chairman and Chief Executive Officer
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EXHIBIT 10.26
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of _________________ between
True North Communications Inc., a Delaware corporation (the "Company"), and
Ronald W. Bess (the "Executive").
WHEREAS, the Company is a global communications holding
company which owns companies engaged in the advertising agency business, the
multimedia production business, the business of planning and buying of media
time and space and related businesses.
WHEREAS, the Executive currently serves the Company as
President, FCB Chicago; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement to provide for the continued employment of the Executive by the
Company upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, the parties hereby agree as follows:
1. Employment. The Company hereby employs the Executive and
the Executive hereby agrees to be employed by the Company upon the terms and
subject to the conditions contained in this Agreement. The term of full-time
employment of the Executive by the Company pursuant to this Agreement (the
"Full-Time Employment Period") shall commence on the date hereof and shall end
on December 31, 1999; provided that the Full-Time Employment Period may be
extended by the Company as of December 31, 1999 and each December 31 thereafter
for one additional year upon mutual consent of the Executive and the Company
provided written notice is given not less than six months prior to such December
31.
2. Position and Duties. The Company shall employ the Executive
during the Full-Time Employment Period, with the title of President, FCB Chicago
(or such other title as may be mutually agreed upon by the Executive and the
Company). During the Full-Time Employment Period, the Executive shall perform
faithfully and
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loyally and to the best of the Executive's abilities the duties assigned
hereunder, shall devote full business time, attention and effort to the affairs
of the Company and shall use reasonable best efforts to promote the interests of
the Company. Notwithstanding the foregoing, the Executive may engage in
charitable, civic or community activities and, with the prior approval of the
Board of Directors of the Company (the "Board"), may serve as a director of any
business corporation, provided that such activities or service do not violate
the terms of any of the covenants contained in Section 7.
3. Compensation.
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(a) Annual Base Salary. With respect to the Full-Time
Employment Period, the Company shall pay to the Executive an annual salary not
less than the rate of $350,000 in accordance with the Company's regular payroll
practices. The annual base salary will be reviewed periodically in accordance
with guidelines applicable to the Company's senior executives generally.
(b) Incentive Compensation. During the Full-Time Employment
Period, the Executive will participate in the VIC, DVIC and VISO components of
the Company's Executive Compensation Program, pursuant to the terms of such
plans as they may be amended from time to time.
(c) Other Benefits. During the Full-Time Employment Period,
the Executive shall be entitled to participate in the Company's employee benefit
plans generally available to senior executives of the Company, including
medical, dental, salary continuance, short-term disability, long-term
disability, employee life, group life, travel accident insurance plans, pension,
profit sharing, stock purchase and nonqualified deferred compensation and
retirement plans and the plans or programs for the allowance for or the
reimbursement of automobile expenses, financial planning expenses and club dues
and any other plans of general application to employees on the date hereof and
such plans and programs adopted hereafter for the benefit of senior executives
of the Company (all such benefits being hereinafter referred to as the "Employee
Benefits"), in the case of plans or programs in effect on the date hereof on
terms no less favorable than their terms on the date hereof, subject to
modifications of general application to senior executives or all other
employees. The Executive shall be entitled to take time off for vacation or
illness in accordance with the Company's policy for senior executives and to
receive all other fringe benefits as are from time to time made generally
available to senior executives of the Company.
(d) Expense Reimbursement. During the Full-Time Employment
Period, the Company shall reimburse the Executive for all proper expenses
incurred by him in the performance of his duties hereunder in accordance with
the Company's policies and procedures.
4. Termination of Full-Time Employment Period; Suspension.
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(a) Qualifying Termination. For purposes of this Agreement,
"Qualifying Termination" means (i) termination of the Executive's employment by
the Company without cause, (ii) termination by the Company on account of the
Executive having become unable (as determined by the Company in good faith) to
regularly perform his duties hereunder by reason of illness or incapacity for a
period of more than six consecutive months ("Termination for Disability"), (iii)
the Executive's death or (iv) termination by the Executive due to the
occurrence, without the Executive's express written consent, of any of the
following events:
(1) any of (i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position(s), duties,
responsibilities or status with the Company at the effective date of this
Agreement, (ii) a change in the Executive's reporting responsibilities, titles
or offices with the Company, or (iii) any removal or involuntary termination of
the Executive from the Company otherwise than as expressly permitted by this
Agreement or any failure to re-elect the Executive to any position with the
Company held by the Executive at the effective date of this Agreement;
(2) a reduction by the Company in the Executive's rate of
annual base salary;
(3) any requirement of the Company that the Executive (i) be
based anywhere other than at the facility where the Executive is located at the
effective date of this Agreement or (ii) travel on Company business to an extent
substantially more burdensome than the travel obligations of the Executive at
the effective date of this Agreement;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan, compensation plan or employee agreement (inclusive of
this Agreement) in which the Executive is participating, unless the Executive is
permitted to participate in other plans providing the Executive with
substantially comparable benefits, or the taking of any action by the Company
which would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the Executive
and the Executive's dependents welfare benefits including, without limitation,
medical, dental, disability, salary continuance, employee life, group life, and
travel accident insurance plans and programs in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer Executives of the Company and its affiliated companies, (iii) provide
fringe benefits in accordance with the most favorable plans, practices, programs
and policies of the Company and its affiliated companies in effect for the
Executive or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer Executives of the Company
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and its affiliated companies, (iv) provide an office or offices of a size and
with furnishings and other appointments, together with exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer Executives of the Company and its
affiliated companies, (v) provide the Executive with paid vacation in accordance
with the most favorable plans, policies, programs and practices of the Company
and its affiliated companies or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer Executives of
the Company and its affiliated companies, or (vi) reimburse the Executive
promptly for all reasonable employment expenses incurred by the Executive in
accordance with the most favorable policies, practices and procedures of the
Company and its affiliated companies, or if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer Executives
of the Company and its affiliated companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 15.
For purposes of the Agreement, any good faith determination of
a Qualifying Termination made by the Executive shall be conclusive; provided,
however, that an isolated, insubstantial and inadvertent action taken by the
Company in good faith and which is remedied by such Company promptly (the latter
of 60 days or as soon as reasonably practicable) after receipt of written notice
thereof given by the Executive shall not constitute a Qualifying Termination.
(b) Nonqualifying Termination. For purposes of this Agreement,
"Nonqualifying Termination" means a termination of the Executive's employment
(i) by the Company for Cause, or (ii) by the Executive for any reason other than
for a Qualifying Termination.
(c) Definition of Cause. For purposes of this Agreement,
"Cause" means (i) a material breach by an Executive of those duties and
responsibilities of the Executive which do not differ in any material respect
from the duties and responsibilities of the Executive (other than as a result of
incapacity due to physical or mental illness), which is demonstrably willful and
deliberate on the Executive's part, which is committed in bad faith or without
reasonable belief that such breach is in the best interests of the Company and
which is not remedied in a reasonable period of time after receipt of written
notice from the Company specifying such breach or (ii) the commission by the
Executive of a felony involving moral turpitude.
(d) Suspension. If the Company shall determine that the
Executive has committed any act or acts which constitute Cause and shall notify
the Executive thereof in writing and if the Executive shall deny that he
committed such act or acts or that
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such act or acts constitute Cause and shall notify the Company of such denial in
writing within seven days following the Company's written notice to the
Executive, the Board may, in its sole and absolute discretion, suspend the
Executive with full compensation and benefits during the pendency of any
investigation or arbitration with respect thereto.
5. Consequences of Termination of Full-Time Employment
Period.
(a) Qualifying Termination, except for Death or Disability. If
the Full-Time Employment Period terminates for a reason set forth in clause (i)
or (iv) of Section 4(a):
(i) the Executive shall be entitled to receive (1) all
salary payable with respect to the period through the term of
the Agreement as specified in Section 1, hereinafter referred
to as the Severance Period, but in no instance, will such
salary payments be for a period less than 12 months, (2)
unpaid VIC and DVIC and VISO awarded, but not yet granted, for
the prior calendar year, (3) the larger amount of (x) or (y)
determined as follows: (x) VIC and DVIC for the then current
calendar year, prorated through the date of such termination
based on actual results of operations for such full calendar
year or (y) a cash incentive compensation payment equivalent
to the average of the three prior years' combined VIC and DVIC
amounts, and (4) reimbursement of expenses incurred through
the date of such termination;
(ii) each stock option granted to the Executive by the
Company then held by the Executive shall, on the date of such
termination be considered 100% vested, and be exercisable in
full by the Executive for up to three years after the date of
termination, but in no case beyond the term of such option in
accordance with the applicable stock option agreement in
effect at the time of such termination. The Company covenants
that the Compensation Committee of the Board shall take such
actions as necessary so that upon the termination of the
Executive's employment as provided in Section 5(a), all
current and future stock awards, are fully exercisable for the
three-year period, or until the end of the term of the option,
whichever occurs first;
(iii) the Executive shall be entitled to receive all
vested and unvested amounts, including all credited interest,
in the Executive's DVIC account. Such payment will be made
under the terms of the Executive's DVIC Agreement and commence
at the direction of the Executive but no sooner than at the
conclusion of payments under the Severance Period. The Company
covenants that the Compensation Committee of the Board shall
take such action as necessary so that upon termination of the
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Executive as provided in Section 5(a), all current and future
DVIC awards are fully vested.
(iv) during the Severance Period, the Executive shall
be entitled to participate in the Company's medical, dental
and life insurance plans on terms no less favorable than on
the termination date, subject to modifications of general
application to all similarly situated employees.
(b) Qualifying Termination Due to Death or Disability. If the
Full-Time Employment Period terminates for a reason set forth in clause (ii) or
(iii) of Section 4(a):
(i) the Executive or the Executive's executor,
administrator or other legal representative, as the case may
be, shall be entitled to receive (1) all salary payable
through the date of such termination, (2) unpaid VIC and DVIC
and VISO awarded, but not yet granted, for the prior calendar
year, (3) VIC and DVIC and VISO for the then current calendar
year, prorated through the date of such termination based on
actual results of operations for such full calendar year, and
(4) reimbursement of expenses incurred through the date of
such termination;
(ii) each stock option granted to the Executive by the
Company then held by the Executive shall be exercisable to the
extent it is vested at the date of termination by the
Executive or the Executive's executor, administrator or other
legal representative, as the case may be, for up to three
years after the date of termination, but in no case beyond the
term of such option in accordance with the applicable stock
option agreement in effect at the time of such termination.
The Company covenants that the Compensation Committee of the
Board shall take such actions as necessary so that upon the
termination of the Executive's employment as provided in
Section 5(b), all current and future stock awards, are
exercisable for the three-year period, or until the end of the
term of the option, whichever occurs first;
(iii) the Executive or the Executive's executor,
administrator or other legal representative, as the case may
be, shall be entitled to receive all vested and unvested
amounts, including all credited interest, in the Executive's
DVIC account. Such payment shall be made under the terms of
the Executive's DVIC Agreement and commence at the direction
of the Executive or the Executive's executor, administrator or
other legal representative, as the case may be. The Company
covenants that the Compensation Committee of the Board shall
take such actions as necessary so that upon the termination of
the Executive's employment as provided in Section 5(b), all
current and future DVIC awards, are fully vested.
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(iv) the Executive or the Executive's qualified
dependents, as the case may be, shall be entitled to
participate in all other applicable benefit plans or programs
in accordance with the provisions of such plans.
(c) Nonqualifying Termination. If the Full-Time Employment
Period terminates for a reason set forth in Section 4(b):
(i) the Executive shall be entitled to receive (1) all
salary payable through the date of such termination, (2)
unpaid VIC and DVIC and VISO awarded, but not yet granted, for
the prior calendar year, and (3) reimbursement of expenses
incurred through the date of such termination;
(ii) each stock option granted to the Executive by the
Company then held by the Executive shall, on the date of
termination, is exercisable pursuant to the terms of such
option in accordance with the applicable stock option
agreement in effect at the time of such termination.
(iii) the Executive shall be entitled to receive the
vested portion of the amounts in the Executive's DVIC account.
Such payments will be made per terms of the Executive's DVIC
Agreement.
(iv) the Executive shall be entitled to participate in
all other applicable benefit plans or programs in accordance
with the provisions of such plans.
6. Federal and State Withholding. The Company shall deduct
from the amounts payable to the Executive pursuant to this Agreement the amount
of all required federal and state withholding taxes in accordance with the
Executive's Form W-4 on file with the Company and all applicable social security
taxes.
7. Noncompetition. (a) Covenant Not to Compete. During the
period of the Executive's employment by the Company and for a period of one year
thereafter following any termination, except with the prior written consent of
the Board, the Executive:
(1) shall not engage in any activities whether as employer,
proprietor, partner, stockholder (other than the holder of less than 5% of the
stock of a corporation the securities of which are traded on a national
securities exchange or in the over-the-counter market), director, officer,
employee or otherwise, in competition with (i) the businesses conducted at the
date hereof by the Company or any of its subsidiaries or affiliates ("True North
Group"), or (ii) any business in which the True North Group is substantially
engaged at any time during the Employment Period;
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(2) shall not solicit, in competition with the True North
Group, any person who is a customer of the businesses conducted by the True
North Group at the date hereof or of any business in which the True North Group
is substantially engaged at any time during the Employment Period; and
(3) shall not induce or attempt to persuade any employee of
the True North Group to terminate the employment relationship with any of the
True North Group.
(b) Confidential Information and Trade Secrets. The Executive
shall not, at any time during the Employment Period or thereafter, make use of
any bidding information (or computer programs thereof) of any of the True North
Group, nor divulge any trade secrets or other confidential information of any of
the True North Group, except to the extent that such information becomes a
matter of public record, is published in a newspaper, magazine or other
periodical available to the general public or as the Company may so authorize in
writing; and when an Executive shall cease to be employed by the Company, the
Executive shall surrender to the Company all records and other documents
obtained by him or entrusted to him during the course of his employment
hereunder (together with all copies thereof) which pertain specifically to any
of the businesses covered by the covenants in Section 7(a)(1) or which were paid
for by any of the True North Group; provided, however, that the Executive may
retain copies of such documents as necessary for the Executive's personal
records for federal income tax purposes.
(c) Scope of Covenants; Remedies. The following provisions
shall apply to the covenants of the Executive contained in this Section:
(1) the covenants covered in Section 7(a)(1) and 7(a)(2) shall
apply within all territories in which any of the True North Group is actively
engaged in the conduct of business during the Employment Period, including,
without limitation, the territories in which customers are then being solicited;
(2) without limiting the right of the Company to pursue all
other legal and equitable remedies available for violation by the Executive of
the covenants contained in Sections 7(a) and 7(b), including the cessation and
recovery of payments and benefits paid and provided under this Agreement, it is
expressly agreed that such other remedies cannot fully compensate the Company
for any such violation and that the Company shall be entitled to injunctive
relief to prevent any such violation or any continuing violation thereof;
(3) each party intends and agrees that if in any action before
any court or agency legally empowered to enforce the covenants contained in
Sections 7(a) and 7(b) any term, restriction, covenant or promise contained
therein is found to be
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unreasonable and accordingly unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to make it
enforceable by such court or agency; and
(4) the covenants contained in Sections 7(a) and 7(b) shall
survive the conclusion of the Executive's employment by the Company.
8. Nondisparagement; Cooperation. The Executive shall not, at
any time during the Full-Time Employment Period or thereafter, make any
statement, publicly or privately, which would disparage the Company, its
business or any director or officer of the Company or would have a deleterious
effect upon the interests of the Company's business or its stockholders;
provided, however, that the Executive shall not be in breach of this restriction
if such statements consist solely of (i) private statements made to any
officers, directors or employees of the Company by the Executive in the course
of carrying out his duties pursuant to this Agreement or (ii) private statements
made to persons other than clients or competitors of the Company or any of its
subsidiaries or its affiliates (or their representatives) or members of the
press or the financial community that do not have a material adverse effect upon
the Company; and provided further that nothing contained in this Section 8 or in
any other provision of this Agreement shall preclude the Executive from making
any statement in good faith which is required by law, regulation or order of any
court or regulatory commission, department or agency.
9. Enforcement. The parties hereto agree that the Company
would be damaged irreparably in the event that any provision of Section 7 or 8
of this Agreement were not performed in accordance with its terms or were
otherwise breached and that money damages would be an inadequate remedy for any
such nonperformance or breach. Accordingly, the Company and its successors or
permitted assigns shall be entitled, in addition to other rights and remedies
existing in their favor, to an injunction or injunctions to prevent any breach
or threatened breach of any of such provisions and to enforce such provisions
specifically (without posting a bond or other security). Each of the parties
agrees that he or it will submit himself or itself to the personal jurisdiction
of the courts of the State of Illinois in any action by the other party to
enforce an arbitration award against him or it or to obtain interim injunctive
or other relief pending an arbitration decision.
10. Survival. Sections 7, 8 and 9 of this Agreement shall
survive and continue in full force and effect in accordance with their
respective terms, notwithstanding any termination of the Full-Time Employment.
11. Arbitration. Any dispute or controversy between the
Company and the Executive, whether arising out of or relating to this Agreement,
the breach of this Agreement, or otherwise, shall be settled by arbitration
administered by the American Arbitration Association in accordance with its
Commercial Rules then in effect and
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judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall have the authority to award
any remedy or relief that a court of competent jurisdiction could order or
grant, including, without limitation, the issuance of an injunction. However,
either party may, without inconsistency with this arbitration provision, apply
to any court having jurisdiction over such dispute or controversy and seek
interim provisional, injunctive or other equitable relief until the arbitration
award is rendered or the controversy is otherwise resolved. Except as necessary
in court proceedings to enforce this arbitration provision or an award rendered
hereunder, or to obtain interim relief, neither a party nor an arbitrator may
disclose the existence, content or results of any arbitration hereunder without
the prior written consent of the Company and the Executive. The Company and the
Executive acknowledge that this Agreement evidences a transaction involving
interstate commerce. Notwithstanding any choice of law provision included in
this Agreement, the United State Federal Arbitration Act shall govern the
interpretation and enforcement of this arbitration provision.
12. Notice. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when personally delivered or five days after deposit in the United States
mail, certified and return receipt requested, postage prepaid, addressed (1) if
to the Executive, to the most recent address then shown on the employment
records of the Executive's Employer, and if to the Company, to True North
Communications Inc., 101 East Erie Street, Chicago, Illinois 60611-2897,
Attention: Secretary, or (2) to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is determined to be
invalid, illegal or unenforceable in any respect under applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of this
Agreement or the validity, legality or enforceability of such provision in any
other jurisdiction, but this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
14. Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes and preempts any prior understanding, agreements or
representations by or between the parties, written or oral, which may have
related in any manner to the subject matter hereof.
15. Successors and Assigns. This Agreement shall be
enforceable by the Executive and the Executive's heirs, executors,
administrators and legal representatives,
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and by the Company and its successors and permitted assigns. Any successor of
the Company shall assume by instrument delivered to the Executive the
liabilities of the Company hereunder. This Agreement shall not be assigned by
the Company other than to a successor pursuant to a merger, consolidation or
transfer of all or substantially all of the capital stock or assets of the
Company.
16. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to principles of conflict of laws.
17. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
TRUE NORTH COMMUNICATIONS INC.
By:
---------------------------------
William A. Schreyer
Chairman of the Compensation
Committee of the Board of Directors
----------------------------------
Ronald W. Bess
-11-
<PAGE>
EXHIBIT 10.27
AMENDMENT
---------
This AMENDMENT to the Employment Agreement (undated) between Ronald W. Bess
(the "Executive") and True North Communications Inc. ("True North") is entered
into between the parties effective March 1, 1999.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and the Executive have entered into the above-
referenced Employment Agreement (the "Agreement"), pursuant to which the
Executive currently serves as President of Foote, Cone & Belding Worldwide,
LLC., a subsidiary of the Company, and as a director of the Company; and
WHEREAS, the parties desire to amend the Agreement as set forth below.
NOW, THEREFORE, it is agreed that the Agreement is hereby amended,
effective March 1, 1999, in the following respects:
1. Position and Duties. The words "FCB Chicago" shall be replaced by the words
-------------------
"Foote, Cone & Belding Worldwide, LLC." in the first sentence of Section 2
of the Agreement.
2. Base Compensation. Section 3(a) of the Agreement is amended to reflect the
-----------------
Executive's current annual base salary of $525,000.
3. Non-competition; Non-solicitation. Section 7(a) of the Agreement is deleted
---------------------------------
in its entirety and replaced with the following Section 7(a):
"(a) Covenant Not to Compete. Except with the prior written consent of the
-----------------------
Board, during the Full-Time Employment Period and any Severance Period:
(i) the Executive shall not engage in any activities, whether as
employer, proprietor, partner, stockholder (other than the holder
of less than 5% of the stock of a corporation the securities of
which are traded on a national securities exchange or in the
over-the-counter market), director, officer, employee or
otherwise, in competition with (1) the businesses conducted at
the date hereof by True North and its subsidiaries (the `True
North Group') or (2) any business in which the True North Group
is substantially engaged at any time during the Executive's
employment with the Company;
(ii) the Executive shall not solicit, directly or indirectly, any
customer, client or other business relationship of the businesses
conducted by the True North Group as of the date hereof or of any
business in
<PAGE>
which the True North Group is substantially engaged at any time
during the Full-Time Employment Period; and
(iii) the Executive shall not induce or attempt to persuade any
employee of the True North Group to terminate the employee's
employment relationship with the True North Group."
4. Non-disparagement. Section 8 of the Agreement is deleted in its entirety
-----------------
and replaced with the following Section 8:
"8. Non-disparagement; Cooperation. (a) The Executive shall not, at any time
------------------------------
during his employment with the Company or thereafter, make any public or
private statement to the news media, to any True North Group competitor or
client, or to any other individual or entity, if such statement would
disparage any of the True North Group, any of their respective businesses or
any director or officer of any of them or such businesses or would have a
deleterious effect upon the interests of any of such businesses or the
stockholders or other owners of any of them; provided, however, that the
Executive shall not be in breach of this restriction if such statements
consist solely of (i) private statements made to any officers, directors or
employees of any of the True North Group by the Executive in the course of
carrying out his duties pursuant to this Agreement or, to the extent
applicable, his duties as a director or officer, or (ii) private statements
made to persons other than clients or competitors of any of the True North
Group (or their representatives) or members of the press or the financial
community that do not have a material adverse effect upon any of the True
North Group; and provided further that nothing contained in this Section
8(a) or in any other provision of this Agreement shall preclude the
Executive from making any statement in good faith that is required by law,
regulation or order of any court or regulatory commission, department or
agency.
(b) The Company shall not, at any time during the Executive's
employment with the Company or thereafter, authorize any person to make, nor
shall the Company condone the making of, any statement, publicly or
privately, which would disparage the Executive; provided, however, that the
Company shall not be in breach of this restriction if such statements
consist solely of (i) private statements made to any officers, directors or
employees of the True North Group or (ii) private statements made to persons
other than clients or competitors of any of the True North Group (or their
representatives) or members of the press or the financial community that do
not have a material adverse effect upon the Executive; and provided further
that nothing contained in this Section 8(b) or in any other provision of
this Agreement shall preclude any officer, director, employee, agent or
other representative of any of the True North Group from making any
statement in good faith which is required by any law, regulation or order of
any court or regulatory commission, department or agency."
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the _________ day of March, 1999.
FOOTE, CONE & BELDING WORLDWIDE, LLC.
By:_____________________________________
J. Brendan Ryan,
Chairman and Chief Executive Officer
TRUE NORTH COMMUNICATIONS INC.
By:_____________________________________
Bruce Mason,
Chief Executive Officer
By:____________________________________
Richard P. Mayer,
Chairman of the Compensation Committee
of the Board of Directors
EXECUTIVE
_______________________________________
Ronald W. Bess
-3-
<PAGE>
Exhibit 11.1
I. EARNINGS PER SHARE--BASIC CALCULATION
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
------- -------- -------
A. Net income (loss) $37,917 $(50,046) $36,115
======= ======== =======
B. Calculation of Denominator:
Weighted average common shares outstanding 42,569 43,733 44,547
Treasury share impact of Publicis shares (978) (1,102) --
------- -------- -------
41,591 42,631 44,547
======= ======== =======
$ .91 $ (1.17) $ .80
======= ======== =======
C. Net income (loss) per share
</TABLE>
2. EARNINGS PER SHARE--DILUTED CALCULATION
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
A. Net income (loss) $37,917 Note 1 $36,115
======= =======
B. Calculation of denominator:
Weighted average common shares outstanding 42,569 44,547
Treasury share impact of Publicis shares (978) --
Effect of dilutive options 1,281 1,847
------- -------
42,872 46,394
======= =======
C. Net income (loss) per share $ .88 $ .78
======= =======
</TABLE>
Note 1--Because Registrant reported a loss for 1997, presentation of an earnings
per share calculation on a diluted basis is inapplicable.
<PAGE>
EXHIBIT 13
1998 FINANCIAL REPORT
True North Communications Inc.
101 East Erie Street
Chicago, Illinois
60611
312-425-6500
<PAGE>
ABOUT TRUE NORTH
In January 1995 True North Communications Inc. (True North) succeeded Foote,
Cone & Belding Communications, Inc. as the holding company for Foote, Cone &
Belding--one of America's largest advertising agencies. In December 1997,
through its acquisition of Bozell, Jacobs, Kenyon & Eckhardt, Inc. (BJK&E),
True North almost doubled its size by adding Bozell Worldwide, Temerlin
McClain and other specialized communications businesses to its network. With
these brands as the foundation, True North is building a new type of
architecture to offer clients leverageable marketplace advantage.
True North offers full-service advertising through two separate, independent
global agency networks: FCB Worldwide and Bozell Worldwide. True North also
operates two significant independent regional full-service agencies, Temerlin
McClain and Tierney & Partners. In addition the Company owns certain marketing
service and specialty advertising companies through the True North Diversified
Services Companies, and certain interactive marketing companies through TN
Technologies.
FCB Worldwide and Bozell Worldwide, by themselves and through their
respective subsidiaries and affiliates, independently operate advertising
agency networks. Their primary business is to create marketing communications
for their clients' goods and services across the total spectrum of advertising
and promotion media. Each of the agency networks has its own clients and
competes with the other in many markets.
. FCB Worldwide--FCB Worldwide is headquartered in New York and has full-
service offices in New York, Chicago, San Francisco, and Los Angeles. FCB
Worldwide operates internationally through subsidiaries in Canada, Europe,
Latin America, and the Asia-Pacific region.
. Bozell Worldwide--Bozell Worldwide is headquartered in New York and has
full-service offices in New York, Chicago, Detroit, Costa Mesa, and Seattle.
Bozell Worldwide operates internationally through subsidiaries in Canada,
Europe, Latin America, and the Asia-Pacific region.
. True North Diversified Services Companies--True North Diversified Services
Companies offer a wide variety of marketing, communications and specialty
advertising services. Marketing and communications services include:
promotion, public relations, public affairs, direct/database marketing,
branding consultancy, graphic arts, sports marketing and directory
advertising. Specialty advertising includes healthcare and multicultural
advertising. True North Diversified Services Companies have both U.S. and
international operations which include: BSMG Worldwide, Wahlstrom, Bozell
Wellness Worldwide, Market Growth Resources, and McCracken Brooks.
Through planned acquisitions and internal growth, True North believes it has
become a communications company encompassing resources as broad in scope as
any in the industry. True North's architecture is unique and includes three
specialized business units:
. TN Technologies--This business operation is a leader in global interactive
marketing. TN Technologies delivers a complete range of digital interactive
marketing products and services including: customized global intranets;
creation, production, updating and maintenance of World Wide Web sites and
other interactive communications vehicles; analysis of customer requests,
purchases and behaviors; delivery of uniform and updated sales tools for
sales forces; and technical consulting. True North holds a leading position
in interactive marketing through its majority ownership of one of the
largest interactive marketing agencies, Modem
Media . Poppe, Inc., and R/GA Digital Studios.
. TN Media--This business unit is a global network of the Company's
specialists in the planning and buying of media time and space. TN Media
ranks as one of the largest media buying companies in the world.
1
<PAGE>
. TN Services--True North has established this unit to house all of its agency
support services around the globe, handling financial transactions including
bill paying, payroll, and accounts receivable collections; human resource
tasks from insurance to employee stock purchase plans; and a broad range of
other support services in the areas of legal services, travel and management
of leased facilities.
The architecture of True North is designed to free local agency management
from administration of the media buying and back office support functions and
give them leading edge technology so they can devote their full energy and
creativity to True North's most important endeavor--growing our clients'
business.
Revenues: True North's principal source of revenues is from its agency
brands, which receive commissions and fees earned on advertising placed with
the various media, and commissions and fees earned for the production and
preparation of advertising. In addition, True North's agency brands receive
fees for various other services performed in connection with advertising,
research and marketing studies. True North's revenues generally reflect the
media buying patterns of its clients and are concentrated in the second and
fourth quarters of the year.
The Company's client list includes many well-known national and
international advertisers of consumer and industrial goods and services.
During 1998, the ten largest clients accounted for approximately 26% of
consolidated revenues; one client accounted for approximately 10% of
consolidated revenues.
Personnel: The principal asset of any service company is its people. True
North has an array of employee benefit and training programs to attract and
retain personnel considered to be industry leaders. As of December 31, 1998,
True North employed 11,448 people in its majority-owned offices; 7,174 were
employed in its domestic offices and 4,274 in its international offices. Of
the 11,448 total employees, 3,248 were engaged in the creation and production
of advertising, 3,431 in account management, 1,386 in media and research
activities, and 3,383 in administrative and clerical functions.
Market Price of Stock and Dividend Record: True North's Common Stock is
listed on the New York Stock Exchange. Its trading symbol is TNO. The
following table shows the high and low sale price of its Common Stock and
dividends paid each quarter since January 1, 1997:
<TABLE>
<CAPTION>
Price
Range
------------ Dividends
High Low Declared
---- ---- ---------
<S> <C> <C> <C>
1997
1st Quarter....................................... $22 3/4 $17 1/2 $.15
2nd Quarter....................................... 25 17 .15
3rd Quarter....................................... 27 1/8 22 1/8 .15
4th Quarter....................................... 27 5/8 22 5/16 .15
1998
1st Quarter....................................... $33 5/8 $23 9/16 $.15
2nd Quarter....................................... 34 26 5/16 .15
3rd Quarter....................................... 32 1/2 21 5/8 .15
4th Quarter....................................... 29 1/4 18 13/16 .15
</TABLE>
At December 31, 1998 True North had approximately 3,118 shareholders of
record.
2
<PAGE>
UNAUDITED QUARTERLY FINANCIAL DATA: Quarterly results (in thousands) and per
share data are as follows:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
Revenues................................ $266,235 $301,308 $294,371 $342,973
Pretax income (loss).................... 1,381 19,316 20,840 (87,641)
Net income (loss)....................... (980) 14,653 9,876 (73,595)
Net income (loss) per share:
Basic................................. (.02) .34 .23 (1.73)
Diluted............................... .33 .22
1998
Revenues................................ $280,069 $311,467 $294,716 $356,057
Pretax income........................... 8,273 29,308 25,924 26,284
Net income.............................. 3,695 17,700 13,302 1,418
Net income per share:
Basic................................. .08 .40 .30 .03
Diluted............................... .08 .38 .29 .03
</TABLE>
FIVE-YEAR SELECTED FINANCIAL DATA: Selected historical financial data (in
thousands, except per share amounts) are as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
--------- --------- --------- ---------- ----------
Year Ended December 31,
- -----------------------
<S> <C> <C> <C> <C> <C>
Revenues.............. $ 740,577 $ 847,043 $ 987,036 $1,204,887 $1,242,309
Net income (loss)..... 36,574 29,055 37,917 (50,046) 36,115
Net income (loss) per
share
Basic............... .89 .71 .91 (1.17) .81
Diluted............. .87 .69 .88 .78
Dividends per share... .60 .60 .60 .60 .60
<CAPTION>
At December 31,
- ---------------
<S> <C> <C> <C> <C> <C>
Working capital....... (49,487) (87,747) (106,268) (234,402) (160,801)
Total assets.......... 1,160,224 1,272,719 1,618,388 1,674,422 1,778,951
Long-term debt
(includes current
portion)............. 63,075 48,939 72,012 50,267 58,653
Total liabilities..... 912,616 1,000,044 1,314,737 1,406,595 1,471,521
Stockholders' equity.. 247,608 272,675 303,651 267,827 307,430
Book value per share.. 6.05 6.57 7.30 6.09 6.83
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In 000's, except per share amounts)
Results Of Operations--1998 Compared To 1997
Revenues from True North's consolidated operations increased 3.1% to
$1,242,309 in 1998 from $1,204,887. U.S. revenues increased 0.1% to $893,136
while international revenues increased 11.6% to $349,173. The small increase
in U.S. revenues is principally due to the following factors: (1) as a result
of its acquisition of Bozell, Jacobs, Kenyon, & Eckhardt, Inc. ("BJK&E") in
the fourth quarter of 1997, the Company ended its relationship with a client
in the automotive industry due to a conflict with a BJK&E client, and, (2)
during 1997 the Company lost a client in the banking business and the creative
assignment for a client in the restaurant business. The increase in
international revenues is principally due to acquisitions partially offset by
unfavorable currency translation. Excluding acquisitions, divestitures, and
the unfavorable impact of foreign currency translation, consolidated revenues
were essentially unchanged.
3
<PAGE>
During the latter part of 1997 and in 1998, True North acquired several
agencies in North America, Latin America, Europe and the Pacific Rim. These
agencies accounted for $65,374 and $8,866 of True North's 1998 revenues and
pretax income, respectively.
Salaries and benefits expense increased 3.9% to $773,053 in 1998. Salaries
and benefits expense in 1997 includes a charge of $3,528 resulting from the
downsizing of several True North offices in response to changes in local
business conditions. 1998 salaries and benefits expense includes fourth
quarter charges of $7,000 related to the resignation of the Company's Chairman
and the retirement of the Company's Chief Executive Officer, and a $2,100
severance accrual related to downsizing of the Company's FCB Chicago office.
Excluding these charges in both years, salaries and benefits expense as a
percent of revenues was 61.5% in both years.
Office and general expenses decreased 14.4% to $343,863 in 1998. Office and
general expenses in 1997 included charges of $41,122 consisting principally of
lease reserves and the write-off of associated intangible costs for True North
operations in New York, Hong Kong, Stamford and certain other locations, fixed
asset write-offs related to abandoned computer system projects, and the costs
of relocating FCB employees as part of a management reorganization of that
network. Excluding these items, office and general expenses as a percent of
revenues declined from 29.9% in 1997 to 27.7% in 1998. 1998 office and general
expenses include a lease credit of $3,047 related to favorable subleases in
Stamford and New York.
The provision for doubtful accounts in 1998 was 0.3% of revenues compared to
1.2% of revenues in 1997. As more fully discussed below, the 1997 provision
was adversely impacted by a significant bad debt write-off, the establishment
of a world-wide bad debt reserve, and write-offs related to client
resignations resulting from the BJK&E merger.
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 to pretax earnings of
$4,344 included on the line "subsidiary reorganization costs". These costs
include severance, the write-down of computer equipment that is not being used
in ongoing operations to net realizable value, and other miscellaneous costs.
As more fully discussed in Note 3 to the consolidated financial statements,
during 1998 True North completed the restructuring activities it initiated in
the fourth quarter of 1997. In 1998, the Company reversed excess restructuring
reserves of $1,066 into income as a result of the true-up of the reserves it
established in the fourth quarter of 1997. These excess reserve amounts
resulted principally from the fact that True North was able to execute
subleases of excess space at more favorable terms than it had anticipated in
1997.
Interest and other income increased from $10,500 in 1997 to $23,650 in 1998.
The principal reason for this increase was that True North sold a substantial
portion of its investment in DoubleClick, Inc. during 1998 resulting in a
pretax gain of $13,396.
As more fully discussed under the caption "Publicis Relationship" appearing
on page 7, True North recorded a pretax charge of $30,532 in 1998 resulting
from the involuntary conversion of its 26.5% equity investment in Publicis
Communication ("PC") into publicly traded shares of Publicis SA ("PSA"), the
parent company of Publicis Communication.
Interest expense increased 9.7% to $22,034 in 1998 due principally to higher
average borrowings resulting from the Company's acquisition activities.
The effective tax rate for 1998 of 63.2% was adversely impacted by the
involuntary conversion of True North's equity investment in Publicis
Communication. In 1998, True North recorded a pretax loss of $30,532 and a
deferred tax obligation of $3,139 related to this transaction. Excluding this
transaction, True North's 1998 effective tax rate was 44.6%.
4
<PAGE>
Minority interest expense increased from $2,385 in 1997 to $4,044 in 1998
due to improvements in operations acquired in 1997 in the Pacific Rim and
Latin America which have substantial management ownership and due to
improvements in the operations of Modem Media.Poppe-Tyson, Inc.
Equity income decreased from $9,673 in 1997 to $7,158 due principally to the
fact that, as a result of the involuntary conversion of its equity investment
in Publicis Communication mentioned above, True North was unable to record
equity income related to this investment during a substantial portion of the
fourth quarter of 1998, traditionally a quarter in which Publicis
Communication has delivered a substantial portion of its full-year results.
Results Of Operations--1997 Compared To 1996
During the fourth quarter of 1997, True North completed its acquisition of
BJK&E. In connection therewith, True North recorded a pre-tax charge of
$80,946 related to merger-related transaction costs and restructuring
activities principally arising from this acquisition. In addition, the Company
took other actions in the fourth quarter to reduce personnel and occupancy
costs in several of its offices which resulted in higher than normal charges
for severance and lease reserves; because these actions do not represent exit
activities and therefore can not be classified as restructuring costs these
charges are reflected as salaries and benefits expenses and office and general
expenses, respectively. These charges are described in detail below.
Revenues from True North's consolidated operations increased 22.1% to
$1,204,887 in 1997 from $987,036. U.S. revenues increased 13.2% to $892,117 in
1997 while international revenues increased 57.2% to $312,770. During the
latter part of 1996 and in 1997, True North acquired several agencies in North
America, Latin America, Europe and the Pacific Rim in addition to the European
agencies it obtained in its settlement with Publicis. These agencies accounted
for $148,457 of the growth in revenues between years. Excluding the impact of
acquisitions and the 1997 divestiture of a small agency in the Pacific Rim,
revenues from existing operations increased 8.3% between years.
Salaries and benefits expense increased 18.9% to $744,282 in 1997. Salaries
and benefits expense in 1996 includes a charge of $4,169 related to the
severance of two former executives of True North. 1997 salaries and benefits
expense includes a fourth quarter charge of $3,528 resulting from the
downsizing of several True North offices in response to changes in local
business conditions. Excluding these charges in both years, salaries and
benefits expense as a percent of revenues declined from 63.0% in 1996 to 61.5%
in 1997.
Office and general expenses increased 29.9% to $401,617 in 1997. Office and
general expenses in 1996 included a charge of $9,837 principally consisting of
the costs to close a division of Poppe Tyson and a sublet loss related to an
FCB Los Angeles-based operation. 1997 office and general expenses include
charges of $41,122 consisting principally of lease reserves and the write-off
of associated intangible costs for True North operations in New York, Hong
Kong, Stamford and certain other locations, fixed asset write-offs related to
abandoned computer system projects, and the costs of relocating FCB employees
as part of a management reorganization of that network. The lease reserves
recorded as a part of 1997 office and general expenses, though technically not
an exit activity, arose as a result of the BJK&E acquisition and the
subsequent change in management's assessment of the usability of the related
leased space. Excluding these items in both years, office and general expenses
as a percent of revenues declined from 30.3% in 1996 to 29.9% in 1997.
The 1997 provision for doubtful accounts was significantly higher than 1996
and 1995 levels for three reasons: (1) in the fourth quarter of 1997, True
North wrote off a $7.4 million receivable related to a client which
unexpectedly lost its ability to obtain bank or equity financing, (2) True
North recorded a $3.0 million bad debt reserve in the fourth quarter of 1997
as it expands its business into project-based compensation arrangements as
opposed to traditional compensation arrangements based upon media spending,
and (3) True North recorded write-offs of $1.8 million related to client
resignations and businesses sold as a result of the BKJ&E merger. Excluding
these fourth quarter items, the provision for doubtful accounts as a percent
of revenues was 0.2% in both years.
5
<PAGE>
As further disclosed in Note 3, in 1997 True North recorded a charge of
$80,946 in restructuring and merger-related costs principally related to its
acquisition of BJK&E. Of this amount, $16,872 represents the costs associated
with completing the transaction, $11,097 represents losses on lease
commitments for offices closed and/or downsized as a result of the merger,
$38,740 represents severance and other associated exit costs for offices
closed and/or downsized, and $14,237 represents the write-off of long-lived
assets resulting from the Company's decision to close and/or sell offices as a
result of the merger. As previously disclosed in True North's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997, as a result of its
merger with BJK&E, True North ended its relationship with a client in the
automotive industry due to a conflict with a BJK&E client. The client
accounted for approximately 1.8% of True North's consolidated revenues for the
year ended December 31, 1997.
Interest expense increased 26.4% to $20,083 in 1997 as a result of higher
average borrowings in 1997 primarily caused by the Company's investment
spending detailed on pages 6 and 7.
The 1997 tax rate was impacted by the write-off of nondeductible intangible
assets, the payment of nondeductible merger-related costs, and the
establishment of tax reserves of $7,000 related to True North's plan to
reorganize its foreign operations. The various elements of the tax provision
for both 1996 and 1997 are more fully explained in Note 14.
In 1997, True North recorded minority interest expense of $2,385 compared to
minority interest income of $450 in 1996. This change is due to the 1997
acquisitions of several highly profitable agencies in the Pacific Rim and
Latin America which have substantial management ownership.
Equity income, which consists primarily of True North's share of Publicis'
European operations, was $9,673 in 1997 compared to $19,084 in 1996. The
fourth quarter of 1996 was benefited by the true-up of Italian restructuring
reserves as the Italian operations of the joint venture were able to negotiate
more favorable settlements on leases and other actions than previously
anticipated. This reserve true-up resulted in a one-time increase in 1996
earnings of $5,759. The remainder of the decline is due to (1) a 1997
restructuring of the relationship between True North and Publicis and (2) the
strengthening of the U.S. dollar against European currencies.
Liquidity and Capital Resources
Cash flows from operating activities have historically represented the
Company's primary source of funding for investment activities. Over the past
five years True North has emphasized the timely collection of accounts
receivable and the careful management of its accounts receivable to accounts
payable ratio. During 1996 True North experienced a shift in client spending
from media to production work. Media costs are typically billed to and
collected from clients before payment is due to the media. In general,
production work requires that the agency incur and pay costs that it can bill
to its clients once the related work is completed. As a result of this shift
in client spending patterns, True North's accounts receivable to accounts
payable ratio increased as did its investment in expenditures billable to
clients, resulting in lower cash flows from operating activities. In 1997,
this trend was reversed, in part due to client spending related to the Winter
Olympics and as a result of True North's efforts to manage this relationship.
True North continues to review its billing and payment procedures and believes
that this change in client spending patterns will not result in further
significant increases in its accounts receivable to accounts payable ratio.
1998 cash flows from operating activities were depressed by True North's
restructuring activities that it initiated in 1997. During 1997, cash expended
on these restructuring activities was $9.5 million compared to $43.0 million
in 1998. As further discussed in Note 3, True North completed its
restructuring initiative in 1998.
The pace of True North's investment spending continues to grow as the
Company has focused its efforts in two areas:
. Purchase of subsidiaries and interests in affiliated companies--True
North continues to contemplate strategic acquisitions to enhance its
worldwide network. During the past three years, True North
6
<PAGE>
completed the acquisition of several agencies in North America, Europe,
Latin America and the Pacific Rim. These acquisitions were financed
through a combination of existing cash balances and the issuance of short
and long-term borrowings and common stock. As discussed in Note 17, in
February 1999, True North acquired a Chicago-based public relations firm
in exchange for 1.2 million shares of its common stock. Future
acquisitions may be financed through a combination of cash from existing
operations, and the issuance of stock and long-term borrowings.
. Capital expenditures--the two primary drivers of capital spending are (i)
capital spending to enhance backoffice efficiencies and increase True
North's abilities to exploit new digital technologies, and (ii) capital
spending related to office moves. The increase in capital spending
between 1996 and 1997 is roughly comparable to the growth of the Company.
In the future the Company anticipates that capital expenditures will be
at levels comparable to or slightly higher than 1998 (capital spending
for 1998 was $40,516) due to True North's commitment to maintain its
competitive edge in providing digital marketing services and as it
strives to obtain operating efficiencies (as measured by salaries and
employee benefits as a percent of revenues) through improvements of its
basic media and accounting systems. True North had no material
commitments for capital expenditures at December 31, 1998. As further
discussed on page 9, capital spending in 1999 will be impacted by the
replacement of computer hardware and software which is non-compliant with
respect to the year 2000 issue.
During 1998 True North improved its access to long-term financing by
entering into a $250 million Revolving Credit Agreement consisting of two
parts: a $175 million five year revolving credit facility and a $75 million
364 day revolving credit facility. During 1999 True North intends to refinance
its $25 million three year term loans which are scheduled to mature in May
1999 in an amount up to $50 million. As further discussed in Note 7, at
December 31, 1998 True North had committed available lines of credit under its
various debt agreements in the amount of $180,000. In addition, the Company
had available at various banks uncommitted lines of credit aggregating
approximately $187,036 at December 31, 1998, of which $147,326 was unused.
The single most significant change in the liquidity of True North's assets
resulted from the involuntary conversion of its 26.5% equity investment in
Publicis Communication to shares of a publicly traded French company, Publicis
SA. This transaction is discussed in detail on pages 7 and 8 under the
caption, "Publicis Relationship". At December 31, 1998, True North's
investment in Publicis SA had a fair market value of $140.9 million (see Note
4). During 1999, True North intends to explore ways to monetize this
investment. If accomplished, proceeds from the monetization will be used to
pay down debt and acquire other companies.
True North has paid cash dividends at an annual rate of $.60 per share over
the past ten years. Determination of the payment of dividends is made by the
Company's Board of Directors on a quarterly basis. True North anticipates that
its cash flow from operations will be adequate to continue payment of
dividends at similar levels in 1999.
Publicis Relationship
During 1997 True North negotiated a resolution to its outstanding disputes
with Publicis, its former partner in a European joint venture, resulting in a
separation agreement dated May 19, 1997. The intent of this agreement is to
establish a new legal and business relationship between the parties so that
all disputes between the parties are resolved and each is free to create its
own separate, independent agency network.
Pursuant to the agreement, True North exchanged its 49% interest in the
joint venture for agencies in France, Greece, Portugal and the United Kingdom
and an additional 5.7% interest in Publicis Communication. The impact of this
settlement was not material to True North's consolidated financial statements.
On November 6, 1998, Publicis announced its intention to convert True
North's resulting 26.5% investment in Publicis Communication to approximately
792 of its publicly traded shares. Despite True North's objections, this
transaction was approved by the shareholders of PSA and PC in special
shareholders' meetings held in December 1998 and closed shortly thereafter. As
a result, True North now owns approximately 8.8% of Publicis.
7
<PAGE>
The book value of True North's 26.5% investment in Publicis Communication at
the date of this transaction was $164,513. The fair value of the Publicis
shares (based upon a December 14, 1998 Publicis closing price of $169.15 per
share) was $133,981. Accordingly, True North recorded a pretax loss of $30,532
in the fourth quarter of 1998 as a result of the involuntary conversion of its
investment in Publicis Communication to shares of PSA. In addition, True North
recorded a deferred tax obligation of approximately $3,139 upon the exchange.
As a result, the after tax impact of this transaction was a loss of
approximately $33,671.
True North believes that it is entitled to significant additional
consideration for its investment in Publicis Communication and is asserting
its contractual rights under the 1997 Separation Agreement with respect to
this transaction in international arbitration proceedings.
Quantitative and Qualitative Disclosures about Market Risk
During 1993, True North entered into an interest rate swap contract with a
bank which became effective in June 1994. Under this arrangement, True North
receives LIBOR and pays a fixed interest rate of 6.1% on a notional amount of
$25,000 in borrowing during the period from June 1994 to June 1999. At
December 31, 1998, the carrying and fair market values of this interest rate
swap were $108 and $(92), respectively. Other than this interest rate swap
contract, True North has not entered into any market risk sensitive contracts
during the past three years.
True North's consolidated financial statements are denominated in U.S.
dollars. In 1998, True North derived approximately 28% 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.
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
conditioning 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 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
from suppliers of its primary business and financial systems. Internal
testing, to the extent practical, will be done to ensure that such systems
will function properly. Testing of all systems is expected to be done by June
30, 1999, and remediation should be completed by August 31, 1999.
8
<PAGE>
True North is developing 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. True North is scheduled to complete
these contingency plans by July 1999.
During 1997 and 1998, True North incurred less than $0.5 million of expenses
related to this issue in each year, and expects to incur an additional $0.5
million to $1.0 million of such expenses over the next year. Capital spending
to replace non-compliant hardware and software is expected to be approximately
$5 million over the next year. Funding for year 2000 remediation will be
generated from on-going operations and available borrowings under the
Company's various credit agreements.
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. True North
cannot predict the actual effect to it of the year 2000 issue, which depends
on numerous uncertainties such as: (1) whether major third parties address
this issue properly and timely, and (2) whether broad-based or systemic
economic failures may occur. True North is currently unaware of any events,
trends, or condition regarding this issue that may have a material effect on
True North's results of operations, liquidity, and financial position.
INCLUSION OF FORWARD-LOOKING INFORMATION
Certain statements under the captions "About True North" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" constitute "forward-looking statements" within the meaning
of Section 21E(i)(1) of the Securities Exchange Act of 1934. Such forward-
looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results of the Company to be
materially different from any future results expressed or implied by these
statements. Such factors include, among other things, the following:
general economic and business conditions, changes in demand for the
Company's services, changes in competition, the ability of the Company to
integrate acquisitions or complete future acquisitions, interest rate
fluctuations, dependence upon and availability of qualified personnel, and
changes in governmental regulation. In light of these and other
uncertainties, the forward-looking statements included in this document
should not be regarded as a representation by the Company that the
Company's plans and objectives will be achieved.
9
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(In 000's, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Revenues..................................... $987,036 $1,204,887 $1,242,309
-------- ---------- ----------
Operating Expenses:
Salaries and benefits...................... $625,749 $ 744,282 $ 773,053
Office and general......................... 309,101 401,617 343,863
Provision for doubtful accounts............ 2,441 14,563 3,410
Subsidiary reorganization costs............ -- -- 4,344
Restructuring and merger-related costs..... -- 80,946 (1,066)
-------- ---------- ----------
$937,291 $1,241,408 $1,123,604
-------- ---------- ----------
Operating Income (Loss)...................... $ 49,745 $ (36,521) $ 118,705
Other Income (Expense):
Interest income and other.................. $ 8,708 $ 10,500 $ 23,650
Loss on involuntary conversion of PC
shares.................................... -- -- (30,532)
Interest (expense)......................... (15,887) (20,083) (22,034)
-------- ---------- ----------
$ (7,179) $ (9,583) $ (28,916)
-------- ---------- ----------
Pretax Income (Loss)......................... $ 42,566 $ (46,104) $ 89,789
Provision for Income Taxes................... 24,183 11,230 56,788
-------- ---------- ----------
$ 18,383 $ (57,334) $ 33,001
Minority Interest Income (Expense)........... 450 (2,385) (4,044)
Equity in Earnings of Affiliated Companies... 19,084 9,673 7,158
-------- ---------- ----------
Net Income (Loss)............................ $ 37,917 $ (50,046) $ 36,115
======== ========== ==========
Net Income (Loss) Per Share:
Basic...................................... $ 0.91 $ (1.17) $ 0.81
======== ========== ==========
Diluted.................................... $ 0.88 $ 0.78
======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In 000's, except per share amounts)
<TABLE>
<CAPTION>
At December 31,
----------------------
ASSETS 1997 1998
------ ---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 109,033 $ 88,524
Marketable securities................................ -- 143,863
Accounts receivable, net of bad debt reserve of
$11,544 in 1997 and $12,468 in 1998................. 797,254 865,972
Other current assets................................. 91,594 75,622
---------- ----------
$ 997,881 $1,173,981
========== ==========
Property and Equipment:
Land and buildings................................... $ 938 $ 1,072
Leasehold improvements............................... 74,209 79,143
Furniture and equipment.............................. 223,160 222,355
---------- ----------
$ 298,307 $ 302,570
Less--Accumulated depreciation and amortization...... (173,985) (174,308)
---------- ----------
$ 124,322 $ 128,262
========== ==========
Other Assets:
Goodwill, net of accumulated amortization of $64,694
in 1997 and $65,814 in 1998......................... $ 332,807 $ 413,395
Investment in affiliated companies................... 170,197 22,335
Other assets......................................... 49,215 40,978
---------- ----------
$ 552,219 $ 476,708
---------- ----------
$1,674,422 $1,778,951
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable..................................... $ 945,285 $1,015,224
Short-term bank borrowings........................... 88,008 109,710
Liability for federal and foreign taxes.............. 13,676 23,467
Current portion of long-term debt.................... 14,352 43,353
Accrued expenses..................................... 170,962 143,028
---------- ----------
$1,232,283 $1,334,782
========== ==========
Noncurrent Liabilities:
Long-term debt....................................... $ 35,915 $ 15,300
Liability for deferred compensation.................. 63,276 69,193
Other noncurrent liabilities......................... 75,121 52,246
---------- ----------
$ 174,312 $ 136,739
========== ==========
Stockholders' Equity:
Preferred stock, $1.00 par value, authorized 100
shares, none issued................................. $ -- $ --
Common stock, 33 1/3c par value, authorized 90,000
shares, issued 44,195 in 1997 and 45,238 in 1998.... 14,732 15,079
Paid-in capital...................................... 204,070 228,324
Retained earnings.................................... 68,951 78,295
Less--Treasury stock, at cost: 243 in 1997; 217 in
1998................................................ (5,155) (5,150)
Less--Deferred compensation.......................... (150) --
Unrealized gain on marketable securities............. -- 5,102
Cumulative translation adjustment.................... (14,621) (14,220)
---------- ----------
$ 267,827 $ 307,430
---------- ----------
$1,674,422 $1,778,951
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In 000's)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss)............................ $ 37,917 $ (50,046) $ 36,115
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Restructuring charge....................... -- 80,946 --
Involuntary conversion of Publicis
investment................................ -- -- 30,532
Depreciation and amortization.............. 38,181 47,502 45,061
Provision for doubtful accounts............ 2,441 14,563 3,410
Provision for deferred compensation........ 9,130 633 9,906
Equity in earnings of affiliated
companies................................. (19,084) (9,673) (7,158)
Dividends received from affiliated
companies................................. 3,604 2,872 328
Other non-cash charges..................... (3,343) 175 (3,697)
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable...................... (130,395) 21,227 (63,340)
Other current assets..................... (5,690) 562 7,416
Accounts payable......................... 110,263 28,638 60,734
Accrued expenses......................... 32,915 14,844 (46,542)
Deferred income taxes.................... (5,338) (3,796) 16,253
-------- --------- ---------
Net cash provided by operating
activities............................ $ 70,601 $ 148,447 $ 89,018
-------- --------- ---------
Cash flows used in investing activities:
Purchases of property and equipment.......... $(33,094) $ (42,413) $ (40,516)
Acquisitions of advertising agencies......... (58,121) (81,724) (83,508)
Other transactions........................... 3,351 -- (3,092)
-------- --------- ---------
Net cash used in investing activities.. $(87,864) $(124,137) $(127,116)
-------- --------- ---------
Cash flows provided by (used for) financing
activities:
Increase (decrease) in short-term bank
borrowings.................................. $ 29,716 $ (15,748) $ 21,301
Proceeds from issuance of common stock....... 12,275 19,202 15,893
Proceeds from issuance of long-term debt..... 25,264 4,425 28,780
Payments of long-term debt................... (30,077) (29,763) (14,281)
Cash dividends paid.......................... (14,235) (15,050) (26,771)
Payments for purchases of common stock....... (9,258) (7,115) (7,158)
-------- --------- ---------
Net cash provided by (used for)
financing activities.................. $ 13,685 $ (44,049) $ 17,764
-------- --------- ---------
Effect of exchange rate changes on cash........ $ (388) $ (1,416) $ (175)
-------- --------- ---------
Net increase (decrease) in cash................ $ (3,966) $ (21,155) $ (20,509)
Adjustment to conform fiscal year of pooled
entity........................................ 50,668 -- --
Cash, at beginning of year..................... 83,486 130,188 109,033
-------- --------- ---------
Cash, at end of year........................... $130,188 $ 109,033 $ 88,524
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In 000's)
Year ended December 31,
<TABLE>
<CAPTION>
Unrealized
Cumulative Gain On Total
Common Paid-in Retained Treasury Deferred Translation Marketable Stockholders'
Stock Capital Earnings Stock Compensation Adjustment Securities Equity
------- -------- -------- -------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $13,874 $158,757 $110,370 $(2,661) $(1,200) $ (6,465) $ -- $272,675
Comprehensive income:
Net income............ -- -- 37,917 -- -- -- -- 37,917
Currency translation.. -- -- -- -- -- (357) -- (357)
--------
Total comprehensive
income............. 37,560
--------
Dividends.............. -- -- (13,877) -- -- -- -- (13,877)
Common stock
issuances............. 127 7,257 -- 4,132 -- -- -- 11,516
Common stock
purchases............. (69) (2,786) -- (6,024) -- -- -- (8,879)
Gain on issuance of
subsidiary stock...... -- 4,569 -- -- -- -- -- 4,569
Other.................. -- -- (363) -- 450 -- -- 87
------- -------- -------- ------- ------- -------- ------ --------
Balance at December 31,
1996................... $13,932 $167,797 $134,047 $(4,553) $ (750) $ (6,822) $ -- $303,651
Comprehensive income
(loss):
Net loss.............. -- -- (50,046) -- -- -- -- (50,046)
Currency translation.. -- -- -- -- -- (7,799) -- (7,799)
--------
Total comprehensive
income (loss)...... (57,845)
--------
Dividends.............. -- -- (15,050) -- -- -- -- (15,050)
Common stock
issuances............. 888 39,803 -- 2,895 -- -- -- 43,586
Common stock
purchases............. (88) (3,530) -- (3,497) -- -- -- (7,115)
Other.................. -- -- -- -- 600 -- -- 600
------- -------- -------- ------- ------- -------- ------ --------
Balance at December 31,
1997................... $14,732 $204,070 $ 68,951 $(5,155) $ (150) $(14,621) $ -- $267,827
Comprehensive income:
Net income............ -- -- 36,115 -- -- -- -- 36,115
Currency translation.. -- -- -- -- -- 401 -- 401
Unrealized gain on
marketable
securities........... -- -- -- -- -- -- 5,102 5,102
--------
Total comprehensive
income............. 41,618
--------
Dividends.............. -- -- (26,771) -- -- -- -- (26,771)
Common stock
issuances............. 347 24,254 -- 7,163 -- -- -- 31,764
Common stock
purchases............. -- -- -- (7,158) -- -- -- (7,158)
Other.................. -- -- -- -- 150 -- -- 150
------- -------- -------- ------- ------- -------- ------ --------
Balance at December 31,
1998................... $15,079 $228,324 $ 78,295 $(5,150) $ -- $(14,220) $5,102 $307,430
======= ======== ======== ======= ======= ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000's, except per share amounts)
1. Summary of Significant Accounting Policies
Nature of Operations--The Company ("True North") is a global advertising and
communications business. Pages 1 and 2 of this Financial Report contain a more
comprehensive discussion of the nature of True North's operations.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and all wholly owned and majority-owned
subsidiaries. The Company uses the equity method of accounting to record its
investments in 20% to 49% owned affiliated companies.
On December 30, 1997 True North consummated its acquisition of Bozell,
Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E"), a global advertising and
communications business. The transaction has been accounted for as a pooling
of interests, as more fully disclosed in Note 2.
Use of Estimates--The preparation of these financial statements requires the
use of certain estimates by management in determining the Company's assets,
liabilities, revenues and expenses. Actual results could differ from those
estimates.
Income Recognition--True North records revenue when media placements appear
and production costs are billable. Salaries and other agency costs are charged
to expense at the time incurred.
Cash Equivalents--For purposes of balance sheet and statements of cash flow
presentation, True North considers all highly liquid investments with an
original maturity of 90 days or less to be cash equivalents.
Property and Depreciation--True North computes depreciation principally
using the straight line method over the estimated useful life of the related
asset. The Company amortizes leasehold improvements over the lesser of the
estimated useful life of the asset or the life of the lease.
Income Taxes--Effective January 1, 1992, True North adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". At December 31, 1998, unremitted earnings of foreign
subsidiaries and affiliated companies were approximately $19,481. The Company
does not provide deferred taxes on these earnings because it permanently
reinvests such earnings in these operations.
Goodwill--True North amortizes goodwill over periods from ten to forty
years. Periodically, the Company reviews and, if necessary, adjusts the
carrying value for goodwill based upon current facts and circumstances and its
best estimate of undiscounted future cash flows of the related business.
Amortization of goodwill, including goodwill of affiliated companies, amounted
to $13,213 in 1996, $14,466 in 1997, and $14,367 in 1998.
Fair Value of Financial Instruments--The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, short-term bank
borrowings, and accrued expenses approximate fair value because of the short
maturity of those instruments. At December 31, 1998, True North estimates that
the fair value of its long-term debt is not materially different from its
financial statement carrying value. The fair value of long-term debt was
estimated using quoted market prices or discounted future cash flows.
Marketable securities are identified as "available for sale securities" and
are stated at fair market value.
During 1993, True North entered into an interest rate swap contract with a
bank which became effective in June 1994. Under this arrangement, True North
receives LIBOR and pays a fixed interest rate of 6.1% on a notional amount of
$25,000 in borrowing during the period from June 1994 to June 1999. At
December 31, 1998, the carrying and fair market values of this interest rate
swap, which has been designated as a hedge against True North's $25,000 three
year term loan, were $108 and $(92), respectively.
14
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share--Basic earnings per share are computed using the weighted
average number of common shares outstanding during the year. Diluted earnings
per share are computed using the weighted average number of common shares
outstanding during the year and include the potential issuance of shares under
True North's stock option plans. The following table summarizes the
differences in the number of shares used in both calculations for the years
ended December 31, 1996, 1997, and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Basic................................................ 41,591 42,631 44,547
Diluted.............................................. 42,872 44,094 46,394
</TABLE>
Segment Reporting--In June 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information", which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. The
statement also establishes standards for related disclosure about products and
services, geographic areas and major customers. While True North operates its
business under three agency networks, one or more of True North's agency
networks may service a particular client. In addition, a significant
percentage of the costs incurred to service the clients of each network are
performed by TN Media and TN Services, specialized business units described on
pages 1 and 2 of this Financial Report. From time to time, True North has
moved its clients between its agency networks to allow it to seek new clients
in the same business. True North allocates its financial resources on the
basis of needs rather than the actual financial performance of the agency
networks. For these reasons, True North has determined that its business
operates in only one segment, the advertising industry. In accordance with
SFAS No. 131, True North has adopted the new requirements retroactively in
these notes to its consolidated financial statements (see Note 11).
Derivative Instruments--In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. Management believes that the implementation of
SFAS No. 133 will not have a material impact on the Company's earnings.
2. Acquisitions
On December 30, 1997 the Company consummated its acquisition of BJK&E by
issuing approximately 18,627 shares of its common stock in exchange for all
outstanding common stock of BJK&E. The Company also assumed and exchanged all
outstanding BJK&E stock options into options to purchase shares of the
Company's common stock. The transaction has been accounted for as a pooling of
interests.
All of the Company's financial data have been restated to include the
historical financial information of BJK&E. Prior to this transaction, BJK&E's
financial year ended on March 31. In 1997 BJK&E's fiscal year-end was changed
to conform to the Company's fiscal year-end. The consolidated income
statements and statements of cash flows for the year ended December 31, 1996
represent the results of True North for the year ended December 31, 1996, and
the results of BJK&E for the year ended March 31, 1997. Based upon the
differences in fiscal year-ends, BJK&E's results of its U.S. operations for
the three months ended March 31, 1997 have been included in the Company's
consolidated income statements for both 1996 and 1997. For the three months
ended March 31, 1997 BJK&E's U.S. operations recorded total revenues pre-tax
income, and net
15
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
income of $113,758, $2,930 and $363, respectively. Accordingly, the retained
earnings in the consolidated statements of stockholders' equity for the year
ended December 31, 1996 have been adjusted to reflect the net income of BJK&E
for the three months ended March 31, 1997. Similarly, the impact of conforming
the fiscal periods of BJK&E's U.S. operations has been reflected in the
consolidated statement of cash flows for the year ended December 31, 1996
under the caption, "Adjustment to conform fiscal year of pooled entity". This
adjustment relates principally to the cyclical nature of the advertising
business and the related change in ratio of accounts receivable to accounts
payable that occurs between the first and fourth quarters of a calendar year.
As required in a pooling of interests business combination, the Company's
historical financial statements have been adjusted to conform the accounting
policies of both companies. The significant accounting policies of True North
and BJK&E differed in only two respects.
. In 1996 True North had accounted for Staff Accounting Bulletin No. 51,
"Accounting for Sales of Stock by a Subsidiary" ("SAB 51") gains and
losses through its income statement whereas BJK&E had accounted for such
gains and losses as changes in stockholders' equity. On a combined basis,
True North and BJK&E account for such gains and losses as changes in
shareholders' equity because True North believes that such accounting
treatment most accurately portrays the underlying economic substance of
these types of transactions.
. BJK&E had recognized revenues on print production costs as incurred
whereas True North had recorded revenues on print production costs when
these costs were billable. On a combined basis, True North and BJK&E
record revenues on production costs when such costs are billable because
True North believes that such accounting treatment most accurately
matches revenues with the related costs and expenses.
As a result, the historical results of the Company have been retroactively
conformed, consistent with the intent to present both entities as though they
had always been combined. The impact of these conformity adjustments was to
reduce True North's previously reported pre-tax and net income for the year
ended December 31, 1996 by $5,800 and $3,480, respectively, and BJK&E's
previously reported revenues, pre-tax income and net income for its 1996
fiscal year by $1,002, $1,002 and $601, respectively.
Separate and combined results of True North and BJK&E during the period
preceding the merger were as follows:
<TABLE>
<CAPTION>
Conformity
Year Ended December 31, 1996 True North BJK&E Adjustments Combined
---------------------------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues....................... $493,050 $494,988 $(1,002) $987,036
Pre-tax Income................. 19,214 30,154 (6,802) 42,566
Net Income..................... 27,834 14,164 (4,081) 37,917
</TABLE>
During 1996, 1997 and 1998, True North purchased several agencies located in
North America, Europe, Latin America and the Pacific Rim. Agencies purchased
during the latter part of 1997 and in 1998 contributed $65,374 and $8,866 to
True North's 1998 revenues and pretax income, respectively. Had these
acquisitions taken place on January 1 of the previous years, consolidated
revenues and income would not have been significantly different from reported
amounts.
16
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Restructuring and Merger-Related Costs
As a result of its acquisition of BJK&E in the fourth quarter of 1997 (see
Note 2), True North recorded a pre-tax charge of $80,946 related to merger-
related costs and the impact of restructuring the combined operations.
Activities related to this charge are summarized as follows:
<TABLE>
<CAPTION>
Severance
Anticipated and Other Impaired Merger-related
Loss on Exit Long-lived Transaction
Subleases Costs Assets Costs Total
----------- --------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C>
Restructuring reserve... $11,097 $ 38,740 $ 14,237 $ 16,872 $ 80,946
Write-down of long-lived
assets................. -- -- (14,237) -- (14,237)
1997 cash payments...... (158) (4,847) -- (4,559) (9,564)
------- -------- -------- -------- --------
Balance at December
31, 1997............. $10,939 $ 33,893 $ -- $ 12,313 $ 57,145
1998 cash payments...... (4,475) (26,277) -- (12,286) (43,038)
Long-term obligations
secured................ (5,597) (7,444) -- -- (13,041)
Excess reserve reversed
to income.............. (867) (172) -- (27) (1,066)
------- -------- -------- -------- --------
Balance at December
31, 1998............. $ -- $ -- $ -- $ -- $ --
======= ======== ======== ======== ========
</TABLE>
The restructuring initiative, which was completed in the fourth quarter of
1998, involved the closure and/or merger of both U.S. and international
offices in True North's agency networks as follows.
. The FCB Worldwide agency network closed two offices in Canada and the
United States as a result of a client conflict precipitated by the
merger. In addition, the FCB agency network restructured and merged its
Brazilian operations with a business acquired in the fourth quarter of
1997 and restructured its European agency network that was acquired
during 1997.
. The Bozell Worldwide agency network restructured operations in the United
States, Europe, Asia and the Pacific Rim. The U.S. restructuring
activities of this network were precipitated by changes in local business
conditions and the transfer of a client to the FCB agency network.
Restructuring activities outside of the United States principally
involved the elimination of facilities and/or operations that did not
meet Company financial objectives and were duplicative to other
facilities or offices existing in either the Bozell Worldwide or FCB
Worldwide agency networks.
. The BJK&E merger precipitated the cancellation of the planned initial
public offering ("IPO") of common stock of TN Technologies Holding Inc.
both due to the form of the BJK&E merger and because the Company was
contemplating plans to integrate this subsidiary with Poppe Tyson. The
cancellation of the IPO resulted in the write-off of related transaction
costs that could have been recovered in the event of an IPO. In addition,
a restructuring of this unit was initiated so that its integration with
Poppe Tyson could be completed. Similarly, staff reductions and office
closures were initiated in Poppe Tyson for the same reason.
. True North also combined its media buying operations with the media
buying operations of BJK&E to achieve future cost savings resulting from
both economies of scale and a rationalization of media buying computer
systems. Similar combinations were commenced in several of the other
operations included in True North Diversified Services Companies.
These restructuring activities resulted in the identification of leased
facilities that the Companies no longer required for its operations. As a
result, in the fourth quarter of 1997 True North recorded its best estimate of
the net costs of these subleases as an element of the restructuring charge.
During 1998 the Company completed actions to sublet these leased facilities.
Certain of these facilities were subleased at terms more favorable to True
North than originally estimated in 1997. As a result, in the fourth quarter of
1998, True North reversed $867 in excess lease reserves into pretax income.
17
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
These restructuring activities included plans for the elimination of 604
positions within True North. During 1997 and 1998, 589 employees were
terminated in accordance with the plans. The remaining positions were
eliminated without incurring severance costs due to normal employee turnover.
As a result, True North reversed $172 in excess severance reserve into pretax
income in the fourth quarter of 1998.
The write-down of long-lived assets primarily represents goodwill associated
with offices that have been closed or were sold as a part of the restructuring
plans. In the case of offices sold, True North has computed the goodwill
write-off as the difference between the fair value of the related business and
its net tangible and intangible assets. These sales were completed in 1998.
4. Marketable Securities
At December 31, 1997 and 1998, marketable securities consisted of:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
792 common shares of Publicis SA....................... $ -- $140,854
67 common shares of DoubleClick, Inc................... -- 3,009
-------- --------
$ -- $143,863
======== ========
</TABLE>
True North obtained the Publicis SA shares in the fourth quarter of 1998 as
a result of the involuntary conversion of its equity investment in Publicis
Communication as further described in Note 6.
True North has designated its investments in Publicis SA and DoubleClick,
Inc. as "available for sale securities". As a result, True North has recorded
these marketable securities at fair value at December 31, 1998 and has
reflected the difference between historical cost and fair value at that date
of $9,448, net of applicable income taxes of $4,346, as a component of
comprehensive income within stockholders' equity.
5. Other Current Assets
At December 31, 1997 and 1998, other current assets consisted of:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Expenditures billable to clients......................... $53,960 $56,034
Deferred taxes........................................... 19,853 1,741
Prepaid expenses and other current assets................ 17,781 17,847
------- -------
$91,594 $75,622
======= =======
</TABLE>
6. Investment in Affiliated Companies
The Company's investment in affiliated companies consists of:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
26.5% investment in Publicis Communication.............. $158,817 $ --
Other................................................... 11,380 22,335
-------- -------
$170,197 $22,335
======== =======
</TABLE>
On November 6, 1998, Publicis SA announced its intention to convert True
North's 26.5% investment in Publicis Communication to approximately 792 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 now owns approximately 8.8% of Publicis
SA, which is recorded as an "available for sale security" in marketable
securities.
18
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The book value of True North's 26.5% investment in Publicis Communication at
the date of this transaction was $164,513. The fair value of the Publicis SA
shares (based upon a December 14, 1998 Publicis closing price of $169.15 per
share) was $133,981. Accordingly, True North recorded a pretax loss of $30,532
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 $3,139 upon the
exchange. As a result, the after tax impact of this transaction was a loss of
approximately $33,671.
True North believes that it is entitled to significant additional
compensation for its investment in Publicis Communication and is asserting its
contractual rights under the 1997 Separation Agreement with respect to this
transaction in international arbitration proceedings.
Summarized financial information for affiliated companies is as follows:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Current assets.......................................... $891,199 $80,618
Noncurrent assets....................................... 145,996 24,023
Current liabilities..................................... 790,509 69,079
Long-term debt.......................................... 9 --
Other noncurrent liabilities............................ 18,704 7,837
Shareholders' equity.................................... 227,973 27,725
Revenues................................................ 587,359 597,358
Pretax income........................................... 72,385 73,518
Net income.............................................. 42,941 32,283
</TABLE>
The Company's equity in the net tangible assets of these affiliated
companies was $62,331 at December 31, 1997 and $6,918 at December 31, 1998.
7. Short-Term Bank Borrowings and Long-Term Debt
Short-term bank borrowings consist principally of amounts borrowed under
domestic and international bank overdraft facilities, lines of credit and
multicurrency credit arrangements. Average aggregate short-term borrowings
were $139,310 in 1997 and $224,977 in 1998, and the maximum amount outstanding
was $166,172 in 1997 and $348,932 in 1998. The weighted average interest rate
for short-term borrowings was 6.5%, 6.5% and 6.1% in 1996, 1997 and 1998,
respectively.
On May 29, 1998 True North entered into a Revolving Credit Agreement
totaling $250,000 with eight banks. The Revolving Credit Agreement replaced
three agreements in the amounts of $90,000, $60,000 and $80,000. This
agreement has two parts: a $175,000 five year revolving credit facility and a
$75,000 364 day revolving credit facility. True North may borrow under this
agreement at a Eurodollar rate plus a spread, a Base Reference rate, or at a
Competitive Bid. In addition, True North is required to pay a facility fee
ranging from 0.1% to 0.2% depending upon True North's financial performance.
During 1998 True North borrowed under this agreement and had outstanding debt
of $70,000 at December 31, 1998.
19
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1997 and 1998, long-term debt consisted of:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Three year term loan.......................................... $25,000 $25,000
Senior bank term loans........................................ 6,800 --
7.85%--11.5% obligations under capitalized leases............. 8,624 3,643
5.5%--7.0% demand notes payable............................... -- 11,540
Three year Deutsche Mark term loan............................ -- 12,900
Other notes and obligations................................... 9,843 5,570
------- -------
$50,267 $58,653
Less: portions due within one year............................ (14,352) (43,353)
------- -------
$35,915 $15,300
======= =======
</TABLE>
Scheduled maturities of long-term debt are $43,353, $1,750, $13,095, and
$455 in 1999, 2000, 2001, and 2002, respectively.
On May 24, 1996 the Company entered into a $25 million three year term loan
with two of its banks. The interest rate on this loan is fixed at 6.87%.
The terms of the obligations under capitalized leases provide for payment of
principal and interest in annual installments, with the final purchase
payments of 10% or $1.00 due on various dates through November 2000. The
leases were for the acquisition of equipment.
The 5.5%-7.0% demand notes payable were issued during 1998 to the former
owners of foreign businesses that True North acquired. These notes, which are
payable on demand, have final maturity dates in 2007.
During 1998 True North entered into a three year term loan with a bank
totaling 21,500 Deutsche Marks to finance an acquisition. The loan calls for
six semi-annual payments through October 2001. The interest rate (which was
approximately 5% in 1998) is set at market rates plus a spread.
In addition to these agreements, the Company had available at various banks
uncommitted lines of credit aggregating approximately $187,036 at December 31,
1998, of which $147,326 was unused. These other lines of credit are subject to
annual renewal and may be withdrawn at the option of the various banks. There
are no commitment fees or compensating balance requirements under these
arrangements. Interest rates are negotiated at the time of each borrowing.
The Revolving Credit Agreement and certain other debt agreements contain
various restrictive covenants and conditions which include, but are not
limited to the following: the Company must maintain a minimum net worth of
$175,000, a debt leverage ratio of no greater than 3.5:1, and a fixed charge
coverage ratio of at least 1.5:1.
At December 31, 1998, the Company was in compliance with all covenants and
conditions related to these agreements.
20
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. 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 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. To date, Mazda seeks approximately
$2.5 million in damages arising from Mazda's settlement of claims asserted by
the Federal Trade Commission ("FTC"), various state attorneys general, and a
class of consumers. Mazda has informally indicated that it will seek
indemnification for costs it may incur to settle or defend additional claims
which may be asserted by the FTC and various state attorneys general. FCB has
filed a counterclaim in the arbitration seeking approximately $5 million in
unpaid commissions 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.
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 the Company with respect to such litigation; however, management
believes that any ultimate liability will not be material in relation to the
Company's consolidated results of operations or financial position.
9. Stock-Based Compensation Plans
The Company has established various stock option plans for officers and key
employees. These plans provide for the issuance of options to purchase common
shares at fair market value on the date of grant. Options vest immediately, or
after three or five years and expire after ten years. At December 31, 1998, a
total of 1,389.3 shares have been reserved for future stock option grants
under these plans.
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for stock
options awarded under these plans been determined consistent with the election
under FASB Statement No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Net Income (Loss): As reported...................... $37,917 $(50,046) $36,115
Pro forma.............................. 36,781 (51,485) 31,507
Basic EPS: As reported............................. $ .91 $ (1.17) $ .81
Pro forma.............................. .88 (1.21) .71
Diluted EPS:As reported.............................. .88 .78
Pro forma.............................. .86 .68
</TABLE>
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
21
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's stock option plans at December 31,
1996, 1997 and 1998 and changes during the years then ended is presented in
the following table and narrative:
<TABLE>
<CAPTION>
1996 1997 1998
----------------- ------------------ -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 5,189.6 $10.02 4,767.9 $11.71 4,334.9 $15.08
Granted................. 677.9 18.86 812.0 20.49 3,180.0 26.93
Exercised............... (241.0) 11.39 (1,036.0) 2.76 (472.9) 14.41
Forfeited............... (858.6) 7.23 (209.0) 20.15 (115.8) 21.65
------- -------- -------
Outstanding at end of
year................... 4,767.9 $11.71 4,334.9 $15.08 6,926.2 $20.47
======= ====== ======== ====== ======= ======
Exercisable at end of
year................... 1,241.0 $16.14 2,653.9 $12.13 2,835.5 $13.77
======= ====== ======== ====== ======= ======
Weighted average fair
value of options
granted................ $ 5.69 $ 6.63 $ 9.92
====== ====== ======
</TABLE>
Of the 6,926.2 options outstanding at December 31, 1998, 966.9 have exercise
prices between $3.77 and $9.44, with a weighted average exercise price of
$4.70 and a weighted average remaining contract life of 4.54 years: all of
these options are exercisable. 1,685.2 options have exercise prices between
$10.19 and $19.44, with a weighted average price of $16.90 and a weighted
average remaining contract life of 5.25 years: 1,185.6 of these options are
exercisable. The remaining 4,274.1 options have exercise prices between $20.00
and $31.50, with a weighted average exercise price of $25.45 and a weighted
average contract life of 8.68 years: 683.0 of these options are exercisable.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for 1996, 1997, and 1998: risk-free interest rates of
5.72%, 6.01%, and 5.92%; expected dividend yields of 2.70%, 2.93%, and 2.21%;
expected life of 10 years; and expected volatility of 23.9%, 26.5%, and 27.1%.
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 executive cash incentive compensation for 115% of
such cash compensation payable in restricted stock of the Company. One-third
of the shares vest immediately and the remaining shares vest equally over the
next two years.
10. Shareholders' Rights Plan
True North has a Shareholders' Rights Plan that is designed to protect
shareholders from unfair or coercive takeover practices. Under this plan, one
preferred stock purchase right exists for each outstanding share of common
stock. The rights, which expire in November 2008, are exercisable only if a
person or group (excluding True North) acquires 15% (22% in the case of
Publicis Communication and its affiliates) or more of True North's common
stock or announces a tender offer which would result in ownership of 15% or
more of True North's common stock. Each right entitles the holder to purchase
1/2000 of a share of Series B Junior Participating Preferred Stock ("preferred
stock") of the Company at a purchase price of $100.00, subject to adjustment
under certain conditions. At December 31, 1998, 45 shares of the True North's
unissued preferred stock were reserved for issuance upon exercise of these
rights.
Subject to certain conditions and limitations, in the event that True North
is acquired by a person or group, these rights (which have not otherwise been
exercised to acquire True North's preferred stock) entitle the holder to
acquire the common stock of the surviving entity at approximately 50% of fair
market value.
22
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Board of Directors has the flexibility to (i) redeem outstanding rights
at a rate of $.01 per right and (ii) adjust the thresholds at which these
rights become exercisable.
11. Geographic Segment Data
True North has identified revenues by geographic segment based upon the
physical location in which these revenues were earned. True North has
identified long-lived assets by geographic segment as follows:
.Property and equipment based upon physical location,
.Goodwill based upon the location of the related operation, and,
.Investment in affiliated companies based upon the location of the related
operation.
Information about the Company's operations in different geographic areas for
1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Revenues:
U.S...................................... $788,110 $ 892,117 $ 893,136
International............................ 198,926 312,770 349,173
-------- ---------- ----------
$987,036 $1,204,887 $1,242,309
======== ========== ==========
Long-lived Assets:
U. S..................................... $237,551 $ 235,893 $ 281,358
International............................ 328,530 391,433 282,634
-------- ---------- ----------
$566,081 $ 627,326 $ 563,992
======== ========== ==========
</TABLE>
12. Retirement and Other Employee Benefit Plans
True North and participating U.S. subsidiaries have a profit sharing plan
and a stock purchase plan. True North's annual contribution to the profit
sharing plan is discretionary, but may not exceed the amount permitted as
deductible expense under the Internal Revenue Code. Under the stock purchase
plan, True North matches 50% of employee contributions up to the individual
employee limits deductible under the Internal Revenue Code. The combined
profit sharing and stock purchase plan expenses were $12,380 in 1996, $15,316
in 1997, and $15,561 in 1998.
Prior to 1998, True North provided supplemental retirement benefits to
employees of certain of its U.S. subsidiaries through a supplemental pension
plan. During 1997, the Company commenced plans to terminate this pension plan
effective December 31, 1997 and recorded its best estimate of the related
termination liability in accordance with SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits". The plan was terminated in early 1998 through the
purchase of annuity contracts for individuals with vested benefits. Plan
assets at the date of termination were sufficient to cover the costs of these
annuities. As a result, True North reversed $859 of accrued pension costs into
1998 earnings in connection with the termination of this plan. Periodic
pension plan expense for 1996 and 1997 was $231 and $172, respectively.
The Company has entered into agreements whereby certain employee directors
and other employees are or will be eligible for part-time employment and/or
deferred compensation upon retirement from full-time employment. The
provisions for these agreements, which are charged to income over the
employment period of these individuals, were $20,612 in 1996, $17,088 in 1997,
and $12,910 in 1998.
23
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
True North provides limited postretirement medical and life insurance
benefits to employees who retire with at least ten years of service prior to
age 65. Prior to January 1, 1993, the Company accounted for such benefits on
the cash basis. In 1993, the company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", on a
prospective basis. Under this method, the Company is amortizing the actuarial
present value of the accumulated postretirement benefit obligation at January
1, 1993 over a twenty-year period. In addition, the Company provides for
current year service costs, interest costs and actuarially determined plan
gains and losses.
The components of expense for these postretirement benefits for 1996, 1997,
and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the year....... $ 389 $ 436 $ 592
Interest cost on accumulated postretirement benefit
obligation......................................... 497 521 631
Net amortization and deferral....................... 209 203 287
------ ------ ------
$1,095 $1,160 $1,510
====== ====== ======
</TABLE>
The following table sets forth the funded status and amounts recognized for
True North's postretirement benefit plans in its consolidated balance sheet at
December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees............................................. $ 3,310 $ 3,620
Fully eligible active participants................... 1,055 1,515
Other active plan participants....................... 3,906 5,174
------- -------
Total accumulated postretirement benefit obligation.... $ 8,271 $10,309
Plan assets at fair value.............................. -- --
------- -------
Projected benefit obligation in excess of plan assets.. $ 8,271 $10,309
Accumulated postretirement benefit obligation in excess
of plan assets........................................ (5,792) (5,424)
Unrecognized net transition obligation................. 1,837 (96)
Unrecognized net gain.................................. (105) 483
------- -------
Accrued postretirement benefit cost.................... $ 4,211 $ 5,272
======= =======
</TABLE>
A discount rate of 7.6%, 7.3%, and 7.3% was used in 1996, 1997 and 1998,
respectively. The rate of increase in covered medical benefits used to
determine accumulated postretirement benefits was 9.2% in 1996, 8.7% in 1997,
and 8.5% in 1998. This rate is assumed to decrease by 0.5% per annum to 6% in
2003 and remain constant thereafter. The medical benefits cost trend rate
assumption does not have a significant effect on the amounts reported. For
example, a 1% change in the medical benefits cost trend rate would change the
accumulated postretirement benefit obligation at December 31, 1998 by $600 and
1998 expense by $120.
13. Lease Obligations
True North leases substantially all of its office facilities under operating
leases. Net rental expense on these leases was $73,535 in 1996, $78,832 in
1997 and $77,881 in 1998, after deducting sublease income of $22,702, $19,979,
and $18,995, respectively.
24
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1998, the future minimum rental obligations for these leases
(net of sublease income of approximately $115,978) is as follows:
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
1999...................................... $77,118
2000...................................... 68,416
2001...................................... 61,038
2002...................................... 58,582
2003...................................... 54,226
Thereafter................................ 254,295
</TABLE>
14. Federal, Foreign and State Income Taxes
The domestic and foreign components of pretax income are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Domestic....................................... $42,775 $(34,514) $62,827
Foreign........................................ (209) (11,590) 26,962
------- -------- -------
$42,566 $(46,104) $89,789
======= ======== =======
</TABLE>
The provision for taxes on income consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
U.S.--currently payable........................ $21,875 $10,959 $17,540
--deferred..................................... (7,067) (5,344) 16,253
Foreign........................................ 3,801 6,378 11,935
State.......................................... 5,574 (763) 11,060
------- ------- -------
$24,183 $11,230 $56,788
======= ======= =======
</TABLE>
Deferred and prepaid tax expense results from temporary differences in the
recognition of revenue and expense for tax and financial reporting purposes.
Deferred tax benefits (liabilities) as of December 31, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred compensation................................... $21,305 $26,808
Lease reserves.......................................... 18,699 10,476
Accrued revenues........................................ -- (4,506)
Unrealized gain on marketable securities................ -- (4,731)
Depreciation and amortization........................... (1,784) (5,692)
Safe harbor leases...................................... (3,980) (3,798)
Reserve for doubtful accounts........................... 4,040 3,501
Other, net.............................................. (2,428) (3,705)
Valuation allowances.................................... (425) (18)
------- -------
$35,427 $18,335
======= =======
</TABLE>
Net current deferred taxes as of December 31, 1997 and 1998 were $19,853 and
$1,741, respectively. Net non-current deferred taxes were $15,574 and $16,594,
respectively. Valuation allowances have been provided for potentially
unrealizable foreign tax loss carryforwards.
The 1996 effective tax rate was favorably impacted by the reversal of $1,000
of valuation allowance related to net operating losses previously incurred by
the Company's Canadian operations. During 1996 True North was
25
<PAGE>
TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
The 1996 effective tax rate was favorably impacted by the reversal of $1,000
of valuation allowance related to net operating losses previously incurred by
the Company's Canadian operations. During 1996 True North was able to utilize
these net operating loss carryforwards to offset current taxable income. As a
result, the related valuation allowance was no longer required and so was
reduced. In the fourth quarter of 1997, True North established tax reserves of
$7,000 related to its plan to reorganize its foreign operations. As further
described in Note 6, the 1998 effective tax rate was adversely impacted by the
involuntary conversion of True North's equity investment in Publicis
Communication. The reconciliation of the U.S. statutory rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ----- ----
<S> <C> <C> <C>
At statutory rate.................................... 35.0% 35.0% 35.0%
State taxes, net of federal tax benefit.............. 8.5 1.1 8.0
Higher (lower) aggregate effective tax rate on
foreign operations.................................. 3.4 (8.7) 2.8
Tax effect of nondeductible amortization............. 11.2 (7.9) 5.2
Involuntary conversion of Publicis equity investment. -- -- 14.1
Reorganization of foreign operations................. -- (15.2) --
Intangible write-offs................................ -- (13.9) --
Nondeductible transaction expenses................... -- (11.3) --
Other................................................ (1.3) (3.5) (1.9)
---- ----- ----
56.8% (24.4)% 63.2%
==== ===== ====
</TABLE>
15. Supplemental Cashflow Data
Interest and taxes paid in 1996, 1997, and 1998 were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Interest.......................................... $12,525 $18,292 $17,165
Taxes............................................. 33,823 40,277 31,459
</TABLE>
16. Reserve for Bad Debts
Changes in True North's reserve for bad debts for the years ended December
31, 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
Impact of
Balance at Provision for Write-offs, currency Balance
beginning of doubtful net of translation and at end
Year year accounts recoveries acquisitions of year
---- ------------ ------------- ----------- --------------- -------
<S> <C> <C> <C> <C> <C>
1996...... $ 7,275 $ 2,441 $ (2,766) $ 555 $ 7,505
1997...... $ 7,505 $14,563 $(12,087) $1,563 $11,544
1998...... $11,544 $ 3,410 $ (3,564) $1,078 $12,468
</TABLE>
17. Subsequent Events
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. As a result of the IPO, True North now owns
approximately 51% of MMPT and controls approximately 80% of the related
stockholder votes. The net proceeds of the IPO were approximately $42 million,
of which $6 million was used to repay an intercompany loan to True North. MMPT
will use the remaining proceeds from the IPO for working capital and capital
expenditures.
In February 1999, the Company issued 1.2 million shares of its Common Stock
for all the outstanding stock of the Financial Relations Board (FRB), a
Chicago-based public relations firm. The transaction will be accounted for as
a pooling of interests and, accordingly, the consolidated financial statements
will be restated for all periods prior to the acquisition beginning with the
first quarter of 1999.
The revenues and pretax loss for FRB for the year ended December 31, 1998
are estimated to be $32 million and $8.8 million, respectively. Included in
the full year estimated results of FRB are approximately $7.5 million of
merger related costs and expense adjustments.
26
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The financial statements and related financial information included in this
financial report are the responsibility of management. They have been reported
in conformity with generally accepted accounting principles. In preparing
these financial statements, management has necessarily included some amounts
which are based on its best estimates and judgments. True North maintains
systems of internal accounting and financial control designed to provide
reasonable assurance that its assets are safeguarded against loss from
unauthorized use or disposition, and that transactions are executed and
recorded in accordance with established procedures. These systems of internal
controls are reviewed, modified and improved as changes occur in business
conditions and operations.
Arthur Andersen LLP, our independent public accountants, are engaged to
audit and to report on our consolidated financial statements. In performing
their audit in accordance with generally accepted auditing standards, they
evaluate our systems of internal accounting control, review selected
transactions, and carry out other auditing procedures to the extent they
consider necessary in expressing their informed professional opinion on our
financial statements.
The Audit Committee, composed of nonemployee members of the Board of
Directors, meets periodically with management, the independent public
accountants, and the internal auditors. This Committee reviews audit plans and
assesses the adequacy of internal controls and financial reporting. Both the
independent public accountants and internal auditors have direct access to the
Audit Committee.
Bruce Mason Donald Seeley
Chief Executive Officer Chief Financial Officer
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders and Board of Directors of True North Communications Inc.:
We have audited the accompanying consolidated balance sheets of True North
Communications Inc. (a Delaware corporation) and Subsidiaries (the "Company")
as of December 31, 1998 and 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the statements of income, stockholders' equity or cash flows for the year
ended March 31, 1997, of Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Bozell"), a
company acquired during 1997 in a transaction accounted for as a pooling of
interests, as discussed in Note 2. Such statements are included in the
consolidated financial statements of the Company and reflect total revenues of
50% of the consolidated totals for the year ended December 31, 1996. We also
did not audit the financial statements of Publicis Communication for each of
the three years in the period ended December 31, 1998, the investment in which
is reflected in the Company's consolidated financial statements using the
equity method of accounting (see Note 6). The equity in its net earnings was
$5,470,000, $8,790,000 and $5,109,000 for the years ended December 31, 1998,
1997 and 1996 respectively. The financial statements of Bozell and Publicis
Communication were audited by other auditors whose reports have been furnished
to us and our opinion, insofar as it relates to the amounts included for
Bozell and Publicis Communication, is based solely upon the reports of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of True North Communications Inc. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
As described in Note 2 to the consolidated financial statements, the Company
has given retroactive effect to the change in accounting for sales of stock by
a subsidiary.
Arthur Andersen LLP
Chicago, Illinois
March 22, 1999
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bozell, Jacobs, Kenyon & Eckhardt, Inc.:
We have audited the consolidated statements of operations, stockholders'
equity and cash flows of Bozell, Jacobs, Kenyon & Eckhardt, Inc. and
subsidiaries for the year ended March 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Bozell, Jacobs, Kenyon & Eckhardt, Inc. and subsidiaries for the year
ended March 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Omaha, Nebraska
May 16, 1997
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit 21.1
- ------------------------------------------------------------------------------------------
STATE
OF COMPANY NAME
INCORPORATION (Domestic)
- ------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------
TRUE NORTH COMMUNICATIONS INC.
List of Domestic Companies
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Delaware Foote, Cone & Belding Worldwide L.L.C.
- ------------------------------------------------------------------------------------------
Delaware Foote, Cone & Belding Advertising, Inc.
- ------------------------------------------------------------------------------------------
Delaware Foote, Cone & Belding, Inc.
- ------------------------------------------------------------------------------------------
Delaware Health Science Media, Inc.
- ------------------------------------------------------------------------------------------
Delaware FCB International, Inc.
- ------------------------------------------------------------------------------------------
Delaware International Marketing and Advertising Services, Corp.
- ------------------------------------------------------------------------------------------
Delaware FCB/Siboney, Inc.
- ------------------------------------------------------------------------------------------
Delaware True North International Inc.
- ------------------------------------------------------------------------------------------
Delaware FCB Japan, Inc.
- ------------------------------------------------------------------------------------------
Pennsylvania Tierney & Partners, Inc.
- ------------------------------------------------------------------------------------------
Oregon Bozell Worldwide/Seattle, Inc.
- ------------------------------------------------------------------------------------------
Delaware Market Growth Resources, Inc.
- ------------------------------------------------------------------------------------------
Delaware R/GA Media Group, Inc.
- ------------------------------------------------------------------------------------------
New York R/GA Mixed Media Inc.
- ------------------------------------------------------------------------------------------
Delaware TN Technologies, Inc.
- ------------------------------------------------------------------------------------------
Delaware Modem Media . Poppe Tyson, Inc.
- ------------------------------------------------------------------------------------------
Connecticut Modem Media, Inc.
- ------------------------------------------------------------------------------------------
Connecticut Modem Media Advertising Limited Partnership
- ------------------------------------------------------------------------------------------
Delaware Promotion Services Group Inc.
- ------------------------------------------------------------------------------------------
California Wells Marketing Inc.
- ------------------------------------------------------------------------------------------
Illinois The Financial Relations Board/BSMG Worldwide, Inc.
- ------------------------------------------------------------------------------------------
Washington Christiansen, Fritsch, Giersdorf, Grant & Sperry, Inc.
- ------------------------------------------------------------------------------------------
Delaware KSL Acquisition Corp.
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY COMPANY NAME
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
FCB International, Inc.
List of Foreign Companies
- --------------------------------------------------------------------------------
Argentina Pragma/FCB
- --------------------------------------------------------------------------------
Argentina XYZ Produciones
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Australia Foote, Cone & Belding Australia Pty Ltd.
- --------------------------------------------------------------------------------
Australia Shorter/FCB Pty Ltd.
- --------------------------------------------------------------------------------
Australia FCB Melbourne Pty. Limited
- --------------------------------------------------------------------------------
Australia FCB Adelaide Pty Ltd.
- --------------------------------------------------------------------------------
Australia Forbes Macfie Hansen Pty. Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Australia FCB Sydney Pty. Limited
- --------------------------------------------------------------------------------
Australia FCB Superannuation Pty Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bermuda Aardvark Communications Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Brazil FCB do Brazil Publicidade Ltda.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Canada FCB/Canada, Ltd.
- --------------------------------------------------------------------------------
Canada Mondialis Communication Marketing
- --------------------------------------------------------------------------------
Canada Programmes Inc.
- --------------------------------------------------------------------------------
Canada Generations Research, Inc.
- --------------------------------------------------------------------------------
Canada 702284 Ontario Ltd. (Holding Company)
- --------------------------------------------------------------------------------
Canada Interface Direct Inc.
- --------------------------------------------------------------------------------
Canada Dome Advertising
- --------------------------------------------------------------------------------
Canada Valtona Marketing Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hong Kong Foote, Cone & Belding, Ltd.
- --------------------------------------------------------------------------------
Hong Kong Park Advertising Ltd.
- --------------------------------------------------------------------------------
Hong Kong MNC/FCB (HK) Limited
- --------------------------------------------------------------------------------
Hong Kong Megacom Holdings Limited
- --------------------------------------------------------------------------------
China FCB/Megacom
- --------------------------------------------------------------------------------
Hong Kong True North Communications (HK) Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mauritius Adcom
- --------------------------------------------------------------------------------
India FCB/ULKA Advertising Ltd.
- --------------------------------------------------------------------------------
India Interface Communications Limited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Japan FCB (Japan) K.K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY COMPANY NAME
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
Malaysia FCB Malaysia
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
New Zealand Foote, Cone & Belding Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Philippines Barona Property Holdings Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Puerto Rico Foote, Cone & Belding, Inc.
- --------------------------------------------------------------------------------
Puerto Rico Park Advertising, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Singapore FCB (Pte.) Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
South Africa FCB Holdings (South Africa) Pty, Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hong Kong Foote, Cone & Belding (Taiwan) Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Thailand MNC/FCB Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FCB/SIBONEY, INC. (DELAWARE)
- --------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
COUNTRY COMPANY NAME
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
Brazil Giovanni, FCB S/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INTERNATIONAL MARKETING AND ADVERTISING SERVICES, CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Chile Israel & De Bianchi/Foote, Cone & Belding S.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Colombia FCB Colombia S.A. (old: PUMA)
- --------------------------------------------------------------------------------
Colombia Artefilme Ltda.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Costa Rica FCB de Costa Rica, S.A.
- --------------------------------------------------------------------------------
Costa Rica Arte y Cinema S.A.
- --------------------------------------------------------------------------------
Costa Rica Atitlan
- --------------------------------------------------------------------------------
Domin. Republic FCB/Impact
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ecuador Foote, Cone & Belding-Ecuador
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
El Salvador FCB El Salvador Publicidad, S.A. de C.V.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Guatemala Publicidade Siboney S.A.
- --------------------------------------------------------------------------------
Guatemala Arte Filme S.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Honduras Publicidade Siboney S.A.
- --------------------------------------------------------------------------------
Honduras FCB/Honduras
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Mexico FCB Arellano S.A. de C.V.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Panama Publicidade Siboney Panama S.A.
- -------------------------------------------------------------------------------
Peru Mayo/FCB Publicidade S.A.
- --------------------------------------------------------------------------------
Peru Park Advertising & Direct Marketing S.A.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Venezuela Foote, Cone & Belding publicidad, C.A.
- --------------------------------------------------------------------------------
Neth Antilles BU/FCB Netherland Antilles NP
- --------------------------------------------------------------------------------
Venezuela Publicis Publicidad, C.A.
- --------------------------------------------------------------------------------
Venezuela FCB Publicidad, C.A.
- --------------------------------------------------------------------------------
Venezuela Optimedia Publicidad, C.A.
- --------------------------------------------------------------------------------
Venezuela TN Medios, C.A.
- --------------------------------------------------------------------------------
Venezuela Arte Filme Asociados, C.A.
- --------------------------------------------------------------------------------
Venezuela AJL Park
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COUNTRY COMPANY NAME
- -----------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------
FCB EUROPE
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Netherlands True North Holding Netherlands B.V.
- -----------------------------------------------------------------------------------------------
Belgium Publicis Direct FCB
- -----------------------------------------------------------------------------------------------
France Foote, Cone & Belding S.A.
- -----------------------------------------------------------------------------------------------
France Empir Media S.A.
- -----------------------------------------------------------------------------------------------
France Empir S.A.
- -----------------------------------------------------------------------------------------------
France AXE Publicite
- -----------------------------------------------------------------------------------------------
Portugal FCB do Portugal Publicidade, COA, Lisboa
- -----------------------------------------------------------------------------------------------
United Kingdom FCB Advertising Limited
- -----------------------------------------------------------------------------------------------
United Kingdom FCB Group Holdings Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom FCB International Ltd.
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
WILKENS
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Germany Erste "Borderless AD" Verwaltungs GmbH
- -----------------------------------------------------------------------------------------------
Germany Media Satel Gesellschaft fur Media Planung und Einkauf mb
- -----------------------------------------------------------------------------------------------
Germany Zweite "Borderless AD" GmbH
- -----------------------------------------------------------------------------------------------
Germany ComInterest Holding GmbH
- -----------------------------------------------------------------------------------------------
Netherlands Wilkens Group BV
- -----------------------------------------------------------------------------------------------
Spain FCB Tapsa SA
- -----------------------------------------------------------------------------------------------
Netherlands FCB B.V.
- -----------------------------------------------------------------------------------------------
Czech Republic Foote, Cone & Belding s.r.o.
- -----------------------------------------------------------------------------------------------
Poland FCB Warsaw
- -----------------------------------------------------------------------------------------------
Italy Foote, Cone & Belding Srl
- -----------------------------------------------------------------------------------------------
Netherlands Wilkens Group Netherlands BV
- -----------------------------------------------------------------------------------------------
Spain FCB Direct & Global S.A.
- -----------------------------------------------------------------------------------------------
Spain CICM
- -----------------------------------------------------------------------------------------------
Spain FCB/Tapsa
- -----------------------------------------------------------------------------------------------
United Kingdom FCB Europe Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom FCB Management Services Ltd.
- -----------------------------------------------------------------------------------------------
Germany Wilkens GmbH
- -----------------------------------------------------------------------------------------------
Germany Wilkens/Direct Agentur fur Directmarketing GmbH
- -----------------------------------------------------------------------------------------------
Hungary FCB Budapest
- -----------------------------------------------------------------------------------------------
Germany FCB Werbeagentur GmbH (formerly known as Wilken)
- -----------------------------------------------------------------------------------------------
Germany ICW Wilkens Werbeagentur GmbH
- -----------------------------------------------------------------------------------------------
Germany APR Wilkens Agentur fur Public Relations GmbH
- -----------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
COUNTRY COMPANY NAME
- -----------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------
Germany Wilkens Hamburg Werbeagentur GmbH
- -----------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------
STATE
OF COMPANY NAME
INCORPORATION
- --------------------------------------------------------------------
- --------------------------------------------------------------------
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
List of Domestic Companies
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Delaware Bozell, Jacobs, Kenyon & Eckhardt, Inc.
- --------------------------------------------------------------------
New York BSMG Worldwide, Inc.
- --------------------------------------------------------------------
Delaware BJK&E Holdings, Inc.
- --------------------------------------------------------------------
Florida Bozell, Inc.
- --------------------------------------------------------------------
Delaware McCracken Brooks Communications, Inc.
- --------------------------------------------------------------------
Texas Temerlin McClain of Texas, Inc.
- --------------------------------------------------------------------
Delaware TM Holdings, Inc.
- --------------------------------------------------------------------
Partnership Temerlin McClain LP
- --------------------------------------------------------------------
New York Bozell Worldwide, Inc.
- --------------------------------------------------------------------
Delaware Bozell Worldwide, Inc.
- --------------------------------------------------------------------
Texas Custom Production Service, Inc.
- --------------------------------------------------------------------
Delaware Bozell Worldwide Holdings, Inc.
- --------------------------------------------------------------------
California Bozell Yuguchi
- --------------------------------------------------------------------
Delaware Bozell Specialized Advertising, Inc.
- --------------------------------------------------------------------
Massachusetts McDougall Associates, Inc.
- --------------------------------------------------------------------
Delaware Poppe Tyson, Inc.
- --------------------------------------------------------------------
Delaware PTI Sub, Inc.
- --------------------------------------------------------------------
California Accent Software, Inc.
- --------------------------------------------------------------------
1
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Country
of COMPANY NAME
Incorporation
- -----------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------
BOZELL WORLDWIDE HOLDINGS, INC. (DELAWARE)
List of Foreign Companies
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Argentina Bozell Worldwide Holding
- -----------------------------------------------------------------------------------------------
Argentina Bozell Vasquez
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Australia Bozell Worldwide
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Austria Bozell - Kobza
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Belgium Bozell Worldwide Brussels
- -----------------------------------------------------------------------------------------------
Belgium Lewis Gace Bozell International SA
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Brazil Bozell Brazil
- -----------------------------------------------------------------------------------------------
Brazil Poppe Tyson do Brasil Ltd.
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Canada Bozell Worldwide
- -----------------------------------------------------------------------------------------------
Canada Bozell Holdings Canada
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
France Groupe Bozell
- -----------------------------------------------------------------------------------------------
France FLB Pacific
- -----------------------------------------------------------------------------------------------
France 20/20 Media
- -----------------------------------------------------------------------------------------------
France Bozell Terre-Lune
- -----------------------------------------------------------------------------------------------
France Formes et Facons
- -----------------------------------------------------------------------------------------------
France Bozell Iceberg
- -----------------------------------------------------------------------------------------------
France Golden Gate
- -----------------------------------------------------------------------------------------------
France Telemaque
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Hong Kong Bozell Asia (Holding) Ltd.
- -----------------------------------------------------------------------------------------------
Hong Kong Bozell Ltd.
- -----------------------------------------------------------------------------------------------
Hong Kong Pope Kiernan & Black
- -----------------------------------------------------------------------------------------------
Hong Kong CAL/Bozell Holdings Ltd.
- -----------------------------------------------------------------------------------------------
China CAL-Bozell Int'l. Adv. Comm.
- -----------------------------------------------------------------------------------------------
Hong Kong Grant Advertising
- -----------------------------------------------------------------------------------------------
Hong Kong AMF Productions
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Italy BJK&E (H) Italiana, Srl.
- -----------------------------------------------------------------------------------------------
Italy Bozell Italia
- -----------------------------------------------------------------------------------------------
Italy Pro & Pro Srl.
- -----------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
Japan Bozell Worldwide
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Mexico Bozell SA de CV
- -----------------------------------------------------------------------------------------------------------------
Mexico Artest
- -----------------------------------------------------------------------------------------------------------------
Mexico CPV Publicidad
- -----------------------------------------------------------------------------------------------------------------
Mexico Interimagen
- -----------------------------------------------------------------------------------------------------------------
Mexico Bozell Healthcare
- -----------------------------------------------------------------------------------------------------------------
Mexico Publicidad Tiempo Espacio
- -----------------------------------------------------------------------------------------------------------------
Mexico Poppe Tyson
- -----------------------------------------------------------------------------------------------------------------
Mexico BJK&E Internacional
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Netherlands Bozell Europe Holdings B.V.
- -----------------------------------------------------------------------------------------------------------------
Netherlands Bozell BK&P
- -----------------------------------------------------------------------------------------------------------------
Netherlands CCE b.v.
- -----------------------------------------------------------------------------------------------------------------
Belgium Charles Barker SCRL
- -----------------------------------------------------------------------------------------------------------------
Belgium Adamson Associates
- -----------------------------------------------------------------------------------------------------------------
Germany Bozell, Jacobs Holding GmbH
- -----------------------------------------------------------------------------------------------------------------
Germany Borsch, Stengel, Korner Bozell GmbH
- -----------------------------------------------------------------------------------------------------------------
Germany Bozell Direct Friends Werbeagentur fur Direktmarketing GmbH
- -----------------------------------------------------------------------------------------------------------------
Germany Meditel Kommunikationsdesign GmbH
- -----------------------------------------------------------------------------------------------------------------
Germany PRODUKTA DIRECT Service fur Druck und Werbemittel-Production GmbH
- -----------------------------------------------------------------------------------------------------------------
Germany DIE SEITE: Atelier fur Gestaltung und Realisation von Katalogen GmbH
- -----------------------------------------------------------------------------------------------------------------
Germany Gesellschaft fur Direktmarketing-Wissen GmbH
- -----------------------------------------------------------------------------------------------------------------
Switzerland Bozell Holdings AG
- -----------------------------------------------------------------------------------------------------------------
Switzerland Bozell Leutenegger Krull
- -----------------------------------------------------------------------------------------------------------------
United A. E. Bozell Prime
- -----------------------------------------------------------------------------------------------------------------
Spain Bozell Espana
- -----------------------------------------------------------------------------------------------------------------
Spain True North Holdings (Spain) SA
- -----------------------------------------------------------------------------------------------------------------
Spain Bozell Worldwide SA
- -----------------------------------------------------------------------------------------------------------------
Spain Inversiones Espana SA
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Singapore Bozell Advertising PTE
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Taiwan Bozell Taiwan
- -----------------------------------------------------------------------------------------------------------------
United Kingdom True North Holdings (United Kingdom) Ltd.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
United Kingdom Delaney Fletcher Bozell
- -----------------------------------------------------------------------------------------------
United Kingdom Cyclope Productions Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom SCW Bozell (Holdings) Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom Bozell Media Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom Bozell UK Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom Lewis Gace Bozell
- -----------------------------------------------------------------------------------------------
United Kingdom Bozell Marketing Services
- -----------------------------------------------------------------------------------------------
United Kingdom Charles Barker BSMG PLC
- -----------------------------------------------------------------------------------------------
United Kingdom Delaney Fletcher Delaney
- -----------------------------------------------------------------------------------------------
United Kingdom Bray Leino Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom Marketing Drive
- -----------------------------------------------------------------------------------------------
United Kingdom Keith Littlewood Associates Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom Gibbs Associates, Ltd.
- -----------------------------------------------------------------------------------------------
United Kingdom Banks Hoggins O'Shea Ltd.
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Poppe Tyson, Inc. (Delaware)
- -----------------------------------------------------------------------------------------------
Netherlands Modem Media . Poppe Tyson (Europe) B.V.
- -----------------------------------------------------------------------------------------------
United Kingdom Poppe Tyson (Europe) Ltd.
- -----------------------------------------------------------------------------------------------
Hong Kong Modem Media . Poppe Tyson
(Hong Kong) Ltd.
- -----------------------------------------------------------------------------------------------
Canada Modem Media . Poppe Tyson, Inc.
- -----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of True North Communications Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference of our reports in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File No.'s 33-15126, 33-41128, 33-41129,
33-48523, 33-54273, 33-54279, 333-41189, and 333-52989) and Form S-3 (File No.'s
333-68485, 333-24759, 333-73301, 333-57495, 333-73303) and all previously filed
Registration Statements on Form S-8 and Form S-3.
Arthur Andersen LLP
Chicago, Illinois,
March 29, 1999
<PAGE>
Exhibit 23.2
[KPMG PEAT MARWICK LLP LOGO APPEARS HERE]
Two Central Park Plaza
Suite 1501
Omaha, NE 68102
233 South 13th Street, Suite 1600
Lincoln, NE 68508-2041
ACCOUNTANTS' CONSENT
The Board of Directors
True North Communications Inc.:
We consent to the use of our reports incorporated by reference in the
registration statements (No.'s 33-15126, 33-41128, 33-41129, 33-54273, 33-54279,
333-41189, 333-52989 and 33-48523) on Form S-8 and in the registration
statements (No.'s 333-24759, 333-57495, 333-68485, 333-73301 and 333-73303) on
Form S-3 of True North Communications Inc. of our reports dated May 16, 1997,
relating to the consolidated statements of operations, stockholders' equity and
cash flows for the year ended March 31, 1997, which report appears in the
December 31, 1998 Form 10-K of True North Communications Inc.
KPMG Peat Marwick LLP
Omaha, Nebraska
March 29, 1999
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Bruce Mason, Donald L. Seeley and Theodore J.
Theophilos, and each of them, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, in any and all
capacities, to sign the Annual Report on Form 10-K of True North Communications
Inc. for its fiscal year ended December 31, 1998 and any and all amendments
thereto, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each of said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or their substitutes, may lawfully do or cause to be done by
virtue hereof. This Power of Attorney shall be effective from the date on which
it is signed until January 1, 2000.
Name Date Signed
---- -----------
/s/ Bruce Mason January 28, 1999
- ------------------------------- ------------------------
Bruce Mason
/s/ Charles D. Peebler, Jr. February 19, 1999
- ------------------------------- ------------------------
Charles D. Peebler, Jr.
/s/ David A. Bell January 29, 1999
- ------------------------------- ------------------------
David A. Bell
/s/ Ronald W. Bess February 22, 1999
- ------------------------------- ------------------------
Ronald W. Bess
/s/ Donald M. Elliman, Jr. February 2, 1999
- ------------------------------- ------------------------
Donald M. Elliman, Jr.
/s/ W. Grant Gregory February 8, 1999
- ------------------------------- ------------------------
W. Grant Gregory
/s/ Leo-Arthur Kelmenson February 8, 1999
- ------------------------------ ------------------------
Leo-Arthur Kelmenson
/s/ Richard P. Mayer January 28, 1999
- ------------------------------- ------------------------
Richard P. Mayer
/s/ Michael E. Murphy January 28, 1999
- ------------------------------- ------------------------
Michael E. Murphy
/s/ J. Brendan Ryan February 9, 1999
- ------------------------------- ------------------------
J. Brendan Ryan
/s/ Marilyn R. Seymann January 28, 1999
- ------------------------------- ------------------------
Marilyn R. Seymann
/s/ Stephen T. Vehslage January 1, 1999
- ------------------------------- ------------------------
Stephen T. Vehslage
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the year ended December 31, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 88,524
<SECURITIES> 143,863
<RECEIVABLES> 878,440
<ALLOWANCES> 12,468
<INVENTORY> 0
<CURRENT-ASSETS> 1,173,981
<PP&E> 302,570
<DEPRECIATION> 174,308
<TOTAL-ASSETS> 1,778,951
<CURRENT-LIABILITIES> 1,334,782
<BONDS> 0
0
0
<COMMON> 238,253
<OTHER-SE> 69,177
<TOTAL-LIABILITY-AND-EQUITY> 1,778,951
<SALES> 0
<TOTAL-REVENUES> 1,242,309
<CGS> 0
<TOTAL-COSTS> 1,120,194
<OTHER-EXPENSES> 6,882
<LOSS-PROVISION> 3,410
<INTEREST-EXPENSE> 22,034
<INCOME-PRETAX> 89,789
<INCOME-TAX> 56,788
<INCOME-CONTINUING> 36,115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,115
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.78
</TABLE>
