-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bx22D4y2v6Q1kSAt7PiXdTsf9860i8UEX9tgB+AOlzrKOpjXpGE8FQjH9HLghH07 jVucLlusOrq3BG3Wt3JUkA== 0000950131-97-002241.txt : 19970401 0000950131-97-002241.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950131-97-002241 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUE NORTH COMMUNICATIONS INC CENTRAL INDEX KEY: 0000037931 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 361088161 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05029 FILM NUMBER: 97568913 BUSINESS ADDRESS: STREET 1: 101 E ERIE ST CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3127517000 MAIL ADDRESS: STREET 1: 101 E ERIE ST CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: FOOTE CONE & BELDING COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FOOTE CONE & BELDING INC DATE OF NAME CHANGE: 19720824 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the Transition period from to COMMISSION FILE NO. 1-5029 TRUE NORTHCOMMUNICATIONS 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, ILLINOIS 60611-2897 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER: (312) 425-6500 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common stock, par value New York Stock Exchange 33 1/3 cents per share 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. [X] The aggregate market value of Common Stock, 33 1/3 cents par value, held by non-affiliates of the Registrant, as of March 24, 1997 was $366,955,418. There were 24,757,710 shares of Registrant's 33 1/3 cents per share par value Common Stock outstanding as of March 24, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to shareholders for the year ended December 31, 1996 are incorporated by reference into Parts I and II of this report. Portions of the Registrant's Proxy Statement relating to its annual meeting of shareholders scheduled to be held on May 21, 1997 are incorporated by reference into Part III. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CERTAIN STATEMENTS CONTAINED IN REGISTRANT'S 1996 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 EXCHANGE ACT. 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. PART I ITEM 1. BUSINESS: GENERAL Response to this item is incorporated by reference to the Registrant's Annual Report to shareholders for fiscal year ended December 31, 1996 (the "1996 Annual Report") on page 1. REVENUES Response to this item is incorporated by reference to pages 1 and 2 of the Registrant's 1996 Annual Report. CLIENTS The Registrant and its subsidiaries (the Company) consider their relations with their clients to be satisfactory. Due to the nature of the business, however, any client could at some time in the future reduce its advertising budget, or transfer to another agency all or part of its advertising presently placed through the Company. Representation of a client does not necessarily mean that all advertising for that client is handled by the Company exclusively. In many cases, the Company handles the advertising of only a portion of a client's products or services or only the advertising in particular geographic areas. COMPETITION The advertising agency business is highly competitive, with agencies of all sizes competing primarily on the basis of quality of service to attract and retain clients and personnel. Advertisers are able to move from one agency to another with relative ease, in part because accounts are terminable on short notice, usually 90-180 days. Competition for clients by large agencies is limited somewhat because many advertisers prefer not to be represented by an agency which handles competing products or services for other advertisers. REGULATION Federal, state and local governments and governmental agencies in recent years have adopted statutes and regulations affecting the advertising activities of advertising agencies and their clients. For example, statutes and regulations have prohibited television advertising for certain products and have regulated the form and content of certain types of advertising for many consumer products. The Federal Trade Commission ("FTC") has also required proof of accuracy of advertising claims with respect to various products and, in its enforcement policies, is seeking to establish more stringent standards with respect to advertising practices. The FTC has 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 1 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 17 of the Registrant's 1996 Annual Report. ITEM 2. PROPERTIES Virtually all of the Company's operations are conducted in leased premises. The Company's physical property consists primarily of leasehold improvements, furniture, fixtures and equipment. However, the Company does own office buildings in Puerto Rico and the Dominican Republic, neither of which is material to the Company's consolidated financial statements. Further information regarding the Company's leased premises, which it considers to be adequate for its current operations, is incorporated by reference to note 12 of Registrant's consolidated financial statements on page 19 of the Registrant's 1996 Annual Report. ITEM 3. PENDING LEGAL PROCEEDINGS Response to this item is incorporated by reference to note 7 of Registrant's consolidated financial statements and the Publicis Relationship section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 15 and 6 through 7, respectively of the 1996 Annual Report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK Response to this item is incorporated by reference to page 2 of the Registrant's 1996 Annual Report. ITEM 6. SELECTED FINANCIAL DATA Response to this item is incorporated by reference to pages 2 and 3 of the Registrant's 1996 Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Response to this item is incorporated by reference to pages 3, 4, 5, 6 and 7 of the Registrant's 1996 Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The following consolidated financial statements of the Registrant and its subsidiaries, included in the Registrant's 1996 Annual Report are incorporated herein by reference: Consolidated Balance Sheets--December 31, 1995 and 1996 Consolidated Income Statements--Years ended December 31, 1994, 1995 and 1996 Consolidated Statements of Stockholders' Equity--Years ended December 31, 1994, 1995 and 1996 Consolidated Statements of Cash Flows--Years ended December 31, 1994, 1995 and 1996 Notes to Consolidated Financial Statements--December 31, 1996 Unaudited Quarterly Financial Data--Years ended December 31, 1995 and 1996 Report of Independent Public Accountants 2 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to the Directors of the Registrant contained under the heading "Proposal 1--Election of Directors" in the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held on May 21, 1996 (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. MITCHELL T. ENGEL (44) --Executive Vice President, Corporate Operations THEODORE J. THEOPHILOS (43) --Executive Vice President, General Counsel DALE F. PERONA (51) --Vice President, Corporate Development Treasurer/Secretary JOHN J. REZICH (41) --Vice President, Controller (Chief Accounting Officer) Mr. Theophilos joined the Company and became an officer during 1996. Previous to that time, Mr. Theophilos was Senior Vice President and General Counsel of A.C. Nielsen Company. No officer of the Registrant is related to any other officer. All other officers have been officers of the Registrant or have held senior executive positions with the Company for the past five years, except as otherwise disclosed above or in Registrant's Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION Except for information referred to in Item 402(a)(8) of Regulation S-K, the information contained under the heading "Executive Compensation" in the Proxy Statement and the information relating to the compensation of directors contained under the heading "Proposal 1--Election of Directors" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Except for the first two paragraphs thereof, the information contained under the heading "Voting Securities" in the Proxy Statement and the information with respect to ownership of the Registrant's common stock contained under the heading "Proposal 1--Election of Directors" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 3 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE ---- Item 14(a)--List of Financial Statements.................................. 5 Report of Independent Public Accountants on Supplemental Note........... 6 Item 14(a)(1)--Supplemental Note to Consolidated Financial Statements: A.Valuation Accounts.................................................... 7 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. Exhibits 10.1 through 10.16 included in this index are the management contracts and compensatory plans or arrangements required to be filed as exhibits hereto pursuant to the requirements of Item 601 of Regulation S-X. Item 14(b)--Reports on Form 8-K
Registrant filed the following reports on Form 8-K during the fourth quarter of 1996 and the first quarter of 1997:
DATE OF REPORT DESCRIPTION OF REPORTABLE EVENT -------------- ------------------------------- February 14, 1997 Under Item 5, Registrant reported that the Compensation Committee of its Board of Directors, comprised solely of outside Board members, negotiated and executed severance agreements with John B. Balousek and Craig R. Wiggins, former officers and members of Registrant's Board of Directors.
4 FORM 10-K--ITEM 14(A) TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of the Registrant and the Independent Public Accountant's Report covering these financial statements, appearing in the Registrant's 1996 Annual Report on pages 8 through 23 are incorporated herein by reference in Item 8: Consolidated Balance Sheets--December 31, 1995 and 1996 Consolidated Statements of Income--Years ended December 31, 1994, 1995 and 1996 Consolidated Statements of Stockholders' Equity--Years ended December 31, 1994, 1995 and 1996 Consolidated Statements of Cash Flows--Years ended December 31, 1994, 1995 and 1996 Notes to Consolidated Financial Statements--December 31, 1996 Report 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. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or the information called for therein is included elsewhere in the financial statements or related notes thereto contained in or incorporated by reference into this Report. Accordingly, such schedules have been omitted. 5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL NOTE We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in True North Communications Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated March 6, 1997. Our report on the consolidated financial statements includes an explanatory paragraph with respect to the change in method of accounting for certain investments in debt and equity securities, effective January 1, 1994, as discussed in Note 2 to the consolidated financial statements. Our audits were made for the purpose of forming an opinion on those financial statements taken as a whole. Supplemental Note A is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. Supplemental Note A has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois, March 6, 1997. 6 FORM 10-K -- ITEM 14(A)(1) NOTE A--VALUATION ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996 (AMOUNTS IN 000'S)
ADJUSTMENTS BALANCE ADDITIONS AND BALANCE AT CHARGED TO RECLASSI- AT END BEGINNING COSTS AND FICATIONS OF CLASSIFICATION OF PERIOD EXPENSES (DEDUCTIONS) (1) PERIOD -------------- --------- ---------- ------------ ----------- ------- ALLOWANCE FOR DOUBTFUL ACCOUNTS-- CURRENT Year Ended December 31, 1994 (note 2)........... $5,760 $ 781 $(3,294) $ 53 $3,300 ====== ====== ======= ====== ====== Year Ended December 31, 1995.................... $3,300 $ (290) $ (274) $1,921 $4,657 ====== ====== ======= ====== ====== Year Ended December 31, 1996.................... $4,657 $ 626 $ (957) $ 630 $4,956 ====== ====== ======= ====== ======
- -------- NOTES: (1) Amount consists of currency translation adjustment and adjustments made as a result of subsidiaries acquired and sold during the year. (2) 1994 deductions consist primarily of a write-off of a trade receivable from Orion, which was adequately reserved in 1991. 7 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES 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, AMONG OTHERS, A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS OF THE REGISTRANT) ON BEHALF OF THE REGISTRANT.
SIGNATURE POSITION --------- -------- Gregory W. Blaine* Director Richard S. Braddock* Director Laurel Cutler* Director Maurice Levy* Director Newton N. Minow* Director J. Brendan Ryan* Director William A. Schreyer* Director Louis E. Scott* Director Stephen T. Vehslage* Director
/s/ Bruce Mason *By: ________________________________ Bruce Mason as Attorney-in-Fact Date: March 28, 1997 8 PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Date: March 28, 1997 True North Communications Inc. /s/ Bruce Mason By: _________________________________ Bruce Mason Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) /s/ Dale F. Perona By: _________________________________ Dale F. Perona Senior Vice President, Corporate Development, Secretary/Treasurer /s/ John J. Rezich By: _________________________________ John J. Rezich Vice President, Controller (Chief Accounting Officer) 9 INDEX OF EXHIBITS ----------------- EXHIBIT NO. DESCRIPTION - ----------- ----------- 3(i) Registrant's Restated Certificate of Incorporation, as amended, filed with the Commission as Exhibit 3(I) to Registrant's Form 10- K for the year ended December 31, 1994. 3(i) Certificate of Ownership and Merger changing Registrant's name to True North Communications Inc. filed with the Commission as Exhibit (3)(i) to Registrant's Current Report on Form 8-K filed December 9, 1994. 3(ii) Registrant's By-laws, as amended, filed with the Commission as Exhibit 4(d) to Registrant's Registration Statement on Form S-8 under the Securities Act of 1933, Registration No. 33-54279. 4.1 Rights Agreement dated as of November 16, 1988 between the Registrant and Harris Trust and Savings Bank, as Rights Agent, filed with the Commission as Exhibit 1 to the Registrant's Registration Statement on Form 8-A under the Securities Exchange Act of 1934 filed with the Commission on November 18, 1988. 10.1 Registrant's Stock Option Plan, filed with the Commission as Appendix A to Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders held on May 18, 1994. 10.2 Registrant's Outside Directors Stock Option Plan, filed with the Commission as Appendix A to Registrant's Definitive Proxy Statement for its Annual Meeting of Stockholders held on May 20, 1992. 10.3 Master Alliance Agreement between Publicis Communication and the Registrant and FCB Stockholders Agreement between the same parties, both dated as of January 1, 1989, filed with the Commission as Exhibits to Registrant's Current Report on Form 8-K filed February 6, 1989. 10.4 Employment Agreement between Bruce Mason and Registrant, filed with the Commission as Exhibit 10.4 to Registrant's Form 10-Q for the quarter ended June 30, 1996. 10.5 Separation Agreement between John B. Balousek and Registrant, filed with the Commission as Exhibit 10.5 to Registrant's Current Report on Form 8-K filed on February 14, 1997. 10.6 Separation Agreement between Craig R. Wiggins and Registrant, filed with the Commission as Exhibit 10.6 to Registrant's Current Report on Form 8-K filed on February 14, 1997. *10.7 Employment Agreement between Gregory W. Blaine and Registrant *10.8 Employment Agreement between Mitchell T. Engel and Registrant *10.9 Employment Agreement between Theodore J. Theophilos and Registrant *10.10 Asset Protection Plan between Bruce Mason and Registrant *10.11 Asset Protection Plan between J. Brendan Ryan and Registrant *10.12 Asset Protection Plan between Terry Ashwill and Registrant *10.13 Asset Protection Plan between Mitchell T. Engel and Registrant *10.14 Asset Protection Plan between Gregory W. Blaine and Registrant *10.15 Asset Protection Plan between Theodore J. Theophilos and Registrant *10.16 Employment Agreement between J. Brendan Ryan and Registrant *11 Statement re Computation of Per Share Earnings. *13 Portions of Registrant's Annual Report to Security Holders incorporated by reference into this Report on Form 10-K. *21 Subsidiaries. *23 Consent of Arthur Andersen LLP *24 Power of Attorney *27 Financial Data Schedule *99.1 Press release dated February 19, 1997 *99.2 Memorandum of Agreement, dated February 19, 1997, among Publicis S.A., Publicis Communication and Publicis.FCB Europe, on the one hand, and the Registrant, Foote, Cone & Belding Communications, Inc. and FCB International, Inc., on the other hand. NOTE: - ----- Except for the documents that are marked with an asterisk, each of the documents listed above has heretofore been filed with the Securities and Exchange Commission (the "Commission") and each such document is incorporated herein by reference. Documents marked with an asterisk are filed herewith. EX-10.7 2 EMPLOYMENT AGREEMENT EXHIBIT 10.7 [LOGO OF TRUE NORTH COMMUNICATIONS INC. APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of 10/24/96 between True North Communications Inc., a Delaware corporation (the "Company"), and Gregory W. Blaine (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 EVP, True North Communications Inc. and Chairman and CEO, TN Technologies Inc.; 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, 1997; provided that the Full-Time Employment Period may be extended by the Company as of December 31, 1997 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 Chairman and CEO, TN Technologies Inc. (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 loyally and to the best of the ExecutiveOs abilities the duties assigned hereunder, shall devote full business time, attention -1- 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. ------------ (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 $400,000 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. Base salary will be adjusted as necessary to take into account any base salary payable from TN Technologies Inc. (b) Incentive Compensation. During the Full-Time Employment Period, ---------------------- the Executive will participate in the VIC, DVIC and VISO components of the Company's Performance Program, pursuant to the terms of such plans as they may be amended from time to time. However, for the 1996 bonus year, the VIC component shall not be less than $200,000. Performance Program amounts will be adjusted as necessary to take into account any amounts payable from TN Technologies Inc. incentive compensation programs. (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. -2- 4. TERMINATION OF FULL-TIME EMPLOYMENT PERIOD; SUSPENSION. ------------------------------------------------------ (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 -3- effect generally at any time thereafter with respect to other peer Executives of the Company 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 -4- or that such act or acts constitute Cause and shall notify the Company of such denial in writing within seven days following the Company's written notice to the Executive, the Board may, in its sole and absolute discretion, suspend the Executive with full compensation and benefits during the pendency of any investigation or arbitration with respect thereto. 5. CONSEQUENCES OF TERMINATION OF 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, (4) reimbursement of expenses incurred through the date of such termination, and (5) the computer equipment, table, chairs and sideboard from the Executive's office on the effective date of this Agreement. (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 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 until the end of the term of the option. (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 -5- upon termination of the Executive as provided in Section 5(a), current and future DVIC awards are fully vested (iv) after expiration of salary payable under the Severance Period, the Executive shall become a part-time employee of the Company entitled to the compensation and benefits payable under the Directors Part-Time Employment Agreement, with all age and service requirements deemed to have been satisfied and with the benefit calculated at 45% of the final average compensation, regardless of actual service determined under the Directors Part-Time Employment Agreement. (v) during the Severance Period and continuing through to age 65, 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. (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 continue to vest pursuant to the normal schedule and shall be exercisable by the Executive or the Executive's executor, administrator or other legal representative, as the case may be, up to 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 until the end of the term of the option. (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 -6- 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 ExecutiveOs employment as provided in Section 5(b), all current and future DVIC awards, are fully vested. (iv) the Executive or the Executive's qualified dependents, as the case may be, shall be entitled to participate in the Company's medical, dental and life insurance plans, as applicable, through age 65. (v) the Executive shall become a part-time employee of the Company, the Executive or the Executive's executor, administrator or other legal representative, as the case may be, shall be entitled to the compensation and benefits payable under the Directors Part-Time Employment Agreement, with all age and service requirements deemed to have been satisfied and with the benefit calculated at 45% of the final average compensation, regardless of actual service determined under the Directors Part-Time Employment Agreement. The payment of these benefits shall commence immediately upon death or disability. (c) Nonqualifying Termination. (i) If the Full-Time Employment ------------------------- Period terminates for a reason set forth in clause (i) of Section 4(b): (1) the Executive shall be entitled to receive (A) all salary payable through the date of such termination, (B) unpaid VIC and DVIC and VISO awarded, but not yet granted, for the prior calendar year, and (C) reimbursement of expenses incurred through the date of such termination; (2) each stock option granted to the Executive by the Company then held by the Executive shall, on the date of termination, be exercisable pursuant to the terms of such option in accordance with the applicable stock option agreement in effect at the time of such termination. (3) 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. (4) the Executive shall be entitled to participate in all other applicable benefit plans or programs in accordance with the provisions of such plans. -7- (ii) If the Full-Time Employment Period terminates for a reason set forth in clause (ii) of Section 4(b): (1) the Executive shall be entitled to receive (A) all salary payable through the date of such termination, (B) unpaid VIC and DVIC and VISO awarded, but not yet granted, for the prior calendar year, (C) reimbursement of expenses incurred through the date of such termination, and (D) the computer equipment, table, chairs and sideboard from the Executive's office on the effective date of this Agreement. (2) each stock option granted to the Executive by the Company then held by the Executive shall continue to vest pursuant to the normal schedule, and be exercisable by the Executive up to 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(c), all current and future stock awards, are exercisable until the end of the term of the option. (3) 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 ExecutiveOs DVIC Agreement and commence at the direction of the Executive. The Company covenants that the Compensation Committee of the Board shall take such action as necessary so that upon termination of the Executive as provided in Section 5(c), all current and future DVIC awards are fully vested. (4) the Executive shall become a part-time employee of the Company and be entitled to the compensation and benefits payable under the Directors Part-Time Employment Agreement, with all age and service requirements deemed to have been satisfied and with the benefit calculated at 45% of the final average compensation, regardless of actual service determined under the Directors Part-Time Employment Agreement. The payment of these benefits shall commence immediately upon the Executive's termination. (5) the Executive or the Executive's qualified dependents, as the case may be, shall be entitled to participate in the Company's medical, dental and life insurance plans, as applicable, through age 65 on terms no less favorable than on the termination date. (d) After a Change in Control. In the event of a termination, as ------------------------- defined in the Company's Asset Protection Plan, after a Change in Control, as defined in the Company's Asset Protection Plan, the Executive shall be entitled to -8- payments in accordance with the Company's Asset Protection Plan. The Asset Protection Plan supersedes this Agreement and no payments shall be made under this Agreement if termination occurs after a Change in Control and payments are made pursuant to the terms of the Asset Protection Plan. 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 and during any time the Executive is receiving payments under the Company's Directors Part-Time Employment Agreement, 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; (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, -9- 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 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 the duration of the Company's Directors Part-Time Employment Agreement or thereafter, make any statement, publicly or privately, which would disparage the Company, its business or any director or officer of the Company or would have a deleterious effect upon the interests of the CompanyOs 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. -10- 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 Period or while the Executive is receiving payments under the Company's Directors Part-Time Employment Agreement. 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 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. REIMBURSEMENT OF LEGAL EXPENSES. If any contest or dispute shall arise under this Plan involving termination of an Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Executive, on a current basis, for all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute, together with interest in an amount equal -11- to the prime rate of Citibank, N.A. from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives the Executive's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Executive's claims in such contest or dispute, the Executive shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to the Executive pursuant to this Section 12. 13. 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. 14. 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. 15. 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. 16. 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 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. -12- 17. 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. 18. 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. 19. 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 ------------------------------------------ William A. Schreyer Chairman of the Compensation Committee of the Board of Directors GREGORY W. BLAINE ------------------------------------------ Gregory W. Blaine -13- EX-10.8 3 EMPLOYMENT AGREEMENT EXHIBIT 10.8 [LOGO OF TRUE NORTH COMMUNICATION APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of January 14, 1997 between True North Communications Inc., a Delaware corporation (the "Company"), and Mitchell T. Engel (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 (the Company and the subsidiaries, affiliates and joint ventures in which it from time to time has equity interests are hereinafter referred to collectively as the "True North Group"); WHEREAS, the Executive currently serves the Company as President, Associated Communications Companies and Corporate Operations; 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; and further provided that the Full-Time Employment Period may be terminated as contemplated in Section 4. 2. POSITION AND DUTIES. The Company shall employ the Executive ------------------- during the Full-Time Employment Period, with the title of President, Associated -1- Communications Companies and Corporate Operations (or such other title as may be mutually agreed upon by the Executive and the Company). The Executive's duties and responsibilities shall be those existing as of the date of this Agreement and any other duties and responsibilities existing subsequent hereto if agreed to in writing by the Executive. During the Full-Time Employment Period, the Executive shall perform faithfully and loyally and to the best of the Executive's abilities his duties hereunder, shall devote full business time, attention and effort to the affairs of the True North Group and shall use reasonable best efforts to promote the interests of the True North Group. 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 of Directors of the Company (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. 3. COMPENSATION. ------------ (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 $325,000 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 Full-Time Employment Period, ---------------------- the Executive shall participate in the VIC, DVIC and VISO components of the Company's Performance 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. -2- (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. ------------------------------------------------------ (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) termination on account of 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 date of this Agreement (or subsequent hereto if such new position(s), duties, responsibilities or status were agreed to in writing by the Executive), (ii) an adverse 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 or re-appoint the Executive to any position with the Company held by the Executive at the date of this Agreement (or subsequent hereto if held pursuant to the written agreement of the Executive); (2) a reduction by the Company in the Executive's rate of annual base salary in effect at the date of this Agreement, or, if greater, in effect at any time subsequent hereto; (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 date of this Agreement (or subsequent hereto if agreed to by the Executive in writing) or (ii) travel on Company business to an extent substantially more burdensome than the extent of the Executive's travel during the twelve months ending on the 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 -3- benefits under any such plan or agreement, (ii) provide the Executive and the Executive's dependents welfare benefits including, without limitation, medical, dental, disability, salary continuance, employee life, group life, and travel accident insurance plans and programs in accordance with the most favorable plans, practices, programs and policies of the True North Group in effect for the Executive at the date of this Agreement or, if more favorable to the Executive, as in effect generally at any time hereafter with respect to peer executives of the True North Group, (iii) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the True North Group in effect for the Executive at the date of this Agreement or, if more favorable to the Executive, as in effect generally at any time hereafter with respect to peer executives of the True North Group, (iv) provide an office or offices of a size and with furnishings and other appointments, together with exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive at the date of this Agreement by the True North Group or, if more favorable to the Executive, as provided generally at any time hereafter with respect to peer executives of the True North Group, (v) provide the Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of the True North Group in effect for the Executive at the date of this Agreement or, if more favorable to the Executive, as in effect generally at any time hereafter with respect to peer executives of the True North Group, 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 True North Group in effect for the Executive at the date of this Agreement or, if more favorable to the Executive, as in effect generally at any time hereafter with respect to peer executives of the True North Group; or (5) the failure of the Company to obtain an assumption agreement from any successor or permitted assign as contemplated in Section 15. For purposes of this Agreement, (i) expiration of this Agreement at the end of its stated term or any mutually consented to extension thereof shall not constitute a Qualifying Termination and (ii) any good faith determination of a Qualifying Termination made by the Executive shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken by the Company in good faith and which is remedied by the Company promptly (the later of 60 days or as soon as reasonably practicable) after receipt of written notice thereof given by the Executive shall not constitute a basis for a Qualifying Termination. (b) Nonqualifying Termination. For purposes of this Agreement, ------------------------- "Nonqualifying Termination" means a termination of the Executive's employment (i) by the Company for Cause, or (ii) by the Executive for any reason other than for a Qualifying Termination. (c) Definition of Cause. For purposes of this Agreement, "Cause" ------------------- means (i) a material breach by an Executive of the duties and responsibilities of the -4- Executive hereunder (other than as a result of incapacity due to physical or mental illness), which is demonstrably willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and which is not remedied within 30 days (or sooner, as specified in such written notice, if the Company, in its good faith judgment, determines that the period must be shorter to avoid harm to the Company) after receipt of written notice from the Company specifying such breach or (ii) the commission by the Executive of a felony involving moral turpitude. (d) Suspension. If the Company shall conclude that the Executive has ---------- committed any act or acts which constitute Cause and shall notify the Executive thereof in writing and if the Executive shall deny that he committed such act or acts or that such act or acts constitute Cause and shall notify the Company of such denial in writing within seven days following the Company's written notice to the Executive, the Board may, in its sole and absolute discretion, suspend the Executive with full compensation and benefits during the pendency of any investigation by the Company 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 this Agreement as specified in Section 1 and any mutually consented to extension thereof or, if longer, the period of twelve months following such termination (hereinafter referred to as the "Severance Period"), in accordance with the Company's regular payroll practices, and (2) within 30 days after the amount in question is reasonably determinable, (A) unpaid VIC and DVIC and VISO awarded, but not yet granted, for the prior calendar year, (B) 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 (C) reimbursement of proper 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 100% vested, and shall thereafter be exercisable in full by the Executive 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. The Company covenants that the Compensation Committee of the Board -5- shall take such actions as necessary so that upon the termination of the Executive's employment as provided in the introduction to this Section 5(a), all current and future stock awards are fully exercisable for the three-year period, or if shorter until a date 10 years following the date of grant of such option; (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 shall be made under the terms of the Executive's DVIC Agreement and shall commence at the conclusion of the Severance Period. The Company covenants that the Compensation Committee of the Board shall take such action as necessary so that upon termination of the Executive's employment as provided in the introduction to this 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 life insurance, medical and dental benefits on terms no less favorable than on the termination date, subject to modifications of general application to all similarly situated employees. (v) after expiration of the Severance Period, the Executive shall be entitled to compensation and benefits payable under the Directors Part-Time Employment Agreement, with all age and service requirements deemed to have been satisfied. Service credit under the Directors Part-Time Employment Agreement shall be calculated as if the Executive were a Director and shall include the Severance Period. (vi) the Executive shall be entitled to participate in all other applicable benefit plans or programs in accordance with the provisions thereof applicable to terminated employees. (b) Qualifying Termination Due to Death or Disability. If the 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 within 30 days after the amount in question is reasonably determinable (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 proper expenses incurred through the date of such termination; -6- (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 a date 10 years following the date of grant of such option. 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 the introduction to this Section 5(b), all current and future stock awards are exercisable to such extent for the three-year period, or if shorter until a date 10 years following the date of grant of such option; (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. 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 the introduction to this Section 5(b), all current and future DVIC awards are fully vested. (iv) the Executive (or the Executive's qualified dependents, as the case may be), shall be entitled to participate in all other applicable benefit plans or programs in accordance with the provisions thereof applicable to terminated employees (or their qualified dependents, as the case may be). (c) Nonqualifying Termination. If the Full-Time Employment Period ------------------------- terminates for a reason set forth in Section 4(b): (i) the Executive shall be entitled to receive within 30 days after the amount in question is reasonably determinable (1) all salary payable through the date of such termination, (2) unpaid VIC and DVIC and VISO awarded, but not yet granted, for the prior calendar year, and (3) reimbursement of proper 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 pursuant to the terms of such option in accordance with the applicable stock option agreement in effect at the time of such termination. -7- (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 in accordance with the 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 thereof applicable to terminated employees. (d) Termination after a Change in Control. In the event of a ------------------------------------- Qualifying Termination, as defined in the Company's Asset Protection Plan, the Executive shall be entitled to payments in accordance with the Company's Asset Protection Plan. The Asset Protection Plan shall supersede this Agreement, and no payments shall be made under this Agreement, if termination occurs after a Change in Control, as defined in the Company's Asset Protection Plan, and payments are made pursuant to the terms of the Asset Protection Plan; it being expressly understood, however, that the Executive's rights independent of this Agreement under the VIC and DVIC components of the Company's Performance Program and under stock options held by the Executive shall not be affected. 6. FEDERAL AND STATE WITHHOLDING. The Company shall deduct from the ----------------------------- amounts payable to the Executive pursuant to this Agreement the amount of all required federal and state withholding taxes in accordance with the Executive's Form W-4 on file with the Company and all applicable social security taxes. 7. NONCOMPETITION; NONSOLICITATION; CONFIDENTIALITY. (a) Covenant ------------------------------------------------ -------- Not to Compete. During the Full-Time Employment Period and for any applicable - -------------- additional period specified in (2) and (3) below, except with the prior written consent of the Board: (1) the Executive shall not engage in any activities whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (i) the businesses conducted at the date hereof by the True North Group, or (ii) any business in which the True North Group is substantially engaged at any time during the Full-Time Employment Period; (2) during the Severance Period and during any time the Executive is receiving payments under the Company's Directors Part-Time Employment Agreement, the Executive shall not solicit, directly or indirectly, any existing business relationship of clients of the True North Group existing at the end of the Full- Time Employment Period in which the True North Group is substantially engaged at any time during the Full-Time Employment Period, the Severance Period or the period during which the Executive is receiving payments under the Directors Part-Time Employment Agreement; and -8- (3) during the Severance Period and during any time the Executive is receiving payments under the Company's Directors Part-Time Employment Agreement, the Executive shall not induce or attempt to persuade any employee of the 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 Full-Time 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 the Executive shall cease to be employed by the Company, the Executive shall surrender to the Company all records and other documents obtained by him or entrusted to him during the course of his employment hereunder (together with all copies thereof) which pertain specifically to any of the businesses covered by the covenants in Section 7(a)(1) or which were paid for by 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 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 -9- (4) the covenants contained in Sections 7(a) and 7(b) shall survive the conclusion of the Executive's employment by the Company. 8. NONDISPARAGEMENT; COOPERATION. (a) The Executive shall not, at ----------------------------- any time during the Full-Time Employment Period or the Severance Period or the duration of the Company's Directors Part-Time Employment Agreement or thereafter, make any statement, publicly or privately, which would disparage and of the True North Group, any of their respective business or any director or officer of any of them 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 of any 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 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 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 Full-Time Employment Period or the Severance Period or the duration of the Company's Directors Part-Time Employment Agreement or thereafter, authorize any person to make or allow, nor shall the Company condone the making of, any statement, publicly or privately, which would disparage the Executive; provided, however, that the Company shall not be in breach of this restriction if such statements consist solely of (i) private statements made to any officers, directors or employees of any 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 materially adverse effect upon the Executive; and provided further that nothing contained in this Section 8(b) or in any other provision of this Agreement shall preclude any officer, director, employee, agent or other representative of 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. 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 -10- 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 Period. 11. ARBITRATION; CERTAIN COSTS. Any dispute or controversy between -------------------------- the Company and the Executive, whether arising out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Rules then in effect and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. However, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute or controversy and seek interim provisional, injunctive or other equitable relief until the arbitration award is rendered or the controversy is otherwise resolved. The Company shall reimburse the Executive, upon demand, for all costs and expenses (including without limitation attorneys' fees) reasonably incurred by the Executive in connection with any such application undertaken by the Executive in good faith, as well as for all such costs and expenses reasonably incurred by the Executive in connection with entering and/or enforcing the award rendered by the arbitrator. 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 Company, and if to the Company, to True North Communications Inc., 101 East Erie Street, Chicago, Illinois 60611-2897, Attention: Secretary, or (2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. -11- 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, 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. -12- 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 ----------------------------------- William A. Schreyer Chairman of the Compensation Committee of the Board of Directors MITCHELL T. ENGEL ---------------------------------- Mitchell T. Engel -13- EX-10.9 4 EMPLOYMENT AGREEMENT EXHIBIT 10.9 [LOGO OF TRUE NORTH COMMUNICATIONS INC. APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT effective as of October 15, 1996 between True North Communications Inc., a Delaware corporation (the "Company"), and Theodore J. Theophilos (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 (the Company and the subsidiaries, affiliates and joint ventures in which it from time to time has equity interests are hereinafter referred to collectively as the "True North Group"); 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. 2. POSITION AND DUTIES. The Company shall employ the Executive with the ------------------- title of Executive Vice President & General Counsel of True North Communications Inc. The Executive will be a member of the Management Board of True North Communications Inc. The Executive will report directly to the Chairman of the Board of Directors and CEO of True North Communications Inc. The Executive shall be responsible for the global legal matters pertaining to True North Communications Inc., its Board of Directors, all committees of the Board of Directors, all subsidiaries and all affiliates of the Company. In accordance with the general practices of a general counsel of a publicly traded company, Executive will be responsible for all matters pertaining to the Company's compliance with Securities and Exchange Commission, New York Stock Exchange and other governmental laws and regulations. Executive will have responsibility for the hiring, retention -1- and supervision for the in-house legal staff of the True North Group. Executive will be responsible for and make relevant determinations concerning the retention, hiring and supervision of outside counsel for True North Communications Inc., its Board of Directors, all committees of the Board of Directors and the True North Group. In accordance with corporate policy Executive will approve all payments for legal fees and charges at limits prescribed by the Company's management. The Executive shall perform faithfully and loyally and to the best of the Executive's abilities his duties hereunder, shall devote full business time, attention and effort to the affairs of the True North Group and shall use reasonable best efforts to promote the interests of the True North Group. 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 of Directors of the Company (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 herein. 3. COMPENSATION. ------------ A) Base Salary: $300,000 per year. ----------- B) Incentive Compensation: As a senior executive of True North ---------------------- Communications Inc., Executive will participate in the Company's Performance Program. Executive's participation will begin with the first full year, 1997. This program provides for three variable incentive compensation components with payouts based on the overall performance of the Company and attainment of individual goals and objectives. The three components are: (1) Variable Incentive Compensation (VIC) is based on a sliding scale as ------------------------------------- determined by the yearly increase in Company net income. This component can provide up to 105% of base salary. (2) Deferred Variable Incentive Compensation (DVIC) is based on the yearly ----------------------------------------------- net income increase as well and can provide up to 50% of base salary. (3) Variable Incentive Stock Options (VISO) are determined as equivalent --------------------------------------- in grant value up to 100% of the base salary on a sliding scale. -2- Two examples of the award levels based on net earnings' increases of 7% or 14% are. 7%* 14% --- --- VIC (Annual Bonus) $108M $315M DVIC (Deferred) 0 $150M ------ ---- $108M $465M Stock Option Shares (@ $23/share) 3,300 13,000 *These amounts guaranteed as minimum for 1997. --------------------------------------- ---- C) Stock Options: Upon arrival, the Executive will receive an option on 5,000 ------------- shares of True North common stock. These shares will be issued at the prevailing market rate. D) Directors Part-Time Employment Agreement: As a member of the Management ---------------------------------------- Board, Executive will participate in this Program. The Plan provides an annual benefit of up to 45% of final five-year average compensation (base plus bonus) payable for five years. The benefit is prorated for years of service less than 30 years, however, the Executive receives an additional year of credited service for each year served as a Board member. The benefit can begin at age 55 or later and attainment of 10 or more years of service. E) Profit Sharing: True North's primary retirement program is a qualified plan -------------- and noncontributory on employee's part. Company contribution up to 15% of total compensation each year depending on overall financial performance. (Recent history, 6-10%.) Executive will enter plan in January or July following 2-year Anniversary. Contributions begin after 2-year eligibility period. All contributions are 100% vested. During the two-year eligibility waiting period, Executive will be provided with a phantom profit sharing contribution equivalent to that which Executive would have earned as a participant in this Plan. The amount determined will be credited annually to an account established on the Executive's behalf in the Stock Purchase Integration Plan (see below). F) Profit Sharing Integration Plan: If the Profit Sharing Plan's contribution ------------------------------- is limited by IRS salary or contribution caps, this Plan will provide for the additional contribution to which Executive is entitled. These funds are 100% vested immediately and accrue interest at the 5-Year T-Note rate. All contributions and investment earnings are tax deferred. -3- G) Stock Purchase Plan : The plan is a qualified 401(k) savings plan. The -------------------- Executive is immediate eligibility. The Executive's Participation begins coincident with, or on next calendar quarter after date of hire. Contributions are made up to 6-2/3% of total compensation through payroll deduction up to IRS limit ($9,500 in 1996); All contributions are on a pretax basis. Immediate company matching contribution are made equal to 50% of employee's contribution. All contributions are used to purchase True North stock and are immediately 100% vested. All shares earn quarterly dividends which are used to purchase additional shares. In-service loans and withdrawals are available under certain circumstances. H) Stock Purchase Integration Plan: Once the Stock Purchase Plan IRS ------------------------------- contribution limit is achieved ($9,500 in 1996), The Executive is eligible for the Stock Purchase Integration Plan. This Plan allows continued contributions above the $9,500 limit with the company contributing 50c on each $1.00 invested. These funds are 100% vested immediately and accrue interest at the 5-Year T-Note rate. All contributions and investment earnings are tax deferred. I) Employee Stock Incentive Plan: An annual award of eight shares of True ----------------------------- North common stock is made to the Executive if the company meets financial goals. The award is credited to the Executive's Stock Purchase Plan account. J) Supplemental Pension Plan : The Executive will receive a guaranteed benefit -------------------------- if profit sharing and social security do not meet minimum goal of 45% of final average pay. (Benefit is prorated for retirement with less than 30 years' service and retirement prior to age 65.) K) Retirement Account Rollover: Funds from any qualified retirement plan may --------------------------- be rolled over to True North's Profit Sharing Trust and will earn accrued interest based on financial performance. Three investment options are available: a Balanced Fund, a Fixed Fund and a Money Market Fund. L) Select Executive Plan: This Plan is provided exclusively to our most senior --------------------- management, this Plan combines $1 million of company paid term Life Insurance and an 13-option investment plan which can accept employee contributions of after-tax dollars which earn tax-deferred interest. The $1 million coverage is guaranteed with no physical required. Additional amounts above $1 million can be purchased by the Executive. Upon arrival, a session will be scheduled between the Executive and the Plan Consultant to describe this unique Program. 4. NON-FINANCIAL BENEFITS. ---------------------- A) Medical Coverage: The coverage is provided to our most senior management, ---------------- this comprehensive plan provides reimbursement of 100% of all eligible medical expenses including prescription drugs. The Executive will share in -4- the cost of the Plan on a pretax basis. All benefits paid by the Plan are tax free to the Executive. Coverage is available first day. B) Dental Coverage: The coverage provided to our most senior management, this --------------- comprehensive plan provides reimbursement of 100% of all eligible dental expenses. The Executive shares in the cost of the Plan on a pretax basis. All benefits paid by the Plan are tax free to the Executive. Coverage is available first day. C) Disability Plans: Short-term disability coverage initially provides 100% of ---------------- pay for first four weeks, and 50% of pay for 22 weeks. Number of weeks paid at 100% increase as years of service increase. This Coverage is completely Company paid. Long-term disability coverage provides 40% of pay up to $4,000 of coverage per month, payable to age 65, paid for by the Company. The Executive can purchase an additional 20% up to a total of $10,000 of coverage per month. Coverage is effective the first of the month following date of hire. D) Benefit Reimbursement : Allows up to $12,000 per year to be set aside on a ---------------------- pretax basis to meet eligible expenses for medical and dependent care ($5,000 cap on dependent care). Participation can start as of the first day of employment. E) Voluntary Life Insurance: In addition to the Select Exec Plan, an -------------------------- additional $300,000 of life insurance may be purchased by the Executive . F) Company Car: True North will furnish the Executive, through purchase or ----------- lease, an automobile at a value of up to $40,000, or an annual allowance of approximately $9,000. True North will cover the cost of insurance, maintenance and fuel for the car. In addition, the Company will provide in-building parking. G) Vacation/Holidays: The Executive will be entitled to unlimited vacation, ----------------- (however, for accounting purposes, the entitlement will be for four weeks). True North typically honors 10 to 11 holidays per year, including one personal holiday to be used at the Executive's discretion for a civic or religious obligation. H) Physical Examination: Company will pay for Executive's comprehensive -------------------- physical exam bi-annually to age 45, then annually thereafter. I) Air Travel: The Executive's First-class air travel will be reimbursed, ---------- beginning as of January 1, 1997. J) Financial Planning: An annual allowance of $4,000 for financial planning is ------------------ provided to the Executive. Arrangements have been made with Arthur Andersen to provide this service, but the Executive can utilize other individuals at their discretion. -5- K) Foundation Contributions: An annual allowance of $2,000 is made available ------------------------ for charitable contributions of the Executive's choice from the Company's Foundation budget. 5. TERMINATION. ----------- A) If the Company terminates the Executive's employment prior to December 31, 1997, base salary and benefits will continue for the balance of the year. In addition, the Executive is entitled to an amount equal to 1-1/2 times annual base salary, payable as a lump sum. B) The Executive will participate in the Company's Asset Protection Plan which provides benefits equal to three times compensation if termination occurs as a result of a change-in-control. C) If contemporaneous with or after a change in the Chief Executive Officer of the Company, the Executive is terminated (or, without Executive's express written consent, Executive's responsibilities, title, lines of reporting or compensation are diminished or reduced or the location of Executive's place of business is materially changed), then Executive's base salary and benefits will continue for the balance of the year of the termination. In addition, the Executive will receive a lump sum payment equal to two times the Executive's annual aggregate compensation (defined as base salary plus variable incentive compensation) for 1997 or the last preceding full year of Executive's employment. 6. NOTICE. All notices and other communications required or ------ permitted hereunder shall be in writing and shall be deemed to have been duly given when personally delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Executive, to the most recent address then shown on the employment records of the Company, and if to the Company, to True North Communications Inc., 101 East Erie Street, Chicago, Illinois 60611-2897, Attention: Secretary, or (2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 7. 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 -6- this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 8. 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. 9. 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. 10. 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. 11. 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. -7- 12. 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. /s/ Theodore J. Theophilos ---------------------------------- Theodore J. Theophilos TRUE NORTH COMMUNICATIONS INC. By: /s/ Bruce Mason ------------------------------- Bruce Mason Chief Executive Officer and Chairman of the Board of Directors TRUE NORTH COMMUNICATIONS INC. By: ------------------------------- Greg Blaine Executive Vice President TRUE NORTH COMMUNICATIONS INC. By: /s/ William A. Schreyer ----------------------------- William A. Schreyer Chairman of the Compensation Committee of the Board of Directors -8- EX-10.10 5 ASSET PROTECTION PLAN EXHIBIT 10.10 [LOGO OF TRUE NORTH APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. ASSET PROTECTION PLAN 1. PURPOSE. The purpose of this Asset Protection Plan (the "Plan") is to ------- secure continued services, dedication and objectivity of certain executive employees of True North Communications Inc. (the "Company") and its subsidiaries in the event of any threat or occurrence of, or negotiation or other hostile action that could lead to, or create the possibility of, a hostile Change in Control (as defined in Section 2) of the Company, without concern as to whether such employees might be hindered or distracted by personal uncertainties and risks created by any such possible hostile Change in Control. 2. DEFINITIONS. As used in this Agreement, the following terms, when ----------- capitalized, shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (1) a material breach by a Participant of those duties and responsibilities of the Participant which do not differ in any material respect from the duties and responsibilities of the Participant during the 90-day period immediately prior to a Change in Control (other than as a result of incapacity due to physical or mental illness), which is demonstrably willful and deliberate on the Participant'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 (2) the commission by the Participant of a felony involving moral turpitude. (c) "Change in Control" means (i) an acquisition (other than directly from the Company) of 15% or more of the beneficial interest in the voting stock of the Company by a party other than the Company or a Company sponsored benefit plan; or (ii) a change in the Board of Directors as a result of which the current directors (together with the successors they nominate or approve for nomination) cease to be a majority of the Board of Directors of the Company; or (iii) a merger, reorganization or consolidation whereby the existing shareholders of the Company do not own more than 66-2/3% of the then outstanding shares resulting from such merger, reorganization -1- or consolidation, provided, however, that none of the foregoing shall be considered a Change in Control if it is a result of a direct action initiated by the Company. (d) "Company" means True North Communications Inc., a Delaware corporation. (e) "Compensation" means the Participant's annual rate of pay in effect immediately before a Change in Control occurs, plus the amount of the highest annual bonus awarded to the Participant in any of the three calendar years preceding the year in which a Change in Control occurs. (f) "Date of Termination" means (1) the effective date on which a Participant's employment by the Company terminates or (2) if the Participant's employment by the Company terminates by reason of death, the date of death of the Participant. (g) "Employee" means an individual whose relationship with an Employer is, under common law, that of an employee and who performs services for one or more Employers on a full-time basis. (h) "Employer" means the Company and any of its affiliates which, with the consent of the Company, has adopted this Plan. (i) "Nonqualifying Termination" means a termination of the Participant's employment (1) by the Participant's Employer for Cause, (2) as a result of the Participant's death, (3) by the Company due to the Participant's absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Participant's incapacity due to physical or mental illness as is consistent with Company policy and programs or (4) by the Participant for any reason other than for a Qualifying Termination. (j) "Participant" shall mean an Employee who, at the time a Change in Control occurs, is a member of the Company's Management Board. (k) "Qualifying Termination" means a termination of the Participant's employment due to the occurrence, without the Participant's expressed written consent, of any of the following events after the occurrence of a Change in Control: (1) any of (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in the Participant's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary -2- termination of the Participant from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Participant to any position with the Company held by the Participant immediately prior to such Change in Control; (2) a reduction by the Company in the Participant's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that the Participant (i) be based anywhere other than at the facility where the Participant is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially more burdensome than the travel obligations of the Participant immediately prior to such Change in Control; (4) the failure of any Employer to (i) continue in effect any employee benefit plan or compensation plan in which the Participant is participating immediately prior to such Change in Control, unless the Participant is permitted to participate in other plans providing the Participant with substantially comparable benefits, or the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such plan, (ii) provide the Participant and the Participant'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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company 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 Participant by the Company and its affiliated companies immediately prior to such Change in Control or, if more favorable to the Participant, as provided generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, (v) provide the Participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant immediately prior to such Change in Control or, if more -3- favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, or (vi) reimburse the Participant promptly for all reasonable employment expenses incurred by the Participant in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Participant immediately prior to such Change in Control, or if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 11(b). For purposes of the Agreement, any good faith determination of a Qualifying Termination made by the Participant shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken by an Employer in good faith and which is remedied by such Employer promptly after receipt of notice thereof given by the Participant shall not constitute a Qualifying Termination. (l) "Termination Period" means the period of time beginning with a Change in Control and ending on the earliest to occur of (1) the Participant's death, and (2) two years following such Change in Control. 3. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) If during the Termination --------------------------------------- Period the employment of a Participant shall terminate, by reason of a Qualifying Termination, then the Company shall pay to the Participant (or the Participant's beneficiary or estate) within 30 days following the Date of Termination, as compensation for services rendered to one or more Employers: (1) a cash amount equal to the sum of (i) the Participant's full annual base salary from the Employers through the Date of Termination, to the extent not theretofore paid, (ii) the Participant's annual bonus in an amount at least equal to the highest annualized (for any fiscal year consisting of less than 12 full months or with respect to which the Participant has been employed by the Employers for less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Participant by the Employers in respect of the three fiscal years of the Employers (or such portion thereof during which the Participant performed services for the Employers if the Participant shall have been employed by the Employers for less than such three fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs, multiplied by a fraction, the numerator of which is the number of days in the fiscal year in which the Change in Control occurs through the Date of Termination and the denominator of which is 365 or 366, as -4- applicable, and (iii) any compensation previously deferred by the Participant (together with any interest and earnings thereon) to the extent not theretofore paid; plus (2) a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 4) in an amount equal to three (3) times the Participant's Compensation. (b) For a period of two years commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, dental, disability, salary continuance, employee life and group life insurance with respect to the Participant and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to the Participant, as provided generally with respect to other peer Participants of the Employers, and the Employers and the Participant shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination. At the end of the two year period, the Participant shall be eligible to continued benefits as provided in the Consolidated Omnibus Budget Reconciliation Act. In addition, for purposes of determining the Participant's eligibility for participation in the Employer's retiree medical plan, the Participant shall upon the Participant's Date of Termination be treated as if he or she is five years older (but not older than age 55) than on such date and as if he or she had five additional years of service. (c) If during the Termination Period the employment of a Participant shall terminate by reason of a Nonqualifying Termination, then no compensation is payable nor are benefits extended for the two-year period as provided in (a) and (b) above. 4. WITHHOLDING TAXES. The Company may withhold from all payments due to the ----------------- Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 5. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise under ------------------------- this Plan involving termination of a Participant's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Participant, on a current basis, for all legal fees and expenses, if any, incurred by the Participant in connection with such contest or dispute, together with interest in an amount equal to the prime rate of Citibank, N.A. from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to -5- accrue from the date the Company receives the Participant's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Participant's claims in such contest or dispute, the Participant shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to the Participant pursuant to this Section 5. 6. OPERATIVE EVENT. Notwithstanding any provision herein to the contrary, no --------------- amounts shall be payable hereunder unless and until there is a Change in Control at a time when the Participant is employed by an Employer. 7. TERMINATION OF PLAN. This Plan shall be effective on the date hereof and ------------------- shall continue until terminated by the Company as provided in this paragraph. The Company shall have the right, prior to a Change in Control, in its sole discretion, pursuant to action by the Board, to approve the termination or amendment of this Plan; provided, however, that no such action shall be taken by the Board during any period of time when the Board has knowledge that any person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Board, such person has abandoned or terminated its efforts to effect a Change in Control. 8. PROVISIONAL REDUCTION IN BENEFITS. (a) Notwithstanding anything in this --------------------------------- Plan to the contrary, (i) if it shall be determined that any payment or distribution by the Employers to or for the benefit of a Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, but determined without regard to any adjustment required under this Section 8) (in the aggregate, the "Total Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), and (ii) if after reduction by the amount of such Excise Tax the amount of the Total Payments would be less than the maximum amount that could be paid to the Participant without the imposition of such Excise Tax, then the payments due hereunder shall be reduced so that the Total Payments are One Dollar ($1) less than such maximum amount. (b) All determinations required to be made under this Section 8, including whether and when a reduction in the amount payable hereunder pursuant to Section 3(a) is required and the amount of any such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company or the Participant. In the event that the Accounting Firm is serving as accountant or auditor for the individual, -6- entity or group effecting the Change in Control, the Employee shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Employee with the a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company, the Subsidiary and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the reduction in the amount payable hereunder pursuant to Section 3(a) will not have been made consistent with the calculations required to be made hereunder. In that event the Participant thereafter shall promptly pay to the Company the amount of the required reduction. 9. NONCOMPETITION. (a) Covenant Not to Compete. During the period of the -------------- Participant's employment by the Company and for a period of one year thereafter following a Qualifying Termination, except with the prior written consent of the Board, a Participant: (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 over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Period (the "Managed Companies"), or (ii) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Managed Companies, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. (b) Trade Secrets. No Participant shall, at any time during the Employment Period or thereafter, make use of any bidding information (or -7- computer programs thereof) of any of the Managed Companies, nor divulge any trade secrets or other confidential information of any of the Managed Companies, 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 CEO may so authorize in writing; and when a Participant shall cease to be employed by the Company, the Participant 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 4.01 or which were paid for by any of the Managed Companies; provided, however, that the Participant may retain copies of such documents as necessary for the Participant's personal records for federal income tax purposes. (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of the Participants contained in this Section: (1) the covenants contained in paragraphs (1) and (2) of Section 10 (a) shall apply within all territories in which any of the Managed Companies are 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 a Participant of the covenants contained in Sections 10 (a) and 10 (b), including the cessation and recovery of payments and benefits paid and provided under this Plan, 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 10 (a) and 10 (b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 10 (a) and 10 (b) shall survive the conclusion of the Participant's employment by the Company. 10. SCOPE OF PLAN. Nothing in this Plan shall be deemed to entitle the ------------- Participant to continued employment with any Employer, and if the -8- Participant's employment with the Employers shall terminate prior to a Change in Control, then the Participant shall have no further rights under this Plan; provided, however, that any termination of the Participant's employment following a Change in Control shall be subject to all of the provisions of this Plan. 11. SUCCESSORS; BINDING PLAN. (a) This Plan shall not be terminated by any ------------------------ merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 11, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Participant (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Plan and shall entitle the Participant to compensation and other benefits from the Company in the same amount and on the same terms as the Participant would be entitled hereunder if the Participant's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination. (c) This Plan shall inure to the benefit of and be enforceable by the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. 12. NOTICE. For purposes of the Plan, all notices and other communications ------ required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Participant, to the most recent address then shown on the employment records of the Participant'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 -9- 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. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's obligation ---------------------------------------- to make any payments provided for in this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employers may have against the Participant or others. In no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and, such amounts shall not be reduced whether or not the Participant obtains other employment. (b) If there shall be any dispute between the Employers and the Participant in the event of any termination of the Participant's employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the determination by the Participant of the existence of a Qualifying Termination was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to the Participant and his dependents or other beneficiaries, as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts, and provide all benefits, to the Participant and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such termination were by the Company without Cause or by the Participant as a Qualifying Termination. 14. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for purposes of ---------------------------- this Plan shall include employment with any corporation or other entity in which the Company has direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. 15. GOVERNING LAW; VALIDITY. The interpretation, construction and performance ----------------------- of this Plan shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect. 16. MISCELLANEOUS. Subject to the Company's power of amendment contained in ------------- Section 7, no provision of this Plan may be modified or waived unless -10- such modification or waiver is agreed to in writing and signed by the Participant and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Plan to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Participant or the Company to insist upon strict compliance with any provision of this Plan or to assert any right the Participant or the Company may have hereunder, including, without limitation, the right of the Participant to terminate employment for a Qualifying Termination, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Plan. The rights of, and benefits payable to, the Participant, his estate or his beneficiaries pursuant to this Plan are in addition to any rights of, or benefits payable to, the Participant, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company, except benefits payable under the Company's Severance Policy or for any payments that may be required by statute by reason of termination of employment, except for Unemployment Compensation, which are inclusive of the payments required under this Plan. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a duly authorized officer of the Company on this 4TH day of JUNE, 1996. TRUE NORTH COMMUNICATIONS INC. By:/S/ GREGORY W. BLAINE --------------------------- Title: EVP ------------------------ Employee: /S/ BRUCE MASON ------------------------------ -11- EX-10.11 6 ASSET PROTECTION PLAN EXHIBIT 10.11 [LOGO OF TRUE NORTH COMMUNICATIONS INC. APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. ASSET PROTECTION PLAN 1. PURPOSE. The purpose of this Asset Protection Plan (the "Plan") is to ------- secure continued services, dedication and objectivity of certain executive employees of True North Communications Inc. (the "Company") and its subsidiaries in the event of any threat or occurrence of, or negotiation or other hostile action that could lead to, or create the possibility of, a hostile Change in Control (as defined in Section 2) of the Company, without concern as to whether such employees might be hindered or distracted by personal uncertainties and risks created by any such possible hostile Change in Control. 2. DEFINITIONS. As used in this Agreement, the following terms, when ----------- capitalized, shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (1) a material breach by a Participant of those duties and responsibilities of the Participant which do not differ in any material respect from the duties and responsibilities of the Participant during the 90-day period immediately prior to a Change in Control (other than as a result of incapacity due to physical or mental illness), which is demonstrably willful and deliberate on the Participant'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 (2) the commission by the Participant of a felony involving moral turpitude. (c) "Change in Control" means (i) an acquisition (other than directly from the Company) of 15% or more of the beneficial interest in the voting stock of the Company by a party other than the Company or a Company sponsored benefit plan; or (ii) a change in the Board of Directors as a result of which the current directors (together with the successors they nominate or approve for nomination) cease to be a majority of the Board of Directors of the Company; or (iii) a merger, reorganization or consolidation whereby the existing shareholders of the Company do not own more than 66-2/3% of the then outstanding shares resulting from such merger, reorganization -1- or consolidation, provided, however, that none of the foregoing shall be considered a Change in Control if it is a result of a direct action initiated by the Company. (d) "Company" means True North Communications Inc., a Delaware corporation. (e) "Compensation" means the Participant's annual rate of pay in effect immediately before a Change in Control occurs, plus the amount of the highest annual bonus awarded to the Participant in any of the three calendar years preceding the year in which a Change in Control occurs. (f) "Date of Termination" means (1) the effective date on which a Participant's employment by the Company terminates or (2) if the Participant's employment by the Company terminates by reason of death, the date of death of the Participant. (g) "Employee" means an individual whose relationship with an Employer is, under common law, that of an employee and who performs services for one or more Employers on a full-time basis. (h) "Employer" means the Company and any of its affiliates which, with the consent of the Company, has adopted this Plan. (i) "Nonqualifying Termination" means a termination of the Participant's employment (1) by the Participant's Employer for Cause, (2) as a result of the Participant's death, (3) by the Company due to the Participant's absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Participant's incapacity due to physical or mental illness as is consistent with Company policy and programs or (4) by the Participant for any reason other than for a Qualifying Termination. (j) "Participant" shall mean an Employee who, at the time a Change in Control occurs, is a member of the Company's Management Board. (k) "Qualifying Termination" means a termination of the Participant's employment due to the occurrence, without the Participant's expressed written consent, of any of the following events after the occurrence of a Change in Control: (1) any of (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in the Participant's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary -2- termination of the Participant from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Participant to any position with the Company held by the Participant immediately prior to such Change in Control; (2) a reduction by the Company in the Participant's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that the Participant (i) be based anywhere other than at the facility where the Participant is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially more burdensome than the travel obligations of the Participant immediately prior to such Change in Control; (4) the failure of any Employer to (i) continue in effect any employee benefit plan or compensation plan in which the Participant is participating immediately prior to such Change in Control, unless the Participant is permitted to participate in other plans providing the Participant with substantially comparable benefits, or the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such plan, (ii) provide the Participant and the Participant'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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company 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 Participant by the Company and its affiliated companies immediately prior to such Change in Control or, if more favorable to the Participant, as provided generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, (v) provide the Participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant immediately prior to such Change in Control or, if more -3- favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, or (vi) reimburse the Participant promptly for all reasonable employment expenses incurred by the Participant in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Participant immediately prior to such Change in Control, or if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 11(b). For purposes of the Agreement, any good faith determination of a Qualifying Termination made by the Participant shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken by an Employer in good faith and which is remedied by such Employer promptly after receipt of notice thereof given by the Participant shall not constitute a Qualifying Termination. (l) "Termination Period" means the period of time beginning with a Change in Control and ending on the earliest to occur of (1) the Participant's death, and (2) two years following such Change in Control. 3. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) If during the Termination --------------------------------------- Period the employment of a Participant shall terminate, by reason of a Qualifying Termination, then the Company shall pay to the Participant (or the Participant's beneficiary or estate) within 30 days following the Date of Termination, as compensation for services rendered to one or more Employers: (1) a cash amount equal to the sum of (i) the Participant's full annual base salary from the Employers through the Date of Termination, to the extent not theretofore paid, (ii) the Participant's annual bonus in an amount at least equal to the highest annualized (for any fiscal year consisting of less than 12 full months or with respect to which the Participant has been employed by the Employers for less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Participant by the Employers in respect of the three fiscal years of the Employers (or such portion thereof during which the Participant performed services for the Employers if the Participant shall have been employed by the Employers for less than such three fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs, multiplied by a fraction, the numerator of which is the number of days in the fiscal year in which the Change in Control occurs through the Date of Termination and the denominator of which is 365 or 366, as -4- applicable, and (iii) any compensation previously deferred by the Participant (together with any interest and earnings thereon) to the extent not theretofore paid; plus (2) a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 4) in an amount equal to three (3) times the Participant's Compensation. (b) For a period of two years commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, dental, disability, salary continuance, employee life and group life insurance with respect to the Participant and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to the Participant, as provided generally with respect to other peer Participants of the Employers, and the Employers and the Participant shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination. At the end of the two year period, the Participant shall be eligible to continued benefits as provided in the Consolidated Omnibus Budget Reconciliation Act. In addition, for purposes of determining the Participant's eligibility for participation in the Employer's retiree medical plan, the Participant shall upon the Participant's Date of Termination be treated as if he or she is five years older (but not older than age 55) than on such date and as if he or she had five additional years of service. (c) If during the Termination Period the employment of a Participant shall terminate by reason of a Nonqualifying Termination, then no compensation is payable nor are benefits extended for the two-year period as provided in (a) and (b) above. 4. WITHHOLDING TAXES. The Company may withhold from all payments due to the ----------------- Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 5. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise under ------------------------- this Plan involving termination of a Participant's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Participant, on a current basis, for all legal fees and expenses, if any, incurred by the Participant in connection with such contest or dispute, together with interest in an amount equal to the prime rate of Citibank, N.A. from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to -5- accrue from the date the Company receives the Participant's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Participant's claims in such contest or dispute, the Participant shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to the Participant pursuant to this Section 5. 6. OPERATIVE EVENT. Notwithstanding any provision herein to the contrary, no --------------- amounts shall be payable hereunder unless and until there is a Change in Control at a time when the Participant is employed by an Employer. 7. TERMINATION OF PLAN. This Plan shall be effective on the date hereof and ------------------- shall continue until terminated by the Company as provided in this paragraph. The Company shall have the right, prior to a Change in Control, in its sole discretion, pursuant to action by the Board, to approve the termination or amendment of this Plan; provided, however, that no such action shall be taken by the Board during any period of time when the Board has knowledge that any person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Board, such person has abandoned or terminated its efforts to effect a Change in Control. 8. PROVISIONAL REDUCTION IN BENEFITS. (a) Notwithstanding anything in this --------------------------------- Plan to the contrary, (i) if it shall be determined that any payment or distribution by the Employers to or for the benefit of a Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, but determined without regard to any adjustment required under this Section 8) (in the aggregate, the "Total Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), and (ii) if after reduction by the amount of such Excise Tax the amount of the Total Payments would be less than the maximum amount that could be paid to the Participant without the imposition of such Excise Tax, then the payments due hereunder shall be reduced so that the Total Payments are One Dollar ($1) less than such maximum amount. (b) All determinations required to be made under this Section 8, including whether and when a reduction in the amount payable hereunder pursuant to Section 3(a) is required and the amount of any such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company or the Participant. In the event that the Accounting Firm is serving as accountant or auditor for the individual, -6- entity or group effecting the Change in Control, the Employee shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Employee with the a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company, the Subsidiary and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the reduction in the amount payable hereunder pursuant to Section 3(a) will not have been made consistent with the calculations required to be made hereunder. In that event the Participant thereafter shall promptly pay to the Company the amount of the required reduction. 9. NONCOMPETITION. (a) Covenant Not to Compete. During the period of the -------------- Participant's employment by the Company and for a period of one year thereafter following a Qualifying Termination, except with the prior written consent of the Board, a Participant: (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 over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Period (the "Managed Companies"), or (ii) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Managed Companies, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. (b) Trade Secrets. No Participant shall, at any time during the Employment Period or thereafter, make use of any bidding information (or -7- computer programs thereof) of any of the Managed Companies, nor divulge any trade secrets or other confidential information of any of the Managed Companies, 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 CEO may so authorize in writing; and when a Participant shall cease to be employed by the Company, the Participant 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 4.01 or which were paid for by any of the Managed Companies; provided, however, that the Participant may retain copies of such documents as necessary for the Participant's personal records for federal income tax purposes. (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of the Participants contained in this Section: (1) the covenants contained in paragraphs (1) and (2) of Section 10 (a) shall apply within all territories in which any of the Managed Companies are 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 a Participant of the covenants contained in Sections 10 (a) and 10 (b), including the cessation and recovery of payments and benefits paid and provided under this Plan, 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 10 (a) and 10 (b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 10 (a) and 10 (b) shall survive the conclusion of the Participant's employment by the Company. 10. SCOPE OF PLAN. Nothing in this Plan shall be deemed to entitle the ------------- Participant to continued employment with any Employer, and if the -8- Participant's employment with the Employers shall terminate prior to a Change in Control, then the Participant shall have no further rights under this Plan; provided, however, that any termination of the Participant's employment following a Change in Control shall be subject to all of the provisions of this Plan. 11. SUCCESSORS; BINDING PLAN. (a) This Plan shall not be terminated by any ------------------------ merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 11, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Participant (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Plan and shall entitle the Participant to compensation and other benefits from the Company in the same amount and on the same terms as the Participant would be entitled hereunder if the Participant's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination. (c) This Plan shall inure to the benefit of and be enforceable by the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. 12. NOTICE. For purposes of the Plan, all notices and other communications ------ required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Participant, to the most recent address then shown on the employment records of the Participant'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 -9- 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. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's obligation ---------------------------------------- to make any payments provided for in this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employers may have against the Participant or others. In no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and, such amounts shall not be reduced whether or not the Participant obtains other employment. (b) If there shall be any dispute between the Employers and the Participant in the event of any termination of the Participant's employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the determination by the Participant of the existence of a Qualifying Termination was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to the Participant and his dependents or other beneficiaries, as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts, and provide all benefits, to the Participant and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such termination were by the Company without Cause or by the Participant as a Qualifying Termination. 14. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for purposes of ---------------------------- this Plan shall include employment with any corporation or other entity in which the Company has direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. 15. GOVERNING LAW; VALIDITY. The interpretation, construction and performance ----------------------- of this Plan shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect. 16. MISCELLANEOUS. Subject to the Company's power of amendment contained in ------------- Section 7, no provision of this Plan may be modified or waived unless -10- such modification or waiver is agreed to in writing and signed by the Participant and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Plan to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Participant or the Company to insist upon strict compliance with any provision of this Plan or to assert any right the Participant or the Company may have hereunder, including, without limitation, the right of the Participant to terminate employment for a Qualifying Termination, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Plan. The rights of, and benefits payable to, the Participant, his estate or his beneficiaries pursuant to this Plan are in addition to any rights of, or benefits payable to, the Participant, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company, except benefits payable under the Company's Severance Policy or for any payments that may be required by statute by reason of termination of employment, except for Unemployment Compensation, which are inclusive of the payments required under this Plan. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a duly authorized officer of the Company on this 5TH day of JUNE, 1996. TRUE NORTH COMMUNICATIONS INC. By:/S/ MITCHELL T. ENGEL --------------------------- Title: EXEC. V.P. ------------------------ Employee: /S/ J. BRENDAN RYAN ------------------------------ -11- EX-10.12 7 ASSET PROTECTION PLAN EXHIBIT 10.12 [LOGO OF TRUE NORTH COMMUNICATIONS APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. ASSET PROTECTION PLAN 1. PURPOSE. The purpose of this Asset Protection Plan (the "Plan") is to ------- secure continued services, dedication and objectivity of certain executive employees of True North Communications Inc. (the "Company") and its subsidiaries in the event of any threat or occurrence of, or negotiation or other hostile action that could lead to, or create the possibility of, a hostile Change in Control (as defined in Section 2) of the Company, without concern as to whether such employees might be hindered or distracted by personal uncertainties and risks created by any such possible hostile Change in Control. 2. DEFINITIONS. As used in this Agreement, the following terms, when ----------- capitalized, shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (1) a material breach by a Participant of those duties and responsibilities of the Participant which do not differ in any material respect from the duties and responsibilities of the Participant during the 90-day period immediately prior to a Change in Control (other than as a result of incapacity due to physical or mental illness), which is demonstrably willful and deliberate on the Participant'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 (2) the commission by the Participant of a felony involving moral turpitude. (c) "Change in Control" means (i) an acquisition (other than directly from the Company) of 15% or more of the beneficial interest in the voting stock of the Company by a party other than the Company or a Company sponsored benefit plan; or (ii) a change in the Board of Directors as a result of which the current directors (together with the successors they nominate or approve for nomination) cease to be a majority of the Board of Directors of the Company; or (iii) a merger, reorganization or consolidation whereby the existing shareholders of the Company do not own more than 66-2/3% of the then outstanding shares resulting from such merger, reorganization -1- or consolidation, provided, however, that none of the foregoing shall be considered a Change in Control if it is a result of a direct action initiated by the Company. (d) "Company" means True North Communications Inc., a Delaware corporation. (e) "Compensation" means the Participant's annual rate of pay in effect immediately before a Change in Control occurs, plus the amount of the highest annual bonus awarded to the Participant in any of the three calendar years preceding the year in which a Change in Control occurs. (f) "Date of Termination" means (1) the effective date on which a Participant's employment by the Company terminates or (2) if the Participant's employment by the Company terminates by reason of death, the date of death of the Participant. (g) "Employee" means an individual whose relationship with an Employer is, under common law, that of an employee and who performs services for one or more Employers on a full-time basis. (h) "Employer" means the Company and any of its affiliates which, with the consent of the Company, has adopted this Plan. (i) "Nonqualifying Termination" means a termination of the Participant's employment (1) by the Participant's Employer for Cause, (2) as a result of the Participant's death, (3) by the Company due to the Participant's absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Participant's incapacity due to physical or mental illness as is consistent with Company policy and programs or (4) by the Participant for any reason other than for a Qualifying Termination. (j) "Participant" shall mean an Employee who, at the time a Change in Control occurs, is a member of the Company's Management Board. (k) "Qualifying Termination" means a termination of the Participant's employment due to the occurrence, without the Participant's expressed written consent, of any of the following events after the occurrence of a Change in Control: (1) any of (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in the Participant's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary -2- termination of the Participant from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Participant to any position with the Company held by the Participant immediately prior to such Change in Control; (2) a reduction by the Company in the Participant's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that the Participant (i) be based anywhere other than at the facility where the Participant is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially more burdensome than the travel obligations of the Participant immediately prior to such Change in Control; (4) the failure of any Employer to (i) continue in effect any employee benefit plan or compensation plan in which the Participant is participating immediately prior to such Change in Control, unless the Participant is permitted to participate in other plans providing the Participant with substantially comparable benefits, or the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such plan, (ii) provide the Participant and the Participant'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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company 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 Participant by the Company and its affiliated companies immediately prior to such Change in Control or, if more favorable to the Participant, as provided generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, (v) provide the Participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant immediately prior to such Change in Control or, if more -3- favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, or (vi) reimburse the Participant promptly for all reasonable employment expenses incurred by the Participant in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Participant immediately prior to such Change in Control, or if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 11(b). For purposes of the Agreement, any good faith determination of a Qualifying Termination made by the Participant shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken by an Employer in good faith and which is remedied by such Employer promptly after receipt of notice thereof given by the Participant shall not constitute a Qualifying Termination. (l) "Termination Period" means the period of time beginning with a Change in Control and ending on the earliest to occur of (1) the Participant's death, and (2) two years following such Change in Control. 3. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) If during the Termination --------------------------------------- Period the employment of a Participant shall terminate, by reason of a Qualifying Termination, then the Company shall pay to the Participant (or the Participant's beneficiary or estate) within 30 days following the Date of Termination, as compensation for services rendered to one or more Employers: (1) a cash amount equal to the sum of (i) the Participant's full annual base salary from the Employers through the Date of Termination, to the extent not theretofore paid, (ii) the Participant's annual bonus in an amount at least equal to the highest annualized (for any fiscal year consisting of less than 12 full months or with respect to which the Participant has been employed by the Employers for less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Participant by the Employers in respect of the three fiscal years of the Employers (or such portion thereof during which the Participant performed services for the Employers if the Participant shall have been employed by the Employers for less than such three fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs, multiplied by a fraction, the numerator of which is the number of days in the fiscal year in which the Change in Control occurs through the Date of Termination and the denominator of which is 365 or 366, as -4- applicable, and (iii) any compensation previously deferred by the Participant (together with any interest and earnings thereon) to the extent not theretofore paid; plus (2) a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 4) in an amount equal to three (3) times the Participant's Compensation. (b) For a period of two years commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, dental, disability, salary continuance, employee life and group life insurance with respect to the Participant and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to the Participant, as provided generally with respect to other peer Participants of the Employers, and the Employers and the Participant shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination. At the end of the two year period, the Participant shall be eligible to continued benefits as provided in the Consolidated Omnibus Budget Reconciliation Act. In addition, for purposes of determining the Participant's eligibility for participation in the Employer's retiree medical plan, the Participant shall upon the Participant's Date of Termination be treated as if he or she is five years older (but not older than age 55) than on such date and as if he or she had five additional years of service. (c) If during the Termination Period the employment of a Participant shall terminate by reason of a Nonqualifying Termination, then no compensation is payable nor are benefits extended for the two-year period as provided in (a) and (b) above. 4. WITHHOLDING TAXES. The Company may withhold from all payments due to the ----------------- Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 5. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise under this ------------------------- Plan involving termination of a Participant's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Participant, on a current basis, for all legal fees and expenses, if any, incurred by the Participant in connection with such contest or dispute, together with interest in an amount equal to the prime rate of Citibank, N.A. from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to -5- accrue from the date the Company receives the Participant's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Participant's claims in such contest or dispute, the Participant shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to the Participant pursuant to this Section 5. 6. OPERATIVE EVENT. Notwithstanding any provision herein to the contrary, no --------------- amounts shall be payable hereunder unless and until there is a Change in Control at a time when the Participant is employed by an Employer. 7. TERMINATION OF PLAN. This Plan shall be effective on the date hereof and ------------------- shall continue until terminated by the Company as provided in this paragraph. The Company shall have the right, prior to a Change in Control, in its sole discretion, pursuant to action by the Board, to approve the termination or amendment of this Plan; provided, however, that no such action shall be taken by the Board during any period of time when the Board has knowledge that any person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Board, such person has abandoned or terminated its efforts to effect a Change in Control. 8. PROVISIONAL REDUCTION IN BENEFITS. (a) Notwithstanding anything in this --------------------------------- Plan to the contrary, (i) if it shall be determined that any payment or distribution by the Employers to or for the benefit of a Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, but determined without regard to any adjustment required under this Section 8) (in the aggregate, the "Total Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), and (ii) if after reduction by the amount of such Excise Tax the amount of the Total Payments would be less than the maximum amount that could be paid to the Participant without the imposition of such Excise Tax, then the payments due hereunder shall be reduced so that the Total Payments are One Dollar ($1) less than such maximum amount. (b) All determinations required to be made under this Section 8, including whether and when a reduction in the amount payable hereunder pursuant to Section 3(a) is required and the amount of any such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company or the Participant. In the event that the Accounting Firm is serving as accountant or auditor for the individual, -6- entity or group effecting the Change in Control, the Employee shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Employee with the a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company, the Subsidiary and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the reduction in the amount payable hereunder pursuant to Section 3(a) will not have been made consistent with the calculations required to be made hereunder. In that event the Participant thereafter shall promptly pay to the Company the amount of the required reduction. 9. NONCOMPETITION. (a) Covenant Not to Compete. During the period of the -------------- Participant's employment by the Company and for a period of one year thereafter following a Qualifying Termination, except with the prior written consent of the Board, a Participant: (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 over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Period (the "Managed Companies"), or (ii) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Managed Companies, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. (b) Trade Secrets. No Participant shall, at any time during the Employment Period or thereafter, make use of any bidding information (or -7- computer programs thereof) of any of the Managed Companies, nor divulge any trade secrets or other confidential information of any of the Managed Companies, 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 CEO may so authorize in writing; and when a Participant shall cease to be employed by the Company, the Participant 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 4.01 or which were paid for by any of the Managed Companies; provided, however, that the Participant may retain copies of such documents as necessary for the Participant's personal records for federal income tax purposes. (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of the Participants contained in this Section: (1) the covenants contained in paragraphs (1) and (2) of Section 10 (a) shall apply within all territories in which any of the Managed Companies are 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 a Participant of the covenants contained in Sections 10 (a) and 10 (b), including the cessation and recovery of payments and benefits paid and provided under this Plan, 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 10 (a) and 10 (b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 10 (a) and 10 (b) shall survive the conclusion of the Participant's employment by the Company. 10. SCOPE OF PLAN. Nothing in this Plan shall be deemed to entitle the ------------- Participant to continued employment with any Employer, and if the -8- Participant's employment with the Employers shall terminate prior to a Change in Control, then the Participant shall have no further rights under this Plan; provided, however, that any termination of the Participant's employment following a Change in Control shall be subject to all of the provisions of this Plan. 11. SUCCESSORS; BINDING PLAN. (a) This Plan shall not be terminated by any ------------------------ merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 11, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Participant (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Plan and shall entitle the Participant to compensation and other benefits from the Company in the same amount and on the same terms as the Participant would be entitled hereunder if the Participant's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination. (c) This Plan shall inure to the benefit of and be enforceable by the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. 12. NOTICE. For purposes of the Plan, all notices and other communications ------ required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Participant, to the most recent address then shown on the employment records of the Participant'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 -9- 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. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's obligation to ---------------------------------------- make any payments provided for in this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employers may have against the Participant or others. In no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and, such amounts shall not be reduced whether or not the Participant obtains other employment. (b) If there shall be any dispute between the Employers and the Participant in the event of any termination of the Participant's employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the determination by the Participant of the existence of a Qualifying Termination was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to the Participant and his dependents or other beneficiaries, as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts, and provide all benefits, to the Participant and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such termination were by the Company without Cause or by the Participant as a Qualifying Termination. 14. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for purposes of ---------------------------- this Plan shall include employment with any corporation or other entity in which the Company has direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. 15. GOVERNING LAW; VALIDITY. The interpretation, construction and performance ----------------------- of this Plan shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect. 16. MISCELLANEOUS. Subject to the Company's power of amendment contained in ------------- Section 7, no provision of this Plan may be modified or waived unless -10- such modification or waiver is agreed to in writing and signed by the Participant and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Plan to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Participant or the Company to insist upon strict compliance with any provision of this Plan or to assert any right the Participant or the Company may have hereunder, including, without limitation, the right of the Participant to terminate employment for a Qualifying Termination, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Plan. The rights of, and benefits payable to, the Participant, his estate or his beneficiaries pursuant to this Plan are in addition to any rights of, or benefits payable to, the Participant, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company, except benefits payable under the Company's Severance Policy or for any payments that may be required by statute by reason of termination of employment, except for Unemployment Compensation, which are inclusive of the payments required under this Plan. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a duly authorized officer of the Company on this 5TH day of JUNE 1996. --- ---------- TRUE NORTH COMMUNICAIONS INC. By:/s/ GREGORY W. BLAINE ----------------------------------- Title: EVP ------------------------------ Employee: /s/ TERRY ASHWILL -------------------------------------- -11- EX-10.13 8 ASSET PROTECTION PLAN EXHIBIT 10.13 [LOGO OF TRUE NORTH COMMUNICATIONS INC. APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. ASSET PROTECTION PLAN 1. PURPOSE. The purpose of this Asset Protection Plan (the "Plan") is to ------- secure continued services, dedication and objectivity of certain executive employees of True North Communications Inc. (the "Company") and its subsidiaries in the event of any threat or occurrence of, or negotiation or other hostile action that could lead to, or create the possibility of, a hostile Change in Control (as defined in Section 2) of the Company, without concern as to whether such employees might be hindered or distracted by personal uncertainties and risks created by any such possible hostile Change in Control. 2. DEFINITIONS. As used in this Agreement, the following terms, when ----------- capitalized, shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (1) a material breach by a Participant of those duties and responsibilities of the Participant which do not differ in any material respect from the duties and responsibilities of the Participant during the 90-day period immediately prior to a Change in Control (other than as a result of incapacity due to physical or mental illness), which is demonstrably willful and deliberate on the Participant'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 (2) the commission by the Participant of a felony involving moral turpitude. (c) "Change in Control" means (i) an acquisition (other than directly from the Company) of 15% or more of the beneficial interest in the voting stock of the Company by a party other than the Company or a Company sponsored benefit plan; or (ii) a change in the Board of Directors as a result of which the current directors (together with the successors they nominate or approve for nomination) cease to be a majority of the Board of Directors of the Company; or (iii) a merger, reorganization or consolidation whereby the existing shareholders of the Company do not own more than 66-2/3% of the then outstanding shares resulting from such merger, reorganization -1- or consolidation, provided, however, that none of the foregoing shall be considered a Change in Control if it is a result of a direct action initiated by the Company. (d) "Company" means True North Communications Inc., a Delaware corporation. (e) "Compensation" means the Participant's annual rate of pay in effect immediately before a Change in Control occurs, plus the amount of the highest annual bonus awarded to the Participant in any of the three calendar years preceding the year in which a Change in Control occurs. (f) "Date of Termination" means (1) the effective date on which a Participant's employment by the Company terminates or (2) if the Participant's employment by the Company terminates by reason of death, the date of death of the Participant. (g) "Employee" means an individual whose relationship with an Employer is, under common law, that of an employee and who performs services for one or more Employers on a full-time basis. (h) "Employer" means the Company and any of its affiliates which, with the consent of the Company, has adopted this Plan. (i) "Nonqualifying Termination" means a termination of the Participant's employment (1) by the Participant's Employer for Cause, (2) as a result of the Participant's death, (3) by the Company due to the Participant's absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Participant's incapacity due to physical or mental illness as is consistent with Company policy and programs or (4) by the Participant for any reason other than for a Qualifying Termination. (j) "Participant" shall mean an Employee who, at the time a Change in Control occurs, is a member of the Company's Management Board. (k) "Qualifying Termination" means a termination of the Participant's employment due to the occurrence, without the Participant's expressed written consent, of any of the following events after the occurrence of a Change in Control: (1) any of (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in the Participant's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary -2- termination of the Participant from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Participant to any position with the Company held by the Participant immediately prior to such Change in Control; (2) a reduction by the Company in the Participant's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that the Participant (i) be based anywhere other than at the facility where the Participant is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially more burdensome than the travel obligations of the Participant immediately prior to such Change in Control; (4) the failure of any Employer to (i) continue in effect any employee benefit plan or compensation plan in which the Participant is participating immediately prior to such Change in Control, unless the Participant is permitted to participate in other plans providing the Participant with substantially comparable benefits, or the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such plan, (ii) provide the Participant and the Participant'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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company 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 Participant by the Company and its affiliated companies immediately prior to such Change in Control or, if more favorable to the Participant, as provided generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, (v) provide the Participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant immediately prior to such Change in Control or, if more -3- favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, or (vi) reimburse the Participant promptly for all reasonable employment expenses incurred by the Participant in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Participant immediately prior to such Change in Control, or if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 11(b). For purposes of the Agreement, any good faith determination of a Qualifying Termination made by the Participant shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken by an Employer in good faith and which is remedied by such Employer promptly after receipt of notice thereof given by the Participant shall not constitute a Qualifying Termination. (l) "Termination Period" means the period of time beginning with a Change in Control and ending on the earliest to occur of (1) the Participant's death, and (2) two years following such Change in Control. 3. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) If during the Termination --------------------------------------- Period the employment of a Participant shall terminate, by reason of a Qualifying Termination, then the Company shall pay to the Participant (or the Participant's beneficiary or estate) within 30 days following the Date of Termination, as compensation for services rendered to one or more Employers: (1) a cash amount equal to the sum of (i) the Participant's full annual base salary from the Employers through the Date of Termination, to the extent not theretofore paid, (ii) the Participant's annual bonus in an amount at least equal to the highest annualized (for any fiscal year consisting of less than 12 full months or with respect to which the Participant has been employed by the Employers for less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Participant by the Employers in respect of the three fiscal years of the Employers (or such portion thereof during which the Participant performed services for the Employers if the Participant shall have been employed by the Employers for less than such three fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs, multiplied by a fraction, the numerator of which is the number of days in the fiscal year in which the Change in Control occurs through the Date of Termination and the denominator of which is 365 or 366, as -4- applicable, and (iii) any compensation previously deferred by the Participant (together with any interest and earnings thereon) to the extent not theretofore paid; plus (2) a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 4) in an amount equal to three (3) times the Participant's Compensation. (b) For a period of two years commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, dental, disability, salary continuance, employee life and group life insurance with respect to the Participant and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to the Participant, as provided generally with respect to other peer Participants of the Employers, and the Employers and the Participant shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination. At the end of the two year period, the Participant shall be eligible to continued benefits as provided in the Consolidated Omnibus Budget Reconciliation Act. In addition, for purposes of determining the Participant's eligibility for participation in the Employer's retiree medical plan, the Participant shall upon the Participant's Date of Termination be treated as if he or she is five years older (but not older than age 55) than on such date and as if he or she had five additional years of service. (c) If during the Termination Period the employment of a Participant shall terminate by reason of a Nonqualifying Termination, then no compensation is payable nor are benefits extended for the two-year period as provided in (a) and (b) above. 4. WITHHOLDING TAXES. The Company may withhold from all payments due to the ----------------- Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 5. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise under ------------------------- this Plan involving termination of a Participant's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Participant, on a current basis, for all legal fees and expenses, if any, incurred by the Participant in connection with such contest or dispute, together with interest in an amount equal to the prime rate of Citibank, N.A. from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to -5- accrue from the date the Company receives the Participant's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Participant's claims in such contest or dispute, the Participant shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to the Participant pursuant to this Section 5. 6. OPERATIVE EVENT. Notwithstanding any provision herein to the contrary, no --------------- amounts shall be payable hereunder unless and until there is a Change in Control at a time when the Participant is employed by an Employer. 7. TERMINATION OF PLAN. This Plan shall be effective on the date hereof and ------------------- shall continue until terminated by the Company as provided in this paragraph. The Company shall have the right, prior to a Change in Control, in its sole discretion, pursuant to action by the Board, to approve the termination or amendment of this Plan; provided, however, that no such action shall be taken by the Board during any period of time when the Board has knowledge that any person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Board, such person has abandoned or terminated its efforts to effect a Change in Control. 8. PROVISIONAL REDUCTION IN BENEFITS. (a) Notwithstanding anything in this --------------------------------- Plan to the contrary, (i) if it shall be determined that any payment or distribution by the Employers to or for the benefit of a Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, but determined without regard to any adjustment required under this Section 8) (in the aggregate, the "Total Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), and (ii) if after reduction by the amount of such Excise Tax the amount of the Total Payments would be less than the maximum amount that could be paid to the Participant without the imposition of such Excise Tax, then the payments due hereunder shall be reduced so that the Total Payments are One Dollar ($1) less than such maximum amount. (b) All determinations required to be made under this Section 8, including whether and when a reduction in the amount payable hereunder pursuant to Section 3(a) is required and the amount of any such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company or the Participant. In the event that the Accounting Firm is serving as accountant or auditor for the individual, -6- entity or group effecting the Change in Control, the Employee shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Employee with the a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company, the Subsidiary and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the reduction in the amount payable hereunder pursuant to Section 3(a) will not have been made consistent with the calculations required to be made hereunder. In that event the Participant thereafter shall promptly pay to the Company the amount of the required reduction. 9. NONCOMPETITION. (a) Covenant Not to Compete. During the period of the -------------- Participant's employment by the Company and for a period of one year thereafter following a Qualifying Termination, except with the prior written consent of the Board, a Participant: (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 over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Period (the "Managed Companies"), or (ii) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Managed Companies, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. (b) Trade Secrets. No Participant shall, at any time during the Employment Period or thereafter, make use of any bidding information (or -7- computer programs thereof) of any of the Managed Companies, nor divulge any trade secrets or other confidential information of any of the Managed Companies, 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 CEO may so authorize in writing; and when a Participant shall cease to be employed by the Company, the Participant 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 4.01 or which were paid for by any of the Managed Companies; provided, however, that the Participant may retain copies of such documents as necessary for the Participant's personal records for federal income tax purposes. (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of the Participants contained in this Section: (1) the covenants contained in paragraphs (1) and (2) of Section 10 (a) shall apply within all territories in which any of the Managed Companies are 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 a Participant of the covenants contained in Sections 10 (a) and 10 (b), including the cessation and recovery of payments and benefits paid and provided under this Plan, 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 10 (a) and 10 (b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 10 (a) and 10 (b) shall survive the conclusion of the Participant's employment by the Company. 10. SCOPE OF PLAN. Nothing in this Plan shall be deemed to entitle the ------------- Participant to continued employment with any Employer, and if the -8- Participant's employment with the Employers shall terminate prior to a Change in Control, then the Participant shall have no further rights under this Plan; provided, however, that any termination of the Participant's employment following a Change in Control shall be subject to all of the provisions of this Plan. 11. SUCCESSORS; BINDING PLAN. (a) This Plan shall not be terminated by any ------------------------ merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 11, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Participant (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Plan and shall entitle the Participant to compensation and other benefits from the Company in the same amount and on the same terms as the Participant would be entitled hereunder if the Participant's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination. (c) This Plan shall inure to the benefit of and be enforceable by the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. 12. NOTICE. For purposes of the Plan, all notices and other communications ------ required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Participant, to the most recent address then shown on the employment records of the Participant'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 -9- 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. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's obligation ---------------------------------------- to make any payments provided for in this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employers may have against the Participant or others. In no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and, such amounts shall not be reduced whether or not the Participant obtains other employment. (b) If there shall be any dispute between the Employers and the Participant in the event of any termination of the Participant's employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the determination by the Participant of the existence of a Qualifying Termination was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to the Participant and his dependents or other beneficiaries, as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts, and provide all benefits, to the Participant and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such termination were by the Company without Cause or by the Participant as a Qualifying Termination. 14. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for purposes of ---------------------------- this Plan shall include employment with any corporation or other entity in which the Company has direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. 15. GOVERNING LAW; VALIDITY. The interpretation, construction and performance ----------------------- of this Plan shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect. 16. MISCELLANEOUS. Subject to the Company's power of amendment contained in ------------- Section 7, no provision of this Plan may be modified or waived unless -10- such modification or waiver is agreed to in writing and signed by the Participant and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Plan to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Participant or the Company to insist upon strict compliance with any provision of this Plan or to assert any right the Participant or the Company may have hereunder, including, without limitation, the right of the Participant to terminate employment for a Qualifying Termination, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Plan. The rights of, and benefits payable to, the Participant, his estate or his beneficiaries pursuant to this Plan are in addition to any rights of, or benefits payable to, the Participant, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company, except benefits payable under the Company's Severance Policy or for any payments that may be required by statute by reason of termination of employment, except for Unemployment Compensation, which are inclusive of the payments required under this Plan. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a duly authorized officer of the Company on this 5TH day of JUNE, 1996. TRUE NORTH COMMUNICATIONS INC. By:/S/ GREGORY W. BLAINE --------------------------- Title: EVP ------------------------ Employee: /S/ MITCHELL T. ENGEL ------------------------------ -11- EX-10.14 9 ASSET PROTECTION PLAN EXHIBIT 10.14 [LOGO OF TRUE NORTH COMMUNICATIONS INC. APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. ASSET PROTECTION PLAN 1. PURPOSE. The purpose of this Asset Protection Plan (the "Plan") is to ------- secure continued services, dedication and objectivity of certain executive employees of True North Communications Inc. (the "Company") and its subsidiaries in the event of any threat or occurrence of, or negotiation or other hostile action that could lead to, or create the possibility of, a hostile Change in Control (as defined in Section 2) of the Company, without concern as to whether such employees might be hindered or distracted by personal uncertainties and risks created by any such possible hostile Change in Control. 2. DEFINITIONS. As used in this Agreement, the following terms, when ----------- capitalized, shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (1) a material breach by a Participant of those duties and responsibilities of the Participant which do not differ in any material respect from the duties and responsibilities of the Participant during the 90-day period immediately prior to a Change in Control (other than as a result of incapacity due to physical or mental illness), which is demonstrably willful and deliberate on the Participant'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 (2) the commission by the Participant of a felony involving moral turpitude. (c) "Change in Control" means (i) an acquisition (other than directly from the Company) of 15% or more of the beneficial interest in the voting stock of the Company by a party other than the Company or a Company sponsored benefit plan; or (ii) a change in the Board of Directors as a result of which the current directors (together with the successors they nominate or approve for nomination) cease to be a majority of the Board of Directors of the Company; or (iii) a merger, reorganization or consolidation whereby the existing shareholders of the Company do not own more than 66-2/3% of the then outstanding shares resulting from such merger, reorganization -1- or consolidation, provided, however, that none of the foregoing shall be considered a Change in Control if it is a result of a direct action initiated by the Company. (d) "Company" means True North Communications Inc., a Delaware corporation. (e) "Compensation" means the Participant's annual rate of pay in effect immediately before a Change in Control occurs, plus the amount of the highest annual bonus awarded to the Participant in any of the three calendar years preceding the year in which a Change in Control occurs. (f) "Date of Termination" means (1) the effective date on which a Participant's employment by the Company terminates or (2) if the Participant's employment by the Company terminates by reason of death, the date of death of the Participant. (g) "Employee" means an individual whose relationship with an Employer is, under common law, that of an employee and who performs services for one or more Employers on a full-time basis. (h) "Employer" means the Company and any of its affiliates which, with the consent of the Company, has adopted this Plan. (i) "Nonqualifying Termination" means a termination of the Participant's employment (1) by the Participant's Employer for Cause, (2) as a result of the Participant's death, (3) by the Company due to the Participant's absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Participant's incapacity due to physical or mental illness as is consistent with Company policy and programs or (4) by the Participant for any reason other than for a Qualifying Termination. (j) "Participant" shall mean an Employee who, at the time a Change in Control occurs, is a member of the Company's Management Board. (k) "Qualifying Termination" means a termination of the Participant's employment due to the occurrence, without the Participant's expressed written consent, of any of the following events after the occurrence of a Change in Control: (1) any of (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in the Participant's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary -2- termination of the Participant from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Participant to any position with the Company held by the Participant immediately prior to such Change in Control; (2) a reduction by the Company in the Participant's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that the Participant (i) be based anywhere other than at the facility where the Participant is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially more burdensome than the travel obligations of the Participant immediately prior to such Change in Control; (4) the failure of any Employer to (i) continue in effect any employee benefit plan or compensation plan in which the Participant is participating immediately prior to such Change in Control, unless the Participant is permitted to participate in other plans providing the Participant with substantially comparable benefits, or the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such plan, (ii) provide the Participant and the Participant'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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company 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 Participant by the Company and its affiliated companies immediately prior to such Change in Control or, if more favorable to the Participant, as provided generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, (v) provide the Participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant immediately prior to such Change in Control or, if more -3- favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, or (vi) reimburse the Participant promptly for all reasonable employment expenses incurred by the Participant in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Participant immediately prior to such Change in Control, or if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 11(b). For purposes of the Agreement, any good faith determination of a Qualifying Termination made by the Participant shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken by an Employer in good faith and which is remedied by such Employer promptly after receipt of notice thereof given by the Participant shall not constitute a Qualifying Termination. (l) "Termination Period" means the period of time beginning with a Change in Control and ending on the earliest to occur of (1) the Participant's death, and (2) two years following such Change in Control. 3. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) If during the Termination --------------------------------------- Period the employment of a Participant shall terminate, by reason of a Qualifying Termination, then the Company shall pay to the Participant (or the Participant's beneficiary or estate) within 30 days following the Date of Termination, as compensation for services rendered to one or more Employers: (1) a cash amount equal to the sum of (i) the Participant's full annual base salary from the Employers through the Date of Termination, to the extent not theretofore paid, (ii) the Participant's annual bonus in an amount at least equal to the highest annualized (for any fiscal year consisting of less than 12 full months or with respect to which the Participant has been employed by the Employers for less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Participant by the Employers in respect of the three fiscal years of the Employers (or such portion thereof during which the Participant performed services for the Employers if the Participant shall have been employed by the Employers for less than such three fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs, multiplied by a fraction, the numerator of which is the number of days in the fiscal year in which the Change in Control occurs through the Date of Termination and the denominator of which is 365 or 366, as -4- applicable, and (iii) any compensation previously deferred by the Participant (together with any interest and earnings thereon) to the extent not theretofore paid; plus (2) a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 4) in an amount equal to three (3) times the Participant's Compensation. (b) For a period of two years commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, dental, disability, salary continuance, employee life and group life insurance with respect to the Participant and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to the Participant, as provided generally with respect to other peer Participants of the Employers, and the Employers and the Participant shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination. At the end of the two year period, the Participant shall be eligible to continued benefits as provided in the Consolidated Omnibus Budget Reconciliation Act. In addition, for purposes of determining the Participant's eligibility for participation in the Employer's retiree medical plan, the Participant shall upon the Participant's Date of Termination be treated as if he or she is five years older (but not older than age 55) than on such date and as if he or she had five additional years of service. (c) If during the Termination Period the employment of a Participant shall terminate by reason of a Nonqualifying Termination, then no compensation is payable nor are benefits extended for the two-year period as provided in (a) and (b) above. 4. WITHHOLDING TAXES. The Company may withhold from all payments due to the ----------------- Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 5. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise under ------------------------- this Plan involving termination of a Participant's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Participant, on a current basis, for all legal fees and expenses, if any, incurred by the Participant in connection with such contest or dispute, together with interest in an amount equal to the prime rate of Citibank, N.A. from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to -5- accrue from the date the Company receives the Participant's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Participant's claims in such contest or dispute, the Participant shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to the Participant pursuant to this Section 5. 6. OPERATIVE EVENT. Notwithstanding any provision herein to the contrary, no --------------- amounts shall be payable hereunder unless and until there is a Change in Control at a time when the Participant is employed by an Employer. 7. TERMINATION OF PLAN. This Plan shall be effective on the date hereof and ------------------- shall continue until terminated by the Company as provided in this paragraph. The Company shall have the right, prior to a Change in Control, in its sole discretion, pursuant to action by the Board, to approve the termination or amendment of this Plan; provided, however, that no such action shall be taken by the Board during any period of time when the Board has knowledge that any person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Board, such person has abandoned or terminated its efforts to effect a Change in Control. 8. PROVISIONAL REDUCTION IN BENEFITS. (a) Notwithstanding anything in this --------------------------------- Plan to the contrary, (i) if it shall be determined that any payment or distribution by the Employers to or for the benefit of a Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, but determined without regard to any adjustment required under this Section 8) (in the aggregate, the "Total Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), and (ii) if after reduction by the amount of such Excise Tax the amount of the Total Payments would be less than the maximum amount that could be paid to the Participant without the imposition of such Excise Tax, then the payments due hereunder shall be reduced so that the Total Payments are One Dollar ($1) less than such maximum amount. (b) All determinations required to be made under this Section 8, including whether and when a reduction in the amount payable hereunder pursuant to Section 3(a) is required and the amount of any such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company or the Participant. In the event that the Accounting Firm is serving as accountant or auditor for the individual, -6- entity or group effecting the Change in Control, the Employee shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Employee with the a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company, the Subsidiary and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the reduction in the amount payable hereunder pursuant to Section 3(a) will not have been made consistent with the calculations required to be made hereunder. In that event the Participant thereafter shall promptly pay to the Company the amount of the required reduction. 9. NONCOMPETITION. (a) Covenant Not to Compete. During the period of the -------------- Participant's employment by the Company and for a period of one year thereafter following a Qualifying Termination, except with the prior written consent of the Board, a Participant: (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 over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Period (the "Managed Companies"), or (ii) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Managed Companies, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. (b) Trade Secrets. No Participant shall, at any time during the Employment Period or thereafter, make use of any bidding information (or -7- computer programs thereof) of any of the Managed Companies, nor divulge any trade secrets or other confidential information of any of the Managed Companies, 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 CEO may so authorize in writing; and when a Participant shall cease to be employed by the Company, the Participant 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 4.01 or which were paid for by any of the Managed Companies; provided, however, that the Participant may retain copies of such documents as necessary for the Participant's personal records for federal income tax purposes. (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of the Participants contained in this Section: (1) the covenants contained in paragraphs (1) and (2) of Section 10 (a) shall apply within all territories in which any of the Managed Companies are 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 a Participant of the covenants contained in Sections 10 (a) and 10 (b), including the cessation and recovery of payments and benefits paid and provided under this Plan, 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 10 (a) and 10 (b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 10 (a) and 10 (b) shall survive the conclusion of the Participant's employment by the Company. 10. SCOPE OF PLAN. Nothing in this Plan shall be deemed to entitle the ------------- Participant to continued employment with any Employer, and if the -8- Participant's employment with the Employers shall terminate prior to a Change in Control, then the Participant shall have no further rights under this Plan; provided, however, that any termination of the Participant's employment following a Change in Control shall be subject to all of the provisions of this Plan. 11. SUCCESSORS; BINDING PLAN. (a) This Plan shall not be terminated by any ------------------------ merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 11, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Participant (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Plan and shall entitle the Participant to compensation and other benefits from the Company in the same amount and on the same terms as the Participant would be entitled hereunder if the Participant's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination. (c) This Plan shall inure to the benefit of and be enforceable by the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. 12. NOTICE. For purposes of the Plan, all notices and other communications ------ required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Participant, to the most recent address then shown on the employment records of the Participant'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 -9- 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. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's obligation --------------------------------------- to make any payments provided for in this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employers may have against the Participant or others. In no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and, such amounts shall not be reduced whether or not the Participant obtains other employment. (b) If there shall be any dispute between the Employers and the Participant in the event of any termination of the Participant's employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the determination by the Participant of the existence of a Qualifying Termination was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to the Participant and his dependents or other beneficiaries, as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts, and provide all benefits, to the Participant and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such termination were by the Company without Cause or by the Participant as a Qualifying Termination. 14. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for purposes of ---------------------------- this Plan shall include employment with any corporation or other entity in which the Company has direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. 15. GOVERNING LAW; VALIDITY. The interpretation, construction and performance ----------------------- of this Plan shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect. 16. MISCELLANEOUS. Subject to the Company's power of amendment contained in ------------- Section 7, no provision of this Plan may be modified or waived unless -10- such modification or waiver is agreed to in writing and signed by the Participant and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Plan to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Participant or the Company to insist upon strict compliance with any provision of this Plan or to assert any right the Participant or the Company may have hereunder, including, without limitation, the right of the Participant to terminate employment for a Qualifying Termination, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Plan. The rights of, and benefits payable to, the Participant, his estate or his beneficiaries pursuant to this Plan are in addition to any rights of, or benefits payable to, the Participant, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company, except benefits payable under the Company's Severance Policy or for any payments that may be required by statute by reason of termination of employment, except for Unemployment Compensation, which are inclusive of the payments required under this Plan. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a duly authorized officer of the Company on this 5TH day of JUNE, 1996. --- ---- TRUE NORTH COMMUNICATIONS INC. By: /S/ MITCHELL T. ENGEL ------------------------------------ Title: Executive VP, Dir. of Corp. Off. -------------------------------- Employee: /S/ GREGORY W. BLAINE --------------------------------------- -11- EX-10.15 10 ASSET PROTECTION PLAN EXHIBIT 10.15 [LOGO OF TRUE NORTH COMMUNICATIONS INC. APPEARS HERE] TRUE NORTH COMMUNICATIONS INC. ASSET PROTECTION PLAN 1. PURPOSE. The purpose of this Asset Protection Plan (the "Plan") is to ------- secure continued services, dedication and objectivity of certain executive employees of True North Communications Inc. (the "Company") and its subsidiaries in the event of any threat or occurrence of, or negotiation or other hostile action that could lead to, or create the possibility of, a hostile Change in Control (as defined in Section 2) of the Company, without concern as to whether such employees might be hindered or distracted by personal uncertainties and risks created by any such possible hostile Change in Control. 2. DEFINITIONS. As used in this Agreement, the following terms, when ----------- capitalized, shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (1) a material breach by a Participant of those duties and responsibilities of the Participant which do not differ in any material respect from the duties and responsibilities of the Participant during the 90-day period immediately prior to a Change in Control (other than as a result of incapacity due to physical or mental illness), which is demonstrably willful and deliberate on the Participant'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 (2) the commission by the Participant of a felony involving moral turpitude. (c) "Change in Control" means (i) an acquisition (other than directly from the Company) of 15% or more of the beneficial interest in the voting stock of the Company by a party other than the Company or a Company sponsored benefit plan; or (ii) a change in the Board of Directors as a result of which the current directors (together with the successors they nominate or approve for nomination) cease to be a majority of the Board of Directors of the Company; or (iii) a merger, reorganization or consolidation whereby the existing shareholders of the Company do not own more than 66-2/3% of the then outstanding shares resulting from such merger, reorganization -1- or consolidation, provided, however, that none of the foregoing shall be considered a Change in Control if it is a result of a direct action initiated by the Company. (d) "Company" means True North Communications Inc., a Delaware corporation. (e) "Compensation" means the Participant's annual rate of pay in effect immediately before a Change in Control occurs, plus the amount of the highest annual bonus awarded to the Participant in any of the three calendar years preceding the year in which a Change in Control occurs. (f) "Date of Termination" means (1) the effective date on which a Participant's employment by the Company terminates or (2) if the Participant's employment by the Company terminates by reason of death, the date of death of the Participant. (g) "Employee" means an individual whose relationship with an Employer is, under common law, that of an employee and who performs services for one or more Employers on a full-time basis. (h) "Employer" means the Company and any of its affiliates which, with the consent of the Company, has adopted this Plan. (i) "Nonqualifying Termination" means a termination of the Participant's employment (1) by the Participant's Employer for Cause, (2) as a result of the Participant's death, (3) by the Company due to the Participant's absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Participant's incapacity due to physical or mental illness as is consistent with Company policy and programs or (4) by the Participant for any reason other than for a Qualifying Termination. (j) "Participant" shall mean an Employee who, at the time a Change in Control occurs, is a member of the Company's Management Board. (k) "Qualifying Termination" means a termination of the Participant's employment due to the occurrence, without the Participant's expressed written consent, of any of the following events after the occurrence of a Change in Control: (1) any of (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in the Participant's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary -2- termination of the Participant from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Participant to any position with the Company held by the Participant immediately prior to such Change in Control; (2) a reduction by the Company in the Participant's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that the Participant (i) be based anywhere other than at the facility where the Participant is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially more burdensome than the travel obligations of the Participant immediately prior to such Change in Control; (4) the failure of any Employer to (i) continue in effect any employee benefit plan or compensation plan in which the Participant is participating immediately prior to such Change in Control, unless the Participant is permitted to participate in other plans providing the Participant with substantially comparable benefits, or the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such plan, (ii) provide the Participant and the Participant'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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 Participant immediately prior to such Change in Control or, if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company 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 Participant by the Company and its affiliated companies immediately prior to such Change in Control or, if more favorable to the Participant, as provided generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, (v) provide the Participant with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Participant immediately prior to such Change in Control or, if more -3- favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants of the Company and its affiliated companies, or (vi) reimburse the Participant promptly for all reasonable employment expenses incurred by the Participant in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Participant immediately prior to such Change in Control, or if more favorable to the Participant, as in effect generally at any time thereafter with respect to other peer Participants 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 11(b). For purposes of the Agreement, any good faith determination of a Qualifying Termination made by the Participant shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken by an Employer in good faith and which is remedied by such Employer promptly after receipt of notice thereof given by the Participant shall not constitute a Qualifying Termination. (l) "Termination Period" means the period of time beginning with a Change in Control and ending on the earliest to occur of (1) the Participant's death, and (2) two years following such Change in Control. 3. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) If during the Termination --------------------------------------- Period the employment of a Participant shall terminate, by reason of a Qualifying Termination, then the Company shall pay to the Participant (or the Participant's beneficiary or estate) within 30 days following the Date of Termination, as compensation for services rendered to one or more Employers: (1) a cash amount equal to the sum of (i) the Participant's full annual base salary from the Employers through the Date of Termination, to the extent not theretofore paid, (ii) the Participant's annual bonus in an amount at least equal to the highest annualized (for any fiscal year consisting of less than 12 full months or with respect to which the Participant has been employed by the Employers for less than 12 full months) bonus paid or payable, including by reason of any deferral, to the Participant by the Employers in respect of the three fiscal years of the Employers (or such portion thereof during which the Participant performed services for the Employers if the Participant shall have been employed by the Employers for less than such three fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs, multiplied by a fraction, the numerator of which is the number of days in the fiscal year in which the Change in Control occurs through the Date of Termination and the denominator of which is 365 or 366, as -4- applicable, and (iii) any compensation previously deferred by the Participant (together with any interest and earnings thereon) to the extent not theretofore paid; plus (2) a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 4) in an amount equal to three (3) times the Participant's Compensation. (b) For a period of two years commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, dental, disability, salary continuance, employee life and group life insurance with respect to the Participant and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to the Participant, as provided generally with respect to other peer Participants of the Employers, and the Employers and the Participant shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination. At the end of the two year period, the Participant shall be eligible to continued benefits as provided in the Consolidated Omnibus Budget Reconciliation Act. In addition, for purposes of determining the Participant's eligibility for participation in the Employer's retiree medical plan, the Participant shall upon the Participant's Date of Termination be treated as if he or she is five years older (but not older than age 55) than on such date and as if he or she had five additional years of service. (c) If during the Termination Period the employment of a Participant shall terminate by reason of a Nonqualifying Termination, then no compensation is payable nor are benefits extended for the two-year period as provided in (a) and (b) above. 4. WITHHOLDING TAXES. The Company may withhold from all payments due to the ----------------- Participant (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 5. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall arise under ------------------------- this Plan involving termination of a Participant's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Participant, on a current basis, for all legal fees and expenses, if any, incurred by the Participant in connection with such contest or dispute, together with interest in an amount equal to the prime rate of Citibank, N.A. from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to -5- accrue from the date the Company receives the Participant's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Participant's claims in such contest or dispute, the Participant shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to the Participant pursuant to this Section 5. 6. OPERATIVE EVENT. Notwithstanding any provision herein to the contrary, no --------------- amounts shall be payable hereunder unless and until there is a Change in Control at a time when the Participant is employed by an Employer. 7. TERMINATION OF PLAN. This Plan shall be effective on the date hereof and ------------------- shall continue until terminated by the Company as provided in this paragraph. The Company shall have the right, prior to a Change in Control, in its sole discretion, pursuant to action by the Board, to approve the termination or amendment of this Plan; provided, however, that no such action shall be taken by the Board during any period of time when the Board has knowledge that any person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Board, such person has abandoned or terminated its efforts to effect a Change in Control. 8. PROVISIONAL REDUCTION IN BENEFITS. (a) Notwithstanding anything in this --------------------------------- Plan to the contrary, (i) if it shall be determined that any payment or distribution by the Employers to or for the benefit of a Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, but determined without regard to any adjustment required under this Section 8) (in the aggregate, the "Total Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), and (ii) if after reduction by the amount of such Excise Tax the amount of the Total Payments would be less than the maximum amount that could be paid to the Participant without the imposition of such Excise Tax, then the payments due hereunder shall be reduced so that the Total Payments are One Dollar ($1) less than such maximum amount. (b) All determinations required to be made under this Section 8, including whether and when a reduction in the amount payable hereunder pursuant to Section 3(a) is required and the amount of any such reduction and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Participant that there has been a Payment, or such earlier time as is requested by the Company or the Participant. In the event that the Accounting Firm is serving as accountant or auditor for the individual, -6- entity or group effecting the Change in Control, the Employee shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Employee with the a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company, the Subsidiary and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the reduction in the amount payable hereunder pursuant to Section 3(a) will not have been made consistent with the calculations required to be made hereunder. In that event the Participant thereafter shall promptly pay to the Company the amount of the required reduction. 9. NONCOMPETITION. (a) Covenant Not to Compete. During the period of the -------------- Participant's employment by the Company and for a period of one year thereafter following a Qualifying Termination, except with the prior written consent of the Board, a Participant: (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 over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Period (the "Managed Companies"), or (ii) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Managed Companies, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. (b) Trade Secrets. No Participant shall, at any time during the Employment Period or thereafter, make use of any bidding information (or -7- computer programs thereof) of any of the Managed Companies, nor divulge any trade secrets or other confidential information of any of the Managed Companies, 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 CEO may so authorize in writing; and when a Participant shall cease to be employed by the Company, the Participant 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 4.01 or which were paid for by any of the Managed Companies; provided, however, that the Participant may retain copies of such documents as necessary for the Participant's personal records for federal income tax purposes. (c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of the Participants contained in this Section: (1) the covenants contained in paragraphs (1) and (2) of Section 10 (a) shall apply within all territories in which any of the Managed Companies are 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 a Participant of the covenants contained in Sections 10 (a) and 10 (b), including the cessation and recovery of payments and benefits paid and provided under this Plan, 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 10 (a) and 10 (b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 10 (a) and 10 (b) shall survive the conclusion of the Participant's employment by the Company. 10. SCOPE OF PLAN. Nothing in this Plan shall be deemed to entitle the ------------- Participant to continued employment with any Employer, and if the -8- Participant's employment with the Employers shall terminate prior to a Change in Control, then the Participant shall have no further rights under this Plan; provided, however, that any termination of the Participant's employment following a Change in Control shall be subject to all of the provisions of this Plan. 11. SUCCESSORS; BINDING PLAN. (a) This Plan shall not be terminated by any ------------------------ merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Plan shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 11, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Participant (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Plan and shall entitle the Participant to compensation and other benefits from the Company in the same amount and on the same terms as the Participant would be entitled hereunder if the Participant's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination. (c) This Plan shall inure to the benefit of and be enforceable by the Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Participant shall die while any amounts would be payable to the Participant hereunder had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such person or persons appointed in writing by the Participant to receive such amounts or, if no person is so appointed, to the Participant's estate. 12. NOTICE. For purposes of the Plan, all notices and other communications ------ required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Participant, to the most recent address then shown on the employment records of the Participant'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 -9- 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. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's obligation ---------------------------------------- to make any payments provided for in this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Employers may have against the Participant or others. In no event shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and, such amounts shall not be reduced whether or not the Participant obtains other employment. (b) If there shall be any dispute between the Employers and the Participant in the event of any termination of the Participant's employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the determination by the Participant of the existence of a Qualifying Termination was not made in good faith, or that the Company is not otherwise obligated to pay any amount or provide any benefit to the Participant and his dependents or other beneficiaries, as the case may be, under paragraphs (a) and (b) of Section 3, the Company shall pay all amounts, and provide all benefits, to the Participant and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to paragraphs (a) and (b) of Section 3 as though such termination were by the Company without Cause or by the Participant as a Qualifying Termination. 14. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for purposes of ---------------------------- this Plan shall include employment with any corporation or other entity in which the Company has direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors. 15. GOVERNING LAW; VALIDITY. The interpretation, construction and performance ----------------------- of this Plan shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which other provisions shall remain in full force and effect. 16. MISCELLANEOUS. Subject to the Company's power of amendment contained in ------------- Section 7, no provision of this Plan may be modified or waived unless -10- such modification or waiver is agreed to in writing and signed by the Participant and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Plan to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Participant or the Company to insist upon strict compliance with any provision of this Plan or to assert any right the Participant or the Company may have hereunder, including, without limitation, the right of the Participant to terminate employment for a Qualifying Termination, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Plan. The rights of, and benefits payable to, the Participant, his estate or his beneficiaries pursuant to this Plan are in addition to any rights of, or benefits payable to, the Participant, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company, except benefits payable under the Company's Severance Policy or for any payments that may be required by statute by reason of termination of employment, except for Unemployment Compensation, which are inclusive of the payments required under this Plan. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by a duly authorized officer of the Company on this 18TH day of OCTOBER , 1996. TRUE NORTH COMMUNICATIONS INC. By:/S/ MITCHELL T. ENGEL --------------------------------------- Title: President, Assoc. Cos & Corp. Ops. ------------------------------------ Employee: /S/ THEODORE J. THEOPHILOS ------------------------------------------ -11- EX-10.16 11 EMPLOYMENT AGREEMENT EXHIBIT 10.16 EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of December 31, 1996 between True ----------------- North Communications Inc., a Delaware corporation (the "Company"), and J. Brendan Ryan (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 (the Company and the subsidiaries, affiliates and joint ventures in which it from time to time has equity interests are hereinafter referred to collectively as the "True North Group"); WHEREAS, the Executive currently serves the Company as Chairman/CEO, Foote, Cone & Belding ("FCB"); 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. (Unless expressly noted otherwise, all references to the Company shall include FCB.) 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, 2001; provided that the Full-Time Employment Period may be extended by the Company as of December 31, 2001 and each December 31 thereafter for one additional year upon mutual consent of the Executive and the Company; and further provided that the Full-Time Employment Period may be terminated as contemplated in Section 4. -1- 2. POSITION AND DUTIES. The Company shall employ the Executive ------------------- during the Full-Time Employment Period, with the title of Chairman/CEO, Foote, Cone & Belding (or such other title as may be mutually agreed upon by the Executive and the Company) and shall report to the Chairman of the Company. Executive shall be the most senior executive of FCB. The Executive's duties and responsibilities shall be those existing as of the date of this Agreement and any other duties and responsibilities existing subsequent hereto if agreed to in writing by the Executive. During the Full-Time Employment Period, the Executive shall perform faithfully and loyally and to the best of the Executive's abilities his duties hereunder, shall devote full business time, attention and effort to the affairs of the True North Group and shall use reasonable best efforts to promote the interests of the True North Group. During the Full-Time Employment Period, the Executive shall be a member of both the TNC and FCB Management Boards and the Company agrees to nominate the Executive to the Company's Board of Directors as of each annual election of directors. The Executive's principal place of business during the Full-Time Employment Period shall be in New York City. 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 of Directors of the Company (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. 3. COMPENSATION. ------------ (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 $600,000, as adjusted herewith 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, but such review will not be less frequent than an interval of 24 months with a guaranteed minimum salary increase of 10% in the 24-month interval. (b) Incentive Compensation. During the Full-Time Employment Period, ---------------------- the Executive shall participate in the VIC, DVIC and VISO components of the Company's Performance Program as defined for the Executive's position, pursuant to the terms of such plans as they may be amended from time to time. If the Performance Program is terminated during the Full-Time Employment Period, a plan providing comparable compensation elements will be instituted in its place on behalf of the Executive. However, regardless of the terms of any incentive compensation program which may be in effect during the Full-Time Employment Period, the Executive is guaranteed that the combination of annual base salary and cash incentive compensation will be no less than $1,000,000 in any calendar year during the Full-Time Employment Period. -2- (c) Other Benefits. During the Full-Time Employment Period, the -------------- Executive shall be entitled to participate in the Company's employee benefit plans available to the five most 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 the five most 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 the five most 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 the five most senior executives and to receive all other fringe benefits as are from time to time made available to the five most 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. In addition, the Executive shall be reimbursed for legal and other professional expenses incurred in connection with the negotiation and preparation of this Agreement. 4. TERMINATION OF FULL-TIME EMPLOYMENT PERIOD; SUSPENSION. ------------------------------------------------------ (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 set forth below in this paragraph (a)) to regularly perform his duties hereunder by reason of illness or incapacity for a period of more than six consecutive months (such disability being referred to as "Disability" and such termination being a "Termination for Disability"), (iii) termination on account of 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 date of this Agreement (or subsequent hereto if such new position(s), duties, responsibilities or status were agreed to in writing by the Executive), (ii) an adverse change in the Executive's reporting lines, titles or offices with the Company, or (iii) any removal or involuntary termination of the Executive from the Company otherwise than as -3- expressly permitted by this Agreement or any failure to re-elect or re-appoint the Executive to any position with the Company held by the Executive at the date of this Agreement (or subsequent hereto if held pursuant to the written agreement of the Executive); (iv) any material diminution in the Executive's duties; or (v) any material change in the corporate organization or structure of business of the Company; (2) a reduction by the Company in the Executive's rate of annual base salary in effect at the date of this Agreement, or, if greater, in effect at any time subsequent hereto; (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 date of this Agreement (or subsequent hereto if agreed to by the Executive in writing) or (ii) travel on Company business to an extent substantially more burdensome than the extent of the Executive's travel during the twelve months ending on the 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 or agreement, (ii) provide the Executive and the Executive's dependents welfare benefits including, without limitation, medical, dental, disability, salary continuance, employee life, group life, and travel accident insurance plans and programs in accordance with the most favorable plans, practices, programs and policies of the True North Group in effect for the Executive at the date of this Agreement or, if more favorable to the Executive, as in effect generally at any time hereafter with respect to the five most senior executives of the True North Group, (iii) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the True North Group in effect for the Executive at the date of this Agreement or, if more favorable to the Executive, as in effect generally at any time hereafter with respect to the five most senior executives of the True North Group, (iv) provide an office or offices of a size and with furnishings and other appointments, together with exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive at the date of this Agreement by the True North Group or, if more favorable to the Executive, as provided generally at any time hereafter with respect to the five most senior executives of the True North Group, (v) provide the Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of the True North Group in effect for the Executive at the date of this Agreement or, if more favorable to the Executive, as in effect generally at any time hereafter with respect to the five most senior executives of the True North -4- Group, 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 True North Group in effect for the Executive at the date of this Agreement or, if more favorable to the Executive, as in effect generally at any time hereafter with respect to the five most senior executives of the True North Group; (5) the failure of the Company to obtain an assumption agreement from any successor or permitted assign as contemplated in Section 15; or (6) any material breach of the Agreement by the Company. In the case of a proposed Termination for Disability, the Company shall provide the Executive with a notice of termination accompanied by the written opinion of an independent and qualified medical doctor concluding (in reasonable detail and based upon an examination of the Executive) that the Executive has a Disability. The effective date of termination in such case shall be the later of (i) the date that the Executive shall have had such Disability for six consecutive months and (ii) sixty days after the date that such notice is delivered to the Executive. For purposes of this Agreement, (i) expiration of this Agreement at the end of its stated term or any mutually consented to extension thereof shall not constitute a Qualifying Termination and (ii) any good faith determination of a Qualifying Termination made by the Executive shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken by the Company in good faith and which is remedied by the Company promptly (the earlier of 60 days or as soon as reasonably practicable) after receipt of written notice thereof given by the Executive shall not constitute a basis for a Qualifying Termination. (b) Nonqualifying Termination. For purposes of this Agreement, ------------------------- "Nonqualifying Termination" means a termination of the Executive's employment (i) by the Company for Cause, or (ii) by the Executive for any reason other than for a Qualifying Termination. (c) Definition of Cause. For purposes of this Agreement, "Cause" ------------------- means (i) a material breach by the Executive of the duties and responsibilities of the Executive hereunder as now in effect or as may hereafter be agreed to with the Executive's written consent (other than as a result of incapacity due to physical or mental illness), which is demonstrably willful and deliberate on the Executive's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and which is not remedied within 30 days (or sooner, as specified in such written notice, if the Company, in its good faith judgment, determines that the period must be shorter to avoid harm to the -5- Company) after receipt of written notice from the Company specifying such breach or (ii) the commission by the Executive of a felony involving moral turpitude. (d) Suspension. If the Company shall conclude that the Executive has ---------- committed any act or acts which constitute Cause and shall notify the Executive thereof in writing and if the Executive shall deny that he committed such act or acts or that such act or acts constitute Cause and shall notify the Company of such denial in writing within seven days following the Company's written notice to the Executive, the Board may, in its sole and absolute discretion, suspend the Executive with full compensation and benefits during the pendency of any investigation by the Company 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 compensation described in Sections 3(a) and 3(b) payable with respect to the period through the term of this Agreement as specified in Section 1 and any mutually consented to extension thereof or, if longer, the period of twelve months following such termination (hereinafter referred to as the "Severance Period"), in accordance with the Company's regular payroll practices, and (2) reimbursement of proper 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 100% vested, and shall thereafter be exercisable in full by the Executive 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. 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 the introduction to this Section 5(a), all current and future stock awards are fully exercisable for the three-year period, or if shorter until a date 10 years following the date of grant of such option; (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 shall be made under the terms of the Executive's DVIC Agreement and shall commence at the conclusion of the Severance Period. The Company covenants that the Compensation Committee of the Board shall take such action as necessary so that -6- upon termination of the Executive's employment as provided in the introduction to this Section 5(a), all current and future DVIC awards are fully vested. (iv) during the Severance Period and continuing through to the Executive's age 65, the Executive and his dependents shall be entitled to participate in life insurance, medical and dental benefits on terms no less favorable than on the termination date, subject to modifications of general application to the five most senior executives of the Company. (v) after expiration of the Severance Period, the Executive shall be entitled to compensation and benefits payable under the Directors Part-Time Employment Agreement, with all age and service requirements deemed to have been satisfied and with the benefit calculated at 45% of final average annual compensation and assuming 30 years of credited service regardless of actual service determined under the Directors Part-Time Employment Agreement which is attached hereto and the terms of which are incorporated herein. (vi) the Executive shall be entitled to participate in all other applicable benefit plans or programs in accordance with the provisions thereof applicable to terminated employees. (b) Qualifying Termination Due to Death or Disability. If the 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 within 30 days after the amount in question is reasonably determinable (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 proper 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 considered 100% vested, and exercisable in full 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. The Company covenants that the Compensation Committee of the Board shall take -7- such actions as necessary so that upon the termination of the Executive's employment as provided in the introduction to this Section 5(b), all current and future stock awards are fully exercisable to such extent for the three-year period, or if shorter until a date 10 years following the date of grant of such option; (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. 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 the introduction to this Section 5(b), all current and future DVIC awards are fully vested. (iv) the Executive (if alive) or the Executive's executor, administrator or other legal representative, as the case may be, shall be entitled to the compensation and benefits payable under the Directors Part-Time Employment Agreement, with all age and service requirements deemed to have been satisfied and with the benefit calculated at 45% of the final average annual compensation, assuming 30 years of credited service. (v) the Executive (or the Executive's qualified dependents, as the case may be), shall be entitled to participate at the Company's expense in all other applicable benefit plans or programs in accordance with the provisions until such time as the Executive is (or would have been) 65 years of age or such later time as provided in such plans. (c) Nonqualifying Termination. (i) If the Full-Time Employment ------------------------- Period terminates for a reason set forth in clause (i) Section 4(b): (1) the Executive shall be entitled to receive within 30 days after the amount in question is reasonably determinable (1) all salary payable through the date of such termination, (2) unpaid VIC and DVIC and VISO awarded, but not yet granted, for the prior calendar year, and (3) reimbursement of proper expenses incurred through the date of such termination; (2) each stock option granted to the Executive by the Company then held by the Executive shall be exercisable pursuant to the terms of such option in accordance with the applicable stock option agreement in effect at the time of such termination. -8- (3) the Executive shall be entitled to receive the vested portion of the amounts in the Executive's DVIC account. Such payments will be made in accordance with the terms of the Executive's DVIC Agreement. (4) the Executive shall be entitled to participate in all other applicable benefit plans or programs in accordance with the provisions thereof applicable to terminated employees. (ii) If the Full-Time Employment Period terminates for a reason set forth in clause (ii) of Section 4(b), in addition to the entitlements specified in Section 5(c)(i), the Executive shall be entitled to the compensation and benefits payable under the Directors Part-Time Employment Agreement, with all age and service requirements deemed to have been satisfied and with the benefit calculated at 45% of the final average annual compensation, assuming 30 years of credited service. (d) After a Change in Control. In the event of a Qualifying ------------------------- Termination as defined in the Company's Asset Protection Plan (which is attached hereto and the terms of which are hereby incorporated except as otherwise provided herein) after a "Change in Control" (as hereinafter defined), the Executive shall be entitled to payments in accordance with the Company's Asset Protection Plan, plus any applicable payments and benefits set forth in this Section 5, provided that such payments and benefits are not duplicative, if any, of the payments or benefits provided in the Asset Protection Plan. This Agreement supersedes the Asset Protection Plan in the case of any conflicts or inconsistency between such Agreements. Without limiting the foregoing, for purposes hereof, a "Change in Control" shall have the meaning set forth in the Asset Protection Plan except that the proviso thereto (", provided, however, that none of the foregoing shall be considered a Change in Control if it is a result of a direct action initiated by the Company") shall be deleted in its entirety. 6. FEDERAL AND STATE WITHHOLDING. The Company shall deduct from the ----------------------------- amounts payable to the Executive pursuant to this Agreement the amount of all required federal and state withholding taxes in accordance with the Executive's Form W-4 on file with the Company and all applicable social security taxes. 7. NONCOMPETITION; NONSOLICITATION; CONFIDENTIALITY. (a) Covenant ------------------------------------------------ -------- Not to Compete. Notwithstanding any provision of the Asset Protection Plan to - -------------- the contrary, during the Full-Time Employment Period, during the Severance Period and during such time the Executive is receiving all payments when due under the Company's Directors Part-Time Employment Agreement, except with the prior written consent of the Board: -9- (1) the Executive shall not engage in any activities whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (i) the businesses conducted at the date hereof by the True North Group, or (ii) any business in which the True North Group is substantially engaged at any time during the Full-Time Employment Period; (2) the Executive shall not solicit, directly or indirectly, any existing business relationship of clients of the True North Group existing at the end of the Full-Time Employment Period in which the True North Group is substantially engaged at any time during the Full-Time Employment Period, the Severance Period or the period during which the Executive is receiving all payments when due under the Directors Part-Time Employment Agreement; and (3) the Executive 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 except for the Executive's executive assistant. (b) Confidential Information and Trade Secrets. The Executive shall ------------------------------------------ not, at any time during the Full-Time 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 ("Confidential Information") of any of the True North Group, except to the extent that such Confidential Information is publicly available, is published in a newspaper, magazine or other periodical available to the general public or as the Company may so authorize in writing; and when the Executive shall cease to be employed by the Company, the Executive shall surrender to the Company all records and other documents obtained by him during the course of his employment hereunder (together with all copies thereof constituting Confidential Information) 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 Full-Time 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 -10- covenants contained in Sections 7(a) and 7(b), it is expressly agreed that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; (3) each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in Sections 7(a) and 7(b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 7(a) and 7(b) shall survive the conclusion of the Executive's employment by the Company. 8. NONDISPARAGEMENT; COOPERATION. (a) The Executive shall not, at ----------------------------- any time during the Full-Time Employment Period or the Severance Period or the duration of the Company's Directors Part-Time Employment Agreement or thereafter, make any statement, publicly or privately, which would disparage and of the True North Group, any of their respective business or any director or officer of any of them 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 of any 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 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 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 Full-Time Employment Period or the Severance Period or the duration of the Company's Directors Part- Time Employment Agreement or thereafter, authorize any person to make or allow, nor shall the Company condone the making of, any statement, publicly or privately, which would disparage the Executive; provided, however, that the Company shall not be in breach of this restriction if such statements consist solely of (i) private statements made to any officers, directors or employees of any 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 materially -11- 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. 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 New York 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 Period. 11. ARBITRATION; CERTAIN COSTS. Any dispute or controversy between -------------------------- the Company and the Executive, arising out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled by arbitration in New York, New York administered by the American Arbitration Association in accordance with its Commercial Rules then in effect and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. However, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute or controversy and seek interim provisional, injunctive or other equitable relief until the arbitration award is rendered or the controversy is otherwise resolved. The Company shall reimburse the Executive, upon demand, for all costs and expenses (including without limitation attorneys' fees) reasonably incurred by the Executive in connection with any such application undertaken by the Executive in good faith, as well as for all such costs and expenses reasonably incurred by the Executive in connection with entering and/or enforcing the award rendered by the arbitrator. 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 -12- 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 Company, and if to the Company, to True North Communications Inc., 101 East Erie Street, Chicago, Illinois 60611-2897, Attention: Secretary, or (2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 13. SEVERABILITY. Whenever possible, each provision of this Agreement ------------ shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is determined to be invalid, illegal or unenforceable in any respect under applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement or the validity, legality or enforceability of such provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 14. ENTIRE AGREEMENT. This Agreement, together with the Asset ---------------- Protection Plan and the Directors Part-Time Employment Agreement, to the extent applicable, constitute 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, and by the Company and its successors and permitted assigns. Any successor or permitted assign of the Company shall assume by instrument in form and substance satisfactory to the Executive 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 New York without regard to principles of conflict of laws. -13- 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 ----------------------------- J. Brendan Ryan -14- EX-11 12 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 SUMMARY OF CALCULATIONS OF EARNINGS PER SHARE For the Years Ended December 31, 1994, 1995 and 1996 I. EARNINGS PER SHARE--PRIMARY CALCULATION
1994 1995 1996 ------- -------- ------- A. Net income (loss) $30,277 $19,653 $27,834 ======= ======= ======= Weighted average common shares outstanding 23,275 23,104 23,657 Average common share equivalents outstanding: Treasury share impact of Publicis shares (1,176) (978) (978) Stock options 579 416 575 Contingent issuances (Note 1) -- -- -- ------- ------- ------- B. Weighted average common and common equivalent shares outstanding 22,678 22,542 23,254 ======= ======= ======= C. Net income (loss) per share $ 1.34 $ .87 $ 1.20 ======= ======= =======
General Note: All share and per share amounts have been restated to reflect the two-for-one stock split which occurred on February 17, 1995. Note 1 - There are no such common shares issuable for the years presented. As a result, presentation of an earnings per share calculation on a fully diluted basis is inapplicable. EX-13 13 ANNUAL REPORT LOGO 1996 FINANCIAL REPORT TRUE NORTH COMMUNICATIONS INC. 101 EAST ERIE STREET CHICAGO, ILLINOIS 60611 312-425-6500 ABOUT TRUE NORTH In December 1994 True North Communications Inc. (True North) succeeded Foote, Cone & Belding Communications, Inc. as the holding company for Foote, Cone & Belding--America's largest advertising agency--and additional agency brands, including Mojo, Borders Perrin Norrander, Bayer Bess Vanderwarker and others. With these brands as the foundation, True North is building a new type of architecture for a communications firm. Through planned acquisitions and internal growth, True North has become a communications company encompassing resources much broader in scope than any existing advertising holding company. True North's architecture is unique and includes three new business units: . TN Technologies Holding Inc.--This company is a leader in digital interactive marketing, having developed over 500 interactive/new media marketing programs since 1987. The company combines traditional marketing skills with capabilities in digital media and communications technologies to enable clients to more effectively reach and interact with customers and other key constitutents, including employees, stockholders, suppliers and other business partners. The company 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. The company was formed on December 31, 1996 through the combination of TN Technologies Inc. and a new acquisition, Modem Media. . TN Media Inc.--This business unit is a global network of the Company's specialists in the planning and buying of media time and space. . TN Services Inc.--True North has established this business unit to house all of its agency support services around the globe, handling all financial transactions including bill paying, payroll, and accounts receivable collections; all human resource tasks from insurance to employee stock purchase plans; and a broad range of other support services in the areas of legal services, travel and management of leased facilities. The architecture of True North is designed to free local agency management from administration of the media buying and back office support functions and give them leading edge technology so they can devote their full energy and creativity to True North's most important endeavor--growing our clients' business. In addition to designing and creating effective advertising campaigns for radio, television and print media, the agency brands under the True North banner offer clients such additional services as: . digital and interactive communications . sales promotion and direct marketing . yellow pages directory advertising . healthcare advertising . public relations . Hispanic marketing . market and product research . package design . trademark and trade name development True North agency brands operate fully staffed offices in the United States, Canada, Latin America, Asia and the Pacific under a number of agency brands. The Publicis.FCB joint venture, jointly owned by True North and Publicis Communication, operates fully staffed offices throughout Europe. These offices handle multinational advertising and national advertising assignments. REVENUES: True North's principal source of revenues is from its agency brands that receive: . commissions and fees earned on advertising placed with the various media, and, . commissions and fees earned for the production and preparation of advertising. 1 In addition, True North's agency brands receive fees for various other services performed in connection with advertising, research and marketing studies. The Company's client list includes many well-known national and international advertisers of consumer and industrial goods and services. During 1996, the ten largest clients accounted for approximately 40% of consolidated revenues: no single client accounted for as much as 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, 1996, True North employed 5,022 people in its majority-owned offices: 3,070 were employed in its domestic offices and 1,952 in its international offices. Of the 5,022 total employees, 1,915 were engaged in the creation and production of advertising, 1,296 in account management, 844 in media and research activities, and 967 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 stock price of its Common Stock and dividends paid each quarter since January 1, 1995, adjusted for the two-for- one stock split which occurred on February 17, 1995:
PRICE RANGE ----------------- DIVIDENDS HIGH LOW DECLARED --------- ------- --------- 1995 1st Quarter....................................... $21 13/16 $15 3/4 $.15 2nd Quarter....................................... 20 1/4 17 5/8 .15 3rd Quarter....................................... 21 1/2 19 .15 4th Quarter....................................... 20 5/8 18 .15 1996 1st Quarter....................................... $25 $16 3/8 $.15 2nd Quarter....................................... 27 22 1/4 .15 3rd Quarter....................................... 23 3/4 16 3/4 .15 4th Quarter....................................... 24 19 1/2 .15
At December 31, 1996 True North had approximately 7,300 shareholders. True North employees owned approximately 18% of the Company's outstanding Common Stock as of that date, either directly or through various employee benefit plans. UNAUDITED QUARTERLY FINANCIAL DATA: Quarterly results (in thousands) and per share data, adjusted for the two-for-one stock split which occurred on February 17, 1995, are as follows:
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- 1995 Revenues................................ $ 95,389 $110,857 $108,654 $124,153 Income (loss) before provision for income taxes........................... (6,185) 8,117 6,136 6,683 Net income (loss)....................... (11,028) 11,356 4,194 15,131 Net income (loss) per share............. $ (.49) $ .51 $ .19 $ .67 1996 Revenues................................ $105,934 $118,429 $125,803 $142,884 Income (loss) before provision for income taxes........................... (2,774) 94 10,475 11,419 Net income (loss)....................... (722) 6,049 6,033 16,474 Net income (loss) per share............. $ (.03) $ .26 $ .26 $ .71
2 FIVE-YEAR SELECTED FINANCIAL DATA: Select historical financial data (in thousands, except per share amounts which have been adjusted for the two-for- one stock split which occurred on February 17, 1995) are as follows:
1992 1993 1994 1995 1996 -------- -------- -------- -------- -------- YEAR ENDED DECEMBER 31, - ----------------------- Revenues....................... $353,340 $372,666 $403,690 $439,053 $493,050 Net income (loss).............. 21,728 25,714 30,277 19,653 27,834 Net income (loss) per share.... 1.00 1.15 1.34 .87 1.20 Dividends per share............ .60 .60 .60 .60 .60 AT DECEMBER 31, - --------------- Working capital................ 5,310 13,745 (16,809) (46,503) (48,945) Total assets................... 589,359 637,887 673,744 766,102 932,660 Long-term debt (includes current portion).............. 35,652 36,255 10,885 5,601 31,783 Total liabilities.............. 406,032 437,857 465,987 544,008 691,319 Stockholders' equity........... 183,327 200,030 207,757 222,094 241,341 Book value per share........... 7.95 8.62 9.10 9.51 10.20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) RESULTS OF OPERATIONS--1996 COMPARED TO 1995 Revenues from True North's consolidated operations increased 12.3% to $493,050 in 1996 from $439,053 in 1995. North American revenues increased 15.7% to $396,246 in 1996 while international revenues increased 0.2% to $96,804. During the latter part of 1995 and in 1996, True North purchased several agencies in North America, Latin America and the Pacific Rim. These acquisitions contributed $47,413 and $5,965 to True North's 1996 revenues and pretax income respectively. Salaries and benefits expenses increased 13.5% to $318,539 in 1996. Excluding the impact of acquisitions, this category of expense increased approximately 4% between years. Office and general expenses increased $21,656 or 16.9% between years, higher than the rate of revenue growth. Excluding acquisitions, the rate of growth for this expense category was 6%. During the fourth quarter of 1996, True North experienced high levels of legal and consulting costs related to its continuing negotiations with Publicis (approximately $1.4 million higher than 1995). In addition, True North continued to invest in new digital advertising technologies, resulting in higher levels of depreciation expense and consulting costs. As more fully explained in Note 14 to the consolidated financial statements, True North recorded a net pretax charge of $1,356 in the fourth quarter of 1996 related to (1.) severance of two of its former executives and inside Board members, and, (2.) the execution of a sublease for office space in Los Angeles, (3.) offset by a gain related to the December 31, 1996 acquisition of Modem Media. The increase in interest expense between years is due to higher average borrowings in 1996 primarily caused by the Company's investment spending detailed on page 5. The increase in other income, which primarily represents interest income, is due to the fact that in 1996 other income includes gains recorded on an investment in the common stock of a publicly held British public relations agency. These gains are more fully explained in Note 2. The effective tax rate was 50.5% in 1996 compared to 25.1% in 1995. As more fully explained on page 5, the 1995 effective tax rate was impacted by the favorable settlement of outstanding obligations in several tax 3 jurisdictions. The 1996 effective tax rate was favorably impacted by the reversal of $1,000 of valuation allowance related to net operating losses previously incurred by the Company's Canadian operations. During 1996, the Company was able to utilize these net operating loss carryforwards to offset current taxable income. As a result, the related valuation allowance was no longer required and so was reduced. The various elements of the tax provision for both 1995 and 1996 are more fully explained in Note 13. Equity income, which consists primarily of True North's share of European operations, was $18,286 in 1996 compared to $9,165 in 1995. 1995 equity income was depressed by the first quarter 1995 Italian restructuring provision of $7,034. The fourth quarter of 1996 was benefited by the true-up of Italian restructuring reserves as the Italian operations of the joint venture were able to negotiate more favorable settlements on leases and other actions than previously anticipated. This reserve true-up resulted in a one-time increase in 1996 earnings of $5,759. Actual operating results for Europe were down $3,862 primarily due to revenue declines and resultant severance actions taken at several of the joint venture's German locations and also to the strengthening of the U.S. dollar against European currencies. RESULTS OF OPERATIONS--1995 COMPARED TO 1994 Revenues from True North's consolidated operations increased 8.8% from $403,690 in 1994 to $439,053 in 1995. U.S. revenues increased 5.6% to $323,921 and foreign revenues increased 18.8% to $115,132. Excluding the impact of acquisitions, consolidated revenues would have increased 3.2%. During 1995, True North acquired the R/GA Digital Media Group and several advertising agencies in North America, Latin America and the Pacific Rim. These acquisitions contributed $22,333 and $3,628 to the Company's 1995 revenues and pretax income, respectively. The 1995 percentage increases in salaries and employee benefit expenses and office and general expenses were higher than the percentage increase in consolidated revenues due to the following: . During 1995, True North continued to build its competency in technology by staffing new TN Technologies units in its offices and through the acquisition of R/GA. The salaries and employee benefit expense to revenue ratio for these units is higher than levels typical of the Company's established advertising agencies. . During 1995, True North embarked upon an aggressive program to upgrade the staffing of its offices in the Asia-Pacific region. True North believes that this region has the greatest opportunity for growth over the next several years compared to other areas of the world. As a result, 1995 salaries and employee benefits expense include higher than normal severance charges as the Company changed personnel and invested in new management in several of its offices in this region. . The rate of increase in office and general expense reflects the Company's commitment to developing state of the art proprietary digital technology to design and produce all forms of advertising. True North will continue to invest in its TN Technologies units to maintain its competitive edge. . Office and general expenses in 1995 were favorably impacted by the reduction of $1,100 of accruals established in prior years which were no longer deemed to be necessary. The provision for doubtful accounts was a credit of $290 in 1995 due to the favorable settlement of a $600 trade receivable which had previously been fully reserved. As more fully explained in Note 14, True North recorded a pretax charge of $10,185 in the first quarter of 1995 related to the closure of an FCB operation in the Pacific region and to accrue for charges related to its disputes with Publicis. The majority of this amount was paid in 1995. The remainder was paid in 1996. The increase in interest expense between years is due to higher average borrowings in 1995 as well as higher average interest rates. 4 The decline in other income, which in 1995 primarily represents interest income, is due to the fact that in 1994 other income includes gains recorded on investments in an interest rate swap and the common stock of a publicly held British public relations agency. These gains are more fully explained in Note 2. The effective tax rate was 25.1% in 1995 compared to 44.6% in 1994. During 1995, the Company settled outstanding obligations in several tax jurisdictions on a favorable basis. As a result, True North recorded a reversal of tax reserves amounting to $6,214 in 1995. The various elements of the tax provision for both 1994 and 1995 are more fully explained in Note 13. Equity income, which consists primarily of True North's share of European operations, was $9,165 in 1995 compared to $10,203 in 1994. In the first quarter of 1995, Publicis.FCB Europe recorded a charge related to the previously disclosed restructuring of its Italian operations. The restructuring was substantially completed in 1996. True North's share of this charge, which is reflected as a reduction of equity income, was $7,034. Equity income also includes a reversal of a previously established estimation reserve related to the Company's European investment amounting to $1,306. Excluding these one-time items, True North's share of European operations increased by approximately $4,700 between years: $1,500 of this improvement was due to favorable currency exchange rates in 1995 as compared to 1994, and the remainder of this improvement was due to improvements in the operating results of its Swiss, British and French operating units. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities have historically represented the Company's primary source of funding for investment activities. Over the past five years True North has emphasized the timely collection of accounts receivable and the careful management of its accounts receivable to accounts payable ratio, resulting in an optimum accounts receivable to accounts payable ratio at the end of 1994. During 1995 and 1996, True North experienced a shift in client spending from media to production work. Media costs are typically billed to and collected from clients before payment is due to the media. In general, production work requires that the agency incur and pay costs that it can bill to its clients once the related work is completed. As a result of this shift in client spending patterns, over the last two years 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. True North continues to review its billing and payment procedures and believes that this change in client spending patterns will not result in further significant increases in its accounts receivable to accounts payable ratio. The pace of True North's investment spending continues to grow as the Company has focused its efforts in two areas: . Capital expenditures--the 1995 increase in capital expenditures was driven by the relocation of True North's New York office and by the Company's efforts to maintain its competitive edge in providing digital marketing services. As anticipated, capital expenditures in 1996 declined by $9,474 from 1995 levels because the New York office move was completed in 1995. In the future the Company anticipates that capital expenditures will be at levels comparable to 1996 due to True North's commitment to maintain its competitive edge in providing digital marketing services. . Purchase of subsidiaries and interests in affiliated companies--True North continues to contemplate strategic acquisitions to enhance its worldwide network. During the past three years, True North completed the acquisition of several agencies in North America, Latin America and the Pacific rim. These acquisitions were financed through a combination of existing cash balances and the issuance of short-term borrowings. As discussed in Note 16, on December 31, 1996 True North acquired a 64% interest in Modem Media in exchange for 1,121 shares of its common stock, a 36% interest in the assets and operations of TN Technologies Inc., and a contingent obligation to pay $16 million in cash and $4 million in True North common stock in the event that TN Technologies Holding Inc. (the combined operations of Modem Media and TN Technologies Inc.) is able to complete an initial public offering of its common stock. Future acquisitions may be financed through a combination of cash from existing operations, and the issuance of stock and long-term borrowings. 5 True North liquidated the majority of its marketable securities portfolio during 1995 and issued short-term borrowings during 1995 and 1996 to finance its investment activities. In addition, as described in Note 6, it improved its access to long-term financing by entering into a $90 million Revolving Credit Agreement during 1995 and a $25 million three year term loan during 1996. True North has paid cash dividends at an annual rate of $.60 per share over the past nine 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 1997. PUBLICIS RELATIONSHIP As previously disclosed, during 1996 True North continued to negotiate a resolution to its outstanding disputes with Publicis, its partner in their European joint venture. These negotiations continued until mid-February 1997. On February 19, 1997, True North and Publicis announced an amicable settlement of their disputes through the signing of a Memorandum of Agreement (the "MOA"). The intent of this document 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. A copy of this document is filed as an exhibit to True North's 1996 Form 10-K. Pursuant to the MOA, Publicis has agreed to transfer its ownership of certain agencies in France, the United Kingdom, Portugal and Greece to True North. In exchange, True North has agreed to exchange its 49% interest in the joint venture for a 26.5% ownership in an newly structured and larger Publicis (which will, by the terms of the MOA, own 100% of the remaining agencies of the joint venture). In addition, subject to terms to be agreed at a later date, True North has agreed to offer to sell to Publicis its ownership in certain of its second brand agencies in South Africa and Germany, at least a controlling interest in certain of its second brand agencies in Australia and New Zealand, and to use its best efforts to assist Publicis in its efforts to establish agencies in Thailand, India and Argentina. The MOA contains certain terms intended to provide True North with a means of selling its resulting equity interest in Publicis either in a public offering or based upon appraised market values and other specified formulas contained in the MOA. Under the terms of the MOA, Publicis has agreed to use its best efforts to cause its common stock to be listed on a major European stock exchange by no later than December 31, 1998. The MOA also contains certain provisions addressing several other issues including, but not limited to: the termination of all adversarial proceedings by both parties upon execution of a final definitive agreement referred to below; the use and ownership of each agency's brandnames by the respective parties; the payment of certain past and future costs incurred by each party to service the clients of the other party; agreement to continue servicing clients in markets where one party, but not the other, has established an office; and, provisions related to the exchange of financial and other information. Although the MOA provides that it is legally binding, it recognizes that certain transactions and other provisions and terms contemplated in the MOA will require execution of final definitive documents. Income derived for its shareholdings in Publicis and the European joint venture have represented a significant percentage of True North's net income in recent years. The terms and provisions of the MOA are designed to minimize the impact on ongoing earnings from operations of either party. True North believes that, if all of the transactions contemplated by the MOA occur, the earnings impact on its ongoing operations will not be material. In addition, based upon internally developed valuations of the various operations and investments which True North will acquire or sell under the terms of the MOA, the Company believes that the consummation of all of these transactions will not result in a material gain or loss except for possible tax consequences discussed below. 6 However, the ultimate gain or loss recorded on these transactions will be determined based upon the results of definitive valuation studies performed by independent valuation experts. In addition, because the MOA contemplates the restructuring of the legal investments of parties which are subject to different tax jurisdictions it is impossible to predict, with any degree of certainty, the potential tax consequences of these transactions because the actual legal form of the transactions will be determined by the execution of the final definitive documents referred to above. Even so, based upon preliminary analysis of these transactions, True North believes that it may record a material charge to its 1997 earnings related to tax payments arising from the consummation of these transactions. True North also believes that these tax consequences will not be material to its consolidated 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 Exchange Act. 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. 7 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (IN 000'S, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------- 1994 1995 1996 -------- -------- -------- Revenues......................................... $403,690 $439,053 $493,050 Costs and Expenses: Salaries and employee benefits................. $248,955 $280,619 $318,539 Office and general expenses.................... 116,903 128,459 150,115 Provision for doubtful accounts................ 781 (290) 625 Unusual transactions........................... -- 10,185 1,356 Interest expense............................... 7,027 8,087 8,585 Other (income) expense, net.................... (5,972) (2,758) (5,384) -------- -------- -------- $367,694 $424,302 $473,836 -------- -------- -------- Income before Provision for Income Taxes......... $ 35,996 $ 14,751 $ 19,214 Provision for Federal, Foreign and State Income Taxes........................................... 16,068 3,705 9,697 -------- -------- -------- $ 19,928 $ 11,046 $ 9,517 Minority Interest Income (Expense)............... 146 (558) 31 Equity in Net Earnings of Affiliated Companies... 10,203 9,165 18,286 -------- -------- -------- Net Income....................................... $ 30,277 $ 19,653 $ 27,834 ======== ======== ======== Net Income Per Share............................. $ 1.34 $ .87 $ 1.20 ======== ======== ======== Weighted Average Number of Common and Common Equivalent Shares Outstanding................... 22,678 22,542 23,254 ======== ======== ========
The accompanying notes are an integral part of these statements. 8 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN 000'S, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, ------------------ ASSETS 1995 1996 ------ -------- -------- Current Assets: Cash..................................................... $ 48,408 $ 45,946 Short-term investments and marketable securities......... 8,573 11,050 Accounts receivable, net of reserve for doubtful accounts of $4,657 in 1995 and $4,956 in 1996.................... 333,038 402,786 Other current assets..................................... 39,970 44,464 -------- -------- $429,989 $504,246 -------- -------- Property and Equipment: Land and buildings....................................... $ 443 $ 412 Leasehold improvements................................... 37,872 38,447 Furniture and equipment.................................. 99,809 120,238 -------- -------- $138,124 $159,097 Less--Accumulated depreciation and amortization.......... (83,498) (97,728) -------- -------- $ 54,626 $ 61,369 -------- -------- Other Assets: Goodwill, net of accumulated amortization of $28,702 in 1995 and $34,149 in 1996................................ $ 84,934 $151,640 Investment in affiliated companies....................... 187,456 202,397 Other assets............................................. 9,097 13,008 -------- -------- $281,487 $367,045 -------- -------- $766,102 $932,660 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable......................................... $371,767 $417,054 Short-term bank borrowings............................... 49,982 79,698 Liability for federal and foreign taxes on income........ 1,810 2,312 Current portion of long-term debt........................ 199 270 Accrued expenses......................................... 52,734 53,857 -------- -------- $476,492 $553,191 -------- -------- Noncurrent Liabilities: Long-term debt........................................... $ 5,402 $ 31,513 Liability for deferred compensation...................... 36,538 44,501 Other noncurrent liabilities............................. 25,576 37,727 Obligation to Modem Media partners....................... -- 24,387 -------- -------- $ 67,516 $138,128 -------- -------- Stockholders' Equity: Preferred stock, $1.00 par value, authorized 100 shares, none issued............................................. $ -- $ -- Common stock, 33 1/3c par value, authorized 50,000 shares, issued 23,490 in 1995 and 23,872 in 1996........ 7,830 7,957 Paid-in capital.......................................... 116,483 123,740 Retained earnings........................................ 105,800 119,399 Less--Treasury stock, at cost: 128 shares in 1995; 204 in 1996.................................................... (2,661) (4,553) Cumulative translation adjustment........................ (5,358) (5,202) -------- -------- $222,094 $241,341 -------- -------- $766,102 $932,660 ======== ========
The accompanying notes are an integral part of these statements. 9 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN 000'S)
CUMULATIVE COMMON PAID-IN RETAINED TREASURY TRANSLATION STOCK CAPITAL EARNINGS STOCK ADJUSTMENT ------ -------- -------- -------- ----------- Balance at December 31, 1993.. $3,884 $118,525 $ 83,729 $ (1,021) $(5,087) Net income.................. -- -- 30,277 -- -- Dividends................... -- -- (13,995) -- -- Common stock issued for stock options.............. 31 2,049 -- 336 -- Common stock purchased by Stock Purchase Plan........ -- 1,033 -- 3,306 -- Treasury stock purchased.... -- -- -- (16,281) -- Other common stock issuances.................. -- 101 -- 7 -- Translation adjustment...... -- -- -- -- 863 ------ -------- -------- -------- ------- Balance at December 31, 1994.. $3,915 $121,708 $100,011 $(13,653) $(4,224) Net income.................. -- -- 19,653 -- -- Dividends................... -- -- (13,864) -- -- Two-for-one stock split..... 3,915 (3,915) -- -- -- Common stock issued for stock options.............. -- (369) -- 1,301 -- Common stock purchased by Stock Purchase Plan........ -- (941) -- 9,948 -- Treasury stock purchased.... -- -- -- (257) -- Other common stock issuances.................. -- -- -- -- -- Translation adjustment...... -- -- -- -- (1,134) ------ -------- -------- -------- ------- Balance at December 31, 1995.. $7,830 $116,483 $105,800 $ (2,661) $(5,358) Net income.................. -- -- 27,834 -- -- Dividends................... -- -- (14,235) -- -- Common stock issued for stock options.............. 59 2,165 -- 859 -- Common stock purchased by Stock Purchase Plan........ 68 5,092 -- 3,273 -- Treasury stock purchased.... -- -- -- (6,024) -- Translation adjustment...... -- -- -- -- 156 ------ -------- -------- -------- ------- Balance at December 31, 1996.. $7,957 $123,740 $119,399 $ (4,553) $(5,202) ====== ======== ======== ======== =======
The accompanying notes are an integral part of these statements. 10 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN 000'S)
YEAR ENDED DECEMBER 31, ---------------------------- 1994 1995 1996 -------- -------- -------- CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES: Net income..................................... $ 30,277 $ 19,653 $ 27,834 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Gain on sale of assets....................... -- -- (5,800) Provision for doubtful accounts.............. 781 (290) 625 Depreciation and amortization................ 14,883 17,783 18,976 Unrealized (gain) loss on Shandwick investment.................................. (1,877) 424 (1,440) Deferred compensation expense................ 2,794 4,030 7,963 Deferred income taxes........................ 26 (4,583) (1,935) Equity earnings of affiliates................ (10,203) (9,165) (18,286) Decrease (increase) in accounts receivable... (19,498) (56,897) (53,338) Increase (decrease) in accounts payable...... 51,232 43,185 15,794 Decrease (increase) in other current assets.. 2,494 (10,156) (1,387) Increase (decrease) in accrued expenses...... 2,313 (6,559) 8,889 Dividends received from affiliated companies. 1,890 6,321 3,044 Other........................................ 741 5,721 (1,730) -------- -------- -------- $ 75,853 $ 9,467 $ (791) -------- -------- -------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Decrease (increase) in short-term investments and marketable securities..................... $(11,452) $ 43,468 $ (661) Increase (decrease) in liability for cash overdrafts.................................... (764) 1,793 6,061 Increase (decrease) in short-term bank borrowings.................................... 2,794 42,118 29,716 Additions to long-term debt.................... 34 -- 25,264 Repayments of long-term debt................... (25,904) (5,393) -- Common stock purchased by Stock Purchase Plan.. 4,339 9,007 8,433 Stock option exercises......................... 2,416 932 3,083 Cash dividends paid............................ (13,995) (13,864) (14,235) Common stock purchased for treasury............ (16,281) (257) (6,024) -------- -------- -------- $(58,813) $ 77,804 $ 51,637 -------- -------- -------- CASH PROVIDED BY (USED FOR) INVESTMENT ACTIVITIES: Purchase of interest in affiliated companies... $ (304) $ (8,114) $ (728) Capital expenditures........................... (9,716) (27,169) (17,695) Purchase of subsidiaries....................... (8,533) (28,178) (34,885) -------- -------- -------- $(18,553) $(63,461) $(53,308) -------- -------- -------- Increase (decrease) in cash...................... (1,513) 23,810 (2,462) Balance at beginning of year..................... 26,111 24,598 48,408 -------- -------- -------- Balance at end of year........................... $ 24,598 $ 48,408 $45,946 ======== ======== ========
The accompanying notes are an integral part of these statements. 11 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN 000'S, EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations--The Company (True North) is a global advertising and communications business. Pages 1 and 2 of this Annual Report contain a more comprehensive discussion of the nature of True North's operations. Principles of Consolidation--The consolidated financial statements include the accounts of the Company and all wholly owned and majority-owned subsidiaries. The Company uses the equity method of accounting to record its investments in 20% to 49% owned affiliated companies. Use of Estimates--The preparation of these financial statements required the use of certain estimates by management in determining the Company's assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Income Recognition--True North records revenue when media placements appear and production costs are billable. Salaries and other agency costs are charged to expense at the time incurred. 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, 1996, unremitted earnings of foreign subsidiaries and affiliated companies were approximately $99,225. 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 operating earnings of the related business. Amortization of goodwill, including goodwill of affiliated companies, amounted to $5,422 in 1994, $6,336 in 1995, and $7,568 in 1996. Stock Split--On February 17, 1995, the Company paid a 100% stock dividend to stockholders of record as of January 6, 1995. All per share and share data in the accompanying financial statements and footnotes have been adjusted to give effect to this stock dividend. Earnings Per Share--Earnings per share are computed using the weighted average number of common shares outstanding during the year. The computation also reflects the potential issuance of shares under True North's stock option plans. 12 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES The Company's current investment portfolio consists of short-term investments (principally time deposits and money-market funds) and marketable securities. At December 31, 1995 and 1996, short-term investments and marketable securities were:
1995 1996 ------ ------- Short-term investments.................................... $5,101 $ 6,556 5% investment in Shandwick, plc........................... 3,472 4,494 ------ ------- $8,573 $11,050 ====== =======
During 1994, the Company converted its non-marketable preferred stock investment in Shandwick, plc, a publicly-held global public relations company, to common shares of this company. Management designated its investment in the common shares of Shandwick, plc as "trading securities". In accordance with the provisions of SFAS No. 115, "Accounting for Certain Debt Investments in Debt and Equity Securities", this investment was reclassified to short-term investments and marketable securities and gains of $1,877 and $1,440 in 1994 and 1996 and a loss of $424 in 1995 were recorded to reflect this investment at quoted market value at each year-end. During 1993, True North entered into an interest rate swap contract with a bank which became effective in June 1994. Under this arrangement, the Company receives LIBOR and pays a fixed rate of 6.1% on a notional amount of $25,000 from June 1994 to June 1999. Because this interest rate swap contract did not operate as an interest rate hedge against the Company's debt at December 31, 1994, the Company recorded a gain of $1,600 on this instrument to record its fair market value at that date. During 1995, the Company designated this financial instrument as a hedge against $25,000 of its borrowings. As a result, the recorded value of this financial instrument was reclassified to other assets and is being amortized as an element of interest expense over the remaining life of the contract. At December 31, 1996, the carrying and fair market values of this investment were $538 and $(134), respectively. 3. OTHER CURRENT ASSETS At December 31, 1995 and 1996, other current assets consisted of:
1995 1996 ------- ------- Expenditures billable to clients......................... $28,362 $31,573 Prepaid expenses......................................... 11,608 12,891 ------- ------- $39,970 $44,464 ======= =======
4. INVESTMENT IN AFFILIATED COMPANIES The Company's investment in affiliated companies consists of:
1995 1996 -------- -------- 21% interest in Publicis Communication................. $ 73,179 $ 76,495 49% interest in Publicis.FCB B.V....................... 103,247 114,861 Other.................................................. 11,030 11,041 -------- -------- $187,456 $202,397 ======== ========
13 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Summarized financial information for affiliated companies is as follows:
1995 1996 -------- -------- Current assets.......................................... $888,358 $898,847 Noncurrent assets....................................... 226,779 216,964 Current liabilities..................................... 808,996 791,672 Long-term debt.......................................... 24 16 Other noncurrent liabilities............................ 82,774 86,136 Shareholders' equity.................................... 223,343 237,987 Revenues................................................ 617,111 626,584 Pretax income........................................... 62,670 73,212 Net income.............................................. 28,945 39,915
The Company's equity in the net tangible assets of these affiliated companies was $123,692 at December 31, 1995 and $132,280 at December 31, 1996. Publicis Conseil, a French advertising agency, is jointly owned by Publicis Communication (80%) and Publicis.FCB B.V. (20%). Publicis Conseil had total assets of $411,984 and $397,982 at December 31, 1995 and 1996, and total net income of $10,913, $14,307 and $12,799 for the years ended December 31, 1994, 1995, and 1996. True North's total investment in Publicis Conseil was approximately 3% of its assets at December 31, 1995 and 1996. True North's share of the net earnings of Publicis Conseil was $2,959, $3,310 and $3,275 in 1994, 1995, and 1996. 5. ACCOUNTS PAYABLE Accounts payable includes the liability for cash overdrafts which represents checks outstanding in excess of balances maintained at the respective banks. The liability for cash overdrafts was $35,042 and $44,856 at December 31, 1995 and 1996, respectively. 6. SHORT-TERM BANK BORROWINGS AND LONG-TERM DEBT Short-term bank borrowings consist principally of amounts borrowed under domestic and international bank overdraft facilities, lines of credit and multicurrency credit arrangements. Average aggregate short-term borrowings were $50,381 in 1995 and $71,122 in 1996, and the maximum amount outstanding was $89,138 in 1995 and $124,558 in 1996. The weighted average interest rate for short-term borrowings was 5.6%, 7.0% and 6.4% in 1994, 1995 and 1996, respectively. On December 21, 1995 the Company entered into a Revolving Credit Agreement totaling $90,000 with several banks. This agreement, which expires on December 21, 1998, provides that True North may obtain loans bearing interest at a bid rate (LIBOR or Fixed), a Reference Rate, or the Eurodollar rate plus a spread, and requires a facility fee of .175% to .300%, depending upon the Company's financial performance. During 1995, there were no borrowings under this agreement. During 1996, the Company borrowed $12,000 under this agreement for a six month period. These borrowings were repaid prior to December 31, 1996. 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%. In addition to these agreements, the Company had available at various banks uncommitted lines of credit aggregating approximately $118,688 at December 31, 1996, of which $38,990 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. 14 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Long-term debt consists of:
1995 1996 ------ ------- Three Year Term Loan..................................... $ -- $25,000 Other notes and obligations.............................. 5,601 6,783 ------ ------- $5,601 $31,783 Less portions due within one year........................ (199) (270) ------ ------- $5,402 $31,513 ====== =======
Scheduled maturities of long-term debt are $270, $6,513, and $25,000 in 1997, 1998, and 1999, respectively. The long-term debt agreements and Revolving Credit Agreement contain various restrictive covenants and conditions which include, but are not limited to: . The Company must maintain a minimum net worth of $165,000, plus 50% of Adjusted Net Income (as defined) from June 30, 1995, a current ratio of at least .75, an indebtedness (as defined) to capitalization ratio of no greater than .4, and a fixed charge coverage ratio of at least 1.5. At December 31, 1996, the Company was in compliance with all covenants and conditions related to these agreements. At December 31, 1996, the Company estimates that the market value of its debt is not materially different from its financial statement carrying value. The fair value of this debt was estimated using quoted market prices or discounted future cash flows. 7. CONTINGENCIES True North is a party to several lawsuits incidental to its business. It is not possible at the present time to estimate the ultimate liability, if any, of the Company with respect to such litigation; however, management believes that any ultimate liability will not be material in relation to the Company's consolidated results of operations or financial position. 8. STOCK-BASED COMPENSATION PLANS The Company has established various stock option plans for officers and key employees. These plans provide for the issuance of options to purchase common shares at fair market value on the date of grant. Options vest immediately, or after three or five years and expire after ten years. The Company may grant options for up to 3,807 shares under these plans. The Company has granted options on 3,343 shares through December 31, 1996. The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for stock options awarded under these plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
1995 1996 ------- ------- Net Income: As Reported................................. $19,653 $27,834 Pro Forma................................... $19,164 $26,780 Primary EPS: As Reported................................. .87 1.20 Pro Forma................................... .85 1.15
15 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. A summary of the status of the Company's stock option plans at December 31, 1994, 1995 and 1996 and changes during the years then ended is presented in the following table and narrative:
1994 1995 1996 ---------------- ---------------- ---------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ -------- Outstanding at beginning of year.......................... 1,659 $13.38 2,033 $16.37 2,592 $17.19 Granted........................ 651 22.57 759 19.09 632 19.49 Exercised...................... (202) 11.95 (62) 12.07 (205) 13.39 Forfeited...................... (75) 15.93 (138) 17.85 (169) 19.33 ----- ----- ----- Outstanding at end of year..... 2,033 $16.37 2,592 $17.19 2,850 $17.85 ===== ====== ===== ====== ===== ====== Exercisable at end of year..... 684 $12.87 959 $14.46 1,241 $16.14 ===== ====== ===== ====== ===== ====== Weighted average fair value of options granted............... $ 6.41 $ 5.79 ====== ======
1,223 of the 2,850 options outstanding at December 31, 1996 have exercise prices between $9.44 and $19.13, with a weighted average exercise price of $14.41 and a weighted average remaining contractual life of 5.22 years. 885 of these options are exercisable. The remaining 1,627 options have exercise prices between $19.25 and $25.38, with a weighted average price of $20.42 and a weighted average remaining contractual life of 8.36 years. 356 of these options are exercisable. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions used for 1995 and 1996: risk-free interest rates of 7.18% and 5.67%; expected dividend yields of 2.9%; expected life of 10 years; and expected volatility of 22.9% and 23.9%. 9. SHAREHOLDERS' RIGHTS PLAN True North has a Shareholders' Rights Plan that is designed to protect shareholders from unfair or coercive takeover practices. Under this plan, one preferred stock purchase right exists for each outstanding share of common stock. The rights, which expire in November 1998, are exercisable only if a person or group (excluding True North) acquires 20% (25% in the case of Publicis Communication and its affiliates) or more of True North's common stock or announces a tender offer which would result in ownership of 30% or more of True North's common stock. Each right entitles the holder to purchase 1/2,000 of a share of Series A Junior Participating Preferred Stock ("preferred stock") of the Company at a purchase price of $42.50, subject to adjustment under certain conditions. At December 31, 1996, 30 shares of the True North's unissued preferred stock were reserved for issuance upon exercise of these rights. Subject to certain conditions and limitations, in the event that True North is acquired by a person or group, these rights (which have not otherwise been exercised to acquire True North's preferred stock) entitle the holder to acquire the common stock of the surviving entity at approximately 50% of fair market value. The Board of Directors has the flexibility to (i) redeem outstanding rights at a rate of $.005 per right, (ii) adjust the thresholds at which these rights become exercisable, and, (iii) exclude other persons or groups from triggering the exercisability of these rights. 16 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. DISTRIBUTION OF EARNINGS AND ASSETS Information about the Company's operations in different geographic areas for 1994, 1995 and 1996 is as follows:
1994 1995 1996 -------- -------- -------- Revenues: U.S...................................... $306,737 $323,921 $373,058 Foreign.................................. 96,953 115,132 119,992 -------- -------- -------- $403,690 $439,053 $493,050 ======== ======== ======== Income (Loss) before Provision for Taxes: U.S...................................... $ 40,018 $ 23,441 $ 26,195 Foreign.................................. (4,022) (8,690) (6,981) -------- -------- -------- $ 35,996 $ 14,751 $ 19,214 ======== ======== ======== Net Income: U.S...................................... $ 23,236 $ 18,468 $ 16,007 Foreign.................................. 7,041 1,185 11,827 -------- -------- -------- $ 30,277 $ 19,653 $ 27,834 ======== ======== ======== Identifiable Assets: U.S...................................... $343,464 $395,676 $492,188 Foreign.................................. 330,280 370,426 440,472 -------- -------- -------- $673,744 $766,102 $932,660 ======== ======== ========
11. RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS True North and participating U.S. subsidiaries have a profit sharing plan, a supplemental pension plan, and a stock purchase plan. The profit sharing and supplemental pension plans are integrated to provide, for employees who retire at age 65 with 30 or more years of service, annual retirement benefits of 45% of the highest five-year average compensation during their last ten years of full-time employment. Under the integration formula, the profit sharing plan provides the principal funding for employee retirement benefits. If a retiring employee's profit sharing balance is not sufficient to fund the minimum benefit described above, the pension plan provides the necessary supplemental funding to bring the total benefit up to the level guaranteed by the plans. True North's annual contribution to the profit sharing plan is based upon income, as defined in the plan, 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 provisions were $10,660 in 1994, $9,264 in 1995, and $8,007 in 1996. Net pension costs for the supplemental pension plan for 1994, 1995, and 1996 included the following components:
1994 1995 1996 ---- ---- ---- Service cost--benefits earned during the year........... $104 $110 $152 Interest cost on projected benefit obligation........... 216 212 190 Actual return on plan assets............................ (143) (121) (150) Net amortization and deferral........................... 38 40 39 ---- ---- ---- Total pension cost...................................... $215 $241 $231 ==== ==== ====
17 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The funded status of the supplemental pension plan at December 31, 1995 and 1996 is as follows:
1995 1996 ------ ------ Actuarial present value of accumulated benefit obligation (including vested benefits of $2,180 in 1995 and $2,063 in 1996)..................................................... $2,536 $2,224 Actuarial present value of projected benefit obligation.... 2,716 2,684 Plan assets at fair value.................................. 1,582 1,818
A salary increase rate of 6% and an investment return rate of 8% were used in 1994, 1995, and 1996. Discount rates of 8%, 8%, and 7.25%, were used in 1994, 1995, and 1996, 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 $5,949 in 1994, $6,913 in 1995, and $5,321 in 1996. 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 1994, 1995, and 1996 are as follows:
1994 1995 1996 ---- ---- ---- Service cost (benefits earned during the year)............ $353 $294 $292 Interest costs on accumulated postretirement benefit obligation............................................... 321 372 302 Net amortization and deferral............................. 247 147 84 ---- ---- ---- $921 $813 $678 ==== ==== ====
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, 1995 and 1996:
1995 1996 ------ ------ Accumulated postretirement benefit obligation Retirees............................................... $1,494 $1,324 Fully eligible active participants..................... 498 1,902 Other active plan participants......................... 1,860 874 ------ ------ Total accumulated postretirement benefit obligation.... $3,852 $4,100 Plan assets at fair value................................ -- -- ------ ------ Accumulated postretirement benefit obligation in excess of plan assets.......................................... $3,852 $4,100 Unrecognized net transition obligation................... (4,205) (3,958) Unrecognized net gain.................................... 2,743 2,944 ------ ------ Accrued postretirement benefit cost...................... $2,390 $3,086 ====== ======
18 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A discount rate of 7%, 8.5%, and 8% was used in 1994, 1995 and 1996, respectively. The rate of increase in covered medical benefits used to determine accumulated postretirement benefits was 12% in 1994, 11% in 1995, and 10% in 1996. This rate is assumed to decrease by 1% per annum to 6% in 2000 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% increase in the medical benefits cost trend rate would increase the accumulated postretirement benefit obligation at December 31, 1996 by $360 and 1996 expense by $76. 12. LEASE OBLIGATIONS True North leases substantially all of its office facilities under operating leases. Net rental expense on these leases was $40,219 in 1994, $40,279 in 1995 and $43,897 in 1996, after deducting sublease income of $6,476, $12,571, and $12,494, respectively. At December 31, 1996, the future minimum rental obligations for these leases (net of sublease income of approximately $65,872) is as follows:
YEAR AMOUNT ---- -------- 1997..................................... $ 34,015 1998..................................... 32,092 1999..................................... 26,259 2000..................................... 23,691 2001..................................... 21,970 Thereafter............................... 135,980
13. FEDERAL, FOREIGN AND STATE INCOME TAXES The domestic and foreign components of pretax income are as follows:
1994 1995 1996 ------- ------- ------- Domestic......................................... $35,344 $17,394 $18,255 Foreign.......................................... 652 (2,643) 959 ------- ------- ------- $35,996 $14,751 $19,214 ======= ======= =======
The provision for taxes on income consists of the following:
1994 1995 1996 ------- ------ ------- U.S.--currently payable.......................... $10,674 $4,088 $ 8,284 --deferred..................................... 26 (4,583) (1,925) Foreign.......................................... 913 875 2,127 State............................................ 4,455 3,325 1,211 ------- ------ ------- $16,068 $3,705 $ 9,697 ======= ====== =======
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, 1995 and 1996 are as follows:
1995 1996 ------ ------- Deferred compensation.................................... $8,821 $ 9,752 Lease reserves........................................... 5,982 8,771 Depreciation and amortization............................ (1,360) (1,724) Safe harbor leases....................................... (4,838) (4,453) Tax loss carryforwards................................... 5,628 5,152 Other, net............................................... (5,851) (5,510) Valuation allowances..................................... (2,412) (1,412) ------ ------- $5,970 $10,576 ====== =======
19 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Net current deferred taxes as of December 31, 1995 and 1996 were $5,161 and $3,751, respectively. Net non-current deferred taxes were $809 and $6,825, respectively. Valuation allowances have been provided for potentially unrealizable foreign tax loss carryforwards. During 1995, True North settled outstanding obligations in several tax jurisdictions on a favorable basis. As a result, True North recorded a reversal of tax reserves amounting to $6,214 in 1995. The 1996 effective tax rate was favorably impacted by the reversal of $1,000 of valuation allowance related to net operating losses previously incurred by the Company's Canadian operations. During 1996 True North was able to utilize these net operating loss carryforwards to offset current taxable income. As a result, the related valuation allowance was no longer required and so was reduced. The reconciliation of the U.S. statutory rate to the effective income tax rate is as follows:
1994 1995 1996 ---- ----- ---- At statutory rate..................................... 35.0% 35.0% 35.0% State taxes, net of federal tax benefit............... 8.0 14.6 4.1 Higher (lower) aggregate effective tax rate on foreign operations........................................... (0.1) 6.5 5.2 Tax effect of nondeductible amortization.............. 3.3 10.3 10.2 Reversal of excess tax reserves....................... -- (42.1) -- Other................................................. (1.6) .8 (4.0) ---- ----- ---- 44.6% 25.1% 50.5% ==== ===== ====
14. UNUSUAL TRANSACTIONS In the first quarter of 1995, the Company recorded a pretax charge of $10,185. Of this amount, $3,560 related to the closure of an FCB operation in the Pacific region and $6,625 represented the accrual of charges related to its disputes with Publicis. Additionally, included in the line, "Equity in Net Earnings of Affiliated Companies", was a charge of $7,034 related to the previously disclosed restructuring of the Italian operations of the Publicis.FCB European joint venture. In the fourth quarter of 1996, the Company recorded a net pretax charge of $1,356. During the fourth quarter of 1996, the Company severed two of its executives and Board members resulting in a pretax charge of $4,169. Additionally, the Company executed a sublease for office space in Los Angeles resulting in a pretax charge of $2,987. These charges were partially offset by the $5,800 pretax gain which the Company recorded related to the acquisition of Modem Media (see Note 16). Additionally, included in the line, "Equity in Net Earnings of Affiliated Companies", is a credit of $5,759 related to the true-up of Italian restructuring reserves, established in 1994 and 1995, as the Italian operations of the joint venture were able to negotiate more favorable settlements on leases other actions than previously anticipated. This credit was partially offset by a charge against 1996 earnings of approximately $1,900 related to severance actions taken at several of the joint venture's German operations. 15. SUPPLEMENTAL CASHFLOW DATA Interest and taxes paid in 1994, 1995, and 1996 were as follows:
1994 1995 1996 ------- ------- ------- Interest.......................................... $ 6,085 $ 6,507 $ 6,529 Taxes............................................. 13,919 10,868 14,588
20 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) True North maintains only minimal cash balances in its foreign subsidiaries. As a result, the impact of changes in currency rates on True North's cash balances is insignificant. 16. ACQUISITIONS During 1994, 1995 and 1996, True North purchased several agencies located in North America, Latin America and the Pacific Rim. Agencies purchased during the latter part of 1995 and in 1996 contributed $47,413 and $5,965 to True North's 1996 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. On December 31, 1996, True North acquired a 64% interest in Modem Media Advertising Limited Partnership ("Modem Media"), a technology-based marketing communications firm, in exchange for an absolute obligation to issue 1,121 of its common shares (issued on January 7, 1997) valued at $24,387, and a 36% interest in the assets and operations of TN Technologies Inc. valued by appraisal experts at $8,203. In addition, True North is obligated to make a $16 million cash payment and a $4 million payment in shares of its common stock to the former owners of this agency in the event that the combined operations of Modem Media and TN Technologies Inc. (known as TN Technologies Holding Inc.) are able to complete an initial public offering of its common stock. The difference between the initial purchase price and the fair value of assets acquired in this transaction amounting to $36,465 has been allocated to goodwill and is being amortized over a twenty year period. As a result of this transaction, True North recorded a pre-tax gain of $5,800 relating to the difference between the appraised fair value and the book value of the 36% interest in the assets and operations of TN Technologies Inc. paid to the former owners of Modem Media. The following unaudited pro forma summary presents True North's consolidated results of operations as if this business combination had occurred on January 1, 1996:
1996 -------- Revenues......................................................... $511,155 Net income....................................................... 27,450 Earnings per share............................................... $ 1.13
The above amounts are based upon certain assumptions and estimates which True North believes to be reasonable. The pro forma results do not necessarily represent results which would have occurred if the business combination had taken place at the date and on the basis assumed. 17. SUBSEQUENT EVENTS As described in "Management's Discussion and Analysis--Publicis Relationship" included in this Annual Report to Stockholders, on February 19, 1997 True North agreed to an amicable restructuring of its relationship with Publicis S.A. and certain of its affiliates. During the first quarter of 1997 True North acquired Wilkens International, a European advertising network with principal offices in Germany, Spain, Italy and Eastern Europe. The total cost of this acquisition was approximately $21,600 in cash plus the assumption of net liabilities (including the assumption of short and long-term debt of approximately $12,000) totaling approximately $18,694. True North financed this acquisition using existing debt facilities. 21 MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The financial statements and related financial information included in this annual report are the responsibility of management. They have been reported in conformity with generally accepted accounting principles. In preparing these financial statements, management has necessarily included some amounts which are based on its best estimates and judgments. True North maintains systems of internal accounting and financial control designed to provide reasonable assurance that its assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed and recorded in accordance with established procedures. These systems of internal controls are reviewed, modified and improved as changes occur in business conditions and operations. Arthur Andersen LLP, our independent public accountants, are engaged to audit and to report on our consolidated financial statements. In performing their audit in accordance with generally accepted auditing standards, they evaluate our systems of internal accounting control, review selected transactions, and carry out other auditing procedures to the extent they consider necessary in expressing their informed professional opinion on our financial statements. The Audit Committee, composed of nonemployee members of the Board of Directors, meets periodically with management, the independent certified public accountants, and the internal auditors. This Committee reviews audit plans and assesses the adequacy of internal controls and financial reporting. Both the independent certified public accountants and internal auditors have direct access to the Audit Committee. Bruce Mason Dale F. Perona Chairman/CEO Secretary and Treasurer John J. Rezich Controller 22 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 as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 financial statements of Publicis Conseil for each of the three years in the period ended December 31, 1996, the investment in which is reflected in the accompanying financial statements using the equity method of accounting. The investment in Publicis Conseil represents approximately 3% of total assets as of December 31, 1996 and 1995. The equity in its net earnings was $3,275,000, $3,310,000, and $2,959,000 for the years ended December 31, 1996, 1995, and 1994, respectively. The financial statements of Publicis Conseil were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for Publicis Conseil, is based solely on 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 115--Accounting for Certain Investments in Debt and Equity Securities, effective January 1, 1994. Arthur Andersen LLP Chicago, Illinois, March 6, 1997. 23 EX-21 14 SUBSIDIARIES EXHIBIT 21 PARENT AND SIGNIFICANT SUBSIDIARIES OF REGISTRANT JURISDICTION OF INCORPORATION ----------------------------- True North Communications Inc. Delaware Subsidiaries 100% owned by the Registrant and included in the consolidated financial statements-- VICOM/FCB, Inc. Delaware Foote, Cone & Belding of Pennsylvania, Inc. Delaware Foote, Cone & Belding Advertising, Inc. Delaware Foote, Cone & Belding, Inc. Delaware FCB International, Inc. Delaware Subsidiaries 100% owned by FCB International, Inc. and included in the consolidated financial statements-- FCB/Ronalds-Reynolds, Ltd. Canada (Ontario) FCB Australia Pty., Ltd. Australia Less than 50% owned affiliates accounted for by the equity method-- Publicis Communication France Publicis . FCB BV The Netherlands NOTE: Other subsidiaries included in the consolidated financial statements are excluded from this listing because in the aggregate they do not constitute a significant subsidiary as defined by the Securities and Exchange Commission. EX-23 15 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23 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 included in or incorporated by reference to this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File No.'s 33-15126, 33-41128, and 33-48523). Arthur Andersen LLP Chicago, Illinois, March 28, 1997. EX-24 16 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY The undersigned does hereby constitute and appoint each of Bruce Mason and Terry M. Ashwill, severally, acting alone and without the other, his or her attorney-in-fact for the purpose of signing in his or her name and on his or her behalf as a director of True North Communications Inc. (the "Company"), (i) the Company's Annual Report on Form 10-K pursuant to the Securities Exchange Act of 1934, (ii) any registration statement filed during 1997 for the registration under the Securities Act of 1933 of Common Stock of the Company, including the associated Preferred Stock Purchase Rights to be issued or sold in connection with the Company's Stock Option of Stock Purchase Plans, and (iii) the registration statement on Form S-3 to be filed in connection with the sale of True North Communications Inc. Common Stock by certain stockholders of the Company, and of signing any and all amendments to said Annual Report and registration statements and all amendments thereto as each thereof is so signed for filing with the Securities and Exchange Commission. Dated: January 16, 1997 /s/ Gregory W. Blaine /s/ J. Brendan Ryan - ------------------------ ------------------------ Gregory W. Blaine J. Brendan Ryan /s/ Richard S. Braddock /s/ William A. Schreyer - ------------------------ ------------------------ Richard S. Braddock William A. Schreyer /s/ Laurel Cutler /s/ Louis E. Scott - ------------------------ ------------------------ Laurel Cutler Louis E. Scott /s/ Maurice Levy /s/ Stephen T. Vehslage - ------------------------ ------------------------ Maurice Levy Stephen T. Vehslage /s/ Newton N. Minow - ------------------------ Newton N. Minow EX-27 17 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 45,946 11,050 407,742 4,956 0 504,246 159,097 97,728 932,660 553,191 0 127,144 0 0 114,197 932,660 493,050 493,050 0 470,010 (5,384) 625 8,585 19,214 9,697 27,834 0 0 0 27,834 1.20 1.20
EX-99.1 18 PRESS RELEASE DATED FEBRUARY 19, 1997 Exhibit 99.1 [TRUE NORTH LETTERHEAD] Date: February 19, 1997 Contact: U.S. Susan Geanuleas: 312/425-6570 NEWS True North Ed Orgon: 212/681-1700 ext. 102 The Torrenzano Europe Harry Reid: 44-171/470-7101 True North John Kiely: 44-171/353-9203 Lowe Bell Financial FOR IMMEDIATE RELEASE PUBLICIS AND TRUE NORTH SETTLE ALL OUTSTANDING DIFFERENCES CHICAGO, IL -- True North Communications Inc. (NYSE:TNO) and Publicis today announced agreements to create independent global agency networks in a settlement of all outstanding differences concerning their international business alliance. The boards of the two companies approved the following restructuring of the ownership of their current joint operations: . In Europe, Publicis will sell to True North the stand-alone FCB agencies in Athens, Lisbon, London, and Paris, cities where Publicis agencies also exist, in exchange for a portion of True North's shareholding in Publicis.FCB Europe. The remaining interest will be converted to an increased True North shareholding in Publicis Communications, the advertising operating unit of Publicis S.A. The four FCB stand-alone agencies will be combined with the recently acquired Wilkens network to form a separate wholly-owned FCB network in Europe with representation in 19 countries. -more- 2/PUBLICIS AND TRUE NORTH SETTLE ALL OUTSTANDING DIFFERENCES . The Publicis.FCB European network will take the name of Publicis Europe and will be wholly owned by Publicis Communication, of which Publicis S.A. will hold 73.5 percent and True North will hold 26.5 percent, compared to the 20.8 percent it currently holds. Publicis will maintain its 20 percent shareholding in True North. Each company will continue to hold a seat on the other's board of directors. . In other parts of the world, True North will sell to Publicis its interest in the South African agency, The Partnership. In Argentina, Australia and New Zealand, India and Thailand, True North will assist Publicis in establishing its own separate operations, with details announced shortly. . Publicis and FCB will enter into long-term service agreements to serve each other's clients in countries where it is not practical for both to have an agency. . Publicis and FCB have agreed to facilitate alignment of multinational clients within their respective agency networks in accordance with client wishes. . Publicis and True North will seek ways to cooperate on media-buying on a global basis. . Both companies will withdraw their respective legal claims against each other. Bruce Mason, chairman and chief executive officer of True North said, "Our management team and our outside directors, working in tandem, never lost sight of the primary objective: strike an agreement that provided the best results for our clients. With Maurice Levy sharing the same vision, we clearly accomplished that objective. With these agreements, and our recent acquisition of the Wilkens network in Europe, FCB will have complete control of its own global network, with strong representation in every region of the world." Maurice Levy, chairman of Publicis, said, "I am delighted that we have been able to settle our differences in ways that satisfy the fundamental needs of our clients. Publicis, with the leading presence in Europe, as well as agencies on all continents, will continue its worldwide expansion through a strong new global network that offers a fresh alternative for multinational advertisers. I wish True North all good luck in the future." ### EX-99.2 19 MEMORANDUM OF AGRMNT-2/19/97-PUBLICIS & REGSTMT Exhibit 99.2 MEMORANDUM OF AGREEMENT This is a Memorandum of Agreement (this "Agreement") dated February 19, 1997 among Publicis S.A., Publicis Communication, and Publicis.FCB Europe (collectively, "Publicis"), on the one hand and True North Communications Inc., Foote, Cone & Belding Communications Inc. and FCB International, Inc. (collectively, "True North"), on the other hand, with respect to the following matters: 1. Publicis and True North agree to resolve all of the outstanding disputes between them upon the terms set forth in this Agreement. 2. (a) Publicis and True North agree to create two separate agency networks, one owned and controlled by Publicis and the other owned and controlled by True North. The two networks would each have the capacity to offer to their respective clients top quality service and would each have the ability to function globally and independently of one another. (b) As between Publicis and True North, True North will be the sole owner of and have the sole right to use the names "Foote, Cone and Belding" and "FCB" throughout the world, and Publicis will be the sole owner of and have the sole right to use the name "Publicis" throughout the world. Page 2 3. (a) Within sixty days following the execution of this Agreement, Publicis agrees to sell, transfer and assign to True North all of the interests held by Publicis in the following four agencies: FCB London, FCB Paris, FCB Lisbon and Gnomi FCB Athens. In 1996, these four agencies represented approximately US$42 million in revenue and US$4.8 million in net profit (after tax and management fees). (b) Simultaneously with the transactions described in the immediately preceding paragraph 3(a) Publicis agrees to merge or otherwise combine the operations of Publicis.FCB Europe and Publicis Communication. (c) Following that merger and the transfer of the FCB Agencies, True North will no longer have a direct interest in Publicis.FCB Europe and will own 26.5 per cent of the combined entity. 4. (a) True North authorizes and consents to any and all transactions designed to combined or merge Publicis Communication with Publicis.FCB Europe under the terms of this Agreement, and to any and all transactions designed to transfer the Publicis global agency network owned by Publicis S.A. so that such global network is owned by Publicis Communication. In connection with the current restructuring, it is agreed that all of the material transactions between Publicis Communication and Publicis S.A. will be done on an arm's length basis. (b) After this restructuring, Publicis Communication will be the holding company of the worldwide network for Publicis, and all other agencies already owned by Publicis S.A. will be merged with Publicis Communication. True North authorizes and consents to any and all transactions intended to achieve that objective. Page 3. (c) If, at any time, Publicis Communication issues equity in a transaction that results in True North's owning less than 20 per cent of Publicis Communication, and the shares of Publicis Communication are not then listed on a major European stock exchange, Publicis agrees that it shall use its best efforts to cause to be listed (within 120 days following the date on which True North owns less than 20 per cent of Publicis Communication) on a major European stock exchange the equity of Publicis Communication. The offering and listing, if any, of Publicis Communication shares shall be carried out such that True North shall be permitted to sell at least 50 per cent of the shares of Publicis Communication held by it immediately prior to the consummation of the offering. If the listing of Publicis Communication has not occurred on or prior to the 120th day following the date on which True North owned less than 20 per cent of Publicis Communication, True North will have the right, at its sole discretion, to sell 100 per cent of the shares of Publicis Communication then owned by it to Publicis S.A. Of those shares, 75 per cent shall be purchased at the fair market value of the block of shares sought to be sold by True North, as established pursuant to the procedures set forth in the last two sentences of the first paragraph of Section 12 of this Agreement, and 25 per cent shall be purchased at the formula set forth in the second paragraph of Section 12 of this Agreement. Page 4. (d) If the listing of Publicis Communication has not yet occured as of the date that True North's ownership of Publicis Communication is diluted below 20 per cent, True North may, in its sole discretion notify Publicis that it elects to maintain its 20 per cent ownership of Publicis Communication rather than sell in a public offering (or to Publicis) as contemplated by paragraph 4(c) of this Agreement. If True North so notifies Publicis, the provisions of paragraph 4(c) of this Agreement shall not apply as to the particular event that would have diluted True North's ownership of Publicis Communication below 20 per cent, and True North shall have the right to purchase sufficient additional shares of Publicis Communication so that it maintains its 20 percent ownership thereof. If the listing of Publicis Communication has not yet occurred as of the date that True North's ownership of Publicis Communication is diluted below 20 per cent, True North's discretion to elect either paragraph 4(c) or 4(d) under this Agreement shall apply to successive subsequent events that would dilute True North's interest in Publicis Communication below 20 per cent. The per share price to be paid by True North for such additional shares shall be the fair value of the per share consideration received by Publicis in connection with the event that caused True North's ownership to be diluted below 20 per cent. (e) As long as True North owns 10 per cent or more of Publicis Communication, Publicis Communication will provide all financial and other information reasonably requested by True North for purposes of True North's compliance with U.S. income tax laws and other U.S. regulatory requirements, will cause its independent auditors to complete their annual audit and provide the resuls to True North before February 15 each year, and will provide True North with unaudited quarterly consolidated financial results before April 30, July 30, and October 30 each year. Page 5. (f) As long as Publicis owns 10 per cent or more of True North, True North will provide all financial and other information reasonably requested by Publicis for purposes of Publicis' compliance with French and European income tax laws and other French and European regulatory requirements, will cause its independent auditors to complete their annual audit and provide the results to Publicis before February 15 each year, and will provide Publicis with unaudited quarterly consolidated financial results before April 30, July 30, and October 30 each year. 5. Publicis authorizes and consents to any and all transactions by True North in Europe designed to establish an independent True North network in Europe. 6. Subject to controlling local law and existing contractual obligations, True North agrees to sell, transfer and assign to Publicis its entire 6 per cent equity stake in "Park Advertising Pty" which owns 100 per cent of the "Partnership" agency in South Africa, and True North will use its best efforts to assist in the transfer of Park Advertising Pty shares to Publicis by third parties. 7. Subject to controlling local law and existing contractual obligations and within sixty days following the execution of this Agreement, True North agrees to use its best efforts to create, or to enter into agreements to create, separate agencies (which shall be spun-off from existing True North agencies) which will handle the Nestle and L'Oreal accounts in Thailand, India and Argentina. These new agencies shall be spun-off fro the Prakit agency in Thailand, the Ulka agency in India and the Pragma agency in Argentina. Immediately following the spin-off of these newly-created agencies, True North will exercise its best efforts to have the other shareholders in these agencies sell, transfer and assign to Publicis not less than a controlling stake in each spun-off agency. Page 6. 8. Within sixty days following the execution of this Agreement, True North agrees to sell, transfer and assign to Publicis not less than a majority stake in the Mojo agency in each of Australia and New Zealand. True North also agrees to sell, transfer and assign to Publicis all the shares that True North owns in BMZ Germany. 9. The sale of stakes agreed in paragraphs 6,7 and 8 of this Agreement will be made by True North (or other shareholders) in exchange for payments by Publicis. For each stake so purchased, Publicis agrees to pay True North the appropriate pro rata share of (i) the net equity of the entity being purchased as at December 31, 1996 and (ii) a negotiated amount not exceeding 75 per cent of the revenue of each such entity in fiscal year 1996. The sale price for the spun-off agencies contemplated by Section 7 of this Agreement shall be based on pro forma net equity and revenue amounts for fiscal year 1996. 10. (a) Although the amount of any fees due and owing is in dispute, as a demonstration of goodwill, as a condition to closing the transaction contemplated in paragraph 3 herein, True North agrees to pay to Publicis all amounts due to Publicis with respect to "coordination and development fees". Such amounts accrued to date for the years 1992, 1993, 1994 and 1995 total US$2.3 million. (b) True North and Publicis further agree to pay regularly when due all future coordination fees of one per cent of billings for qualified international accounts. 11. Publicis agrees to use its use its best efforts to cause to be listed on a major European stock exchange the equity of Publicis Communication prior to December 31, 1998. Publicis agrees to seek to cause such listing to occur in 1997. The offering and listing of Publicis Communication shares shall be carried out such that True North shall be permitted to sell in any such offering at least 50 per cent of the shares of Publicis Communication held by it immediately prior to the consummation of the offering. The intention of the parties is to provide True North with a means of selling its stake in Publicis Communication in a public market. Page 7. 12. If the listing of Publicis Communication has not occurred on or prior to December 31, 1998, True North will have the right, at its sole discretion, to sell up to 20 per cent of the shares of Publicis Communication to Publicis S.A. at the fair market value of the block of shares sought to be sold by True North. The fair market value to be paid by Publicis S.A. will be established within 60 days of True North's requesting an appraisal by a panel consisting of three globally-recognized investment banks. One of said banks shall be appointed by Publicis, one by True North and the third shall be agreed and appointed by the two banks previously selected by each of the parties. For the remaining shares held by True North (6.5 per cent) in Publicis Communication, a put and call option exercisable at any time up to March 31, 1999 will be granted to True North and Publicis respectively at a price that would result from the application of the following formula for determining the total value of Publicis Communication: the sum of (1) the average of (a) 60 percent of the revenue for the immediately preceding two full calendar years and (b) eleven times net income (after tax and before goodwill amortization) for the immediately preceding two full calendar years and (2) net tangible assets (net equity less intangible assets). 13. Both parties agree to continue their collaboration by entering into an agreement to service their respective clients in the countries where either of the parties is not yet established. This agreement will have a three- year term, and will be renewable by either party for one additional three- year term. 14. Those clients of one of the parties handled by the other party in the prior "spheres of influence" under the Alliance, will be transferred to the party having the worldwide agreement with the clients concerned. Such transfer will be effected as promptly as possible after the relevant party has at its disposal agencies capable of serving the transferred clients. The relevant employees will be given the opportunity to move to the other agency. Page 8. 15. The two parties agree to explore the possibility of creating a common media-buying company on a global basis or some other means of cooperating on the buying of media space worldwide, which would provide media-buying services for Publicis in the United States and for True North in Europe. 16. Simultaneously with the execution of the definitive agreements, both parties agree to irrevocably terminate any adversarial proceedings between them, including any present or future litigation or arbitration which arises out of events occurring prior to the date of such definitive agreements. 17. This Agreement is subject to the approval of the Boards of Directors of each Publicis S.A. and True North Communications Inc. No public announcement or other disclosure of this Agreement or the terms hereof will be made until the Boards of Directors of each Publicis S.A. and True North Communications Inc. shall have approved this Agreement. 18. Except as to those public disclosures required by law, the parties shall agree in advance on any and all communication or release of information concerning this Agreement to third parties. The parties will use best efforts to coordinate and exchange in advance proposed communications required by law. After execution of this Agreement, neither party will publicly criticize the other and/or any actions taken by the other party. 19. Due to the complexities of the transactions contemplated in this Agreement it is not possible at this time for the parties to prepare and execute the definitive documentation concerning all the agreements set forth herein. The parties understand and agree that Page 9. the transactions referred to herein are mutually dependent on each other and that certain of such transactions will require the execution of definitive legal documents. The parties intend, nonetheless, that (x) the agreements set forth in paragraphs 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 17, 18, 21, 22 and 24 hereof shall constitute binding legally enforceable agreements of each of Publicis and True North, and (y) that the definitive legal documents will be negotiated in good faith and will be based on the agreed principles set forth herein. 20. The parties acknowledge and agree that the transactions contemplated by paragraphs 3, 6, 7, 8, 9 and 10(a) of this Agreement shall, to the extent practicable, be consummated simultaneously. If such transactions cannot reasonably be completed contemporaneously, the parties agree that they will enter into escrow or other similar arrangements intended to effect a simultaneous closing. 21. So long as True North is a 10 per cent or greater stockholder of Publicis Communication any significant transactions effected by Publicis Communication shall be on an arm's length basis, except for the merger or other combination of Publicis.FCB Europe and Publicis Communication. As soon as practicable, but no later than sixty days after execution of the definitive documentation concerning the agreements set forth herein, as long as True North owns 10 per cent or more of Publicis Communication, and before any transaction to transfer Publicis S.A. agencies to Publicis Communication, Publicis Communication will have three members of its Board of Directors who have no prior significant relationship with Publicis, True North or the directors or senior officers of either. Publicis Communication will consult with True North prior to the appointment of the three independent directors. A majority of the three independent directors must approve any transaction (other than those specifically contemplated by this Agreement) of Publicis Communication, including transactions with Publicis S.A. or affiliates of Publicis S.A. that a majority of them deem significant. Page 10. A party owning 18 per cent or more of the outstanding voting stock of the other party shall be entitled to be represented on the board of the other party under circumstances that recognize that each may have information that should be kept confidential from the other. 22. With respect to any transaction preceding the completion of the initial public offering, concerning the acquisition by Publicis Communication of any entity or interest therein presently owned by Publicis S.A. or acquired by Publicis S.A. before the formation of the entity combining Publicis.FCB Europe and Publicis Communication, True North shall have the right to maintain its 26.5 per cent interest in such entity by contributing 26.5 per cent of Publicis Communication actual cost of any such acquisitions financed through the issuance of Publicis Communication stock by purchasing Publicis Communication stock for cash on the same valuation basis as in the transaction that resulted in the dilution of such 26.5 per cent interest. 23. It is the parties' understanding that the concurrence of a client to a transfer of its account from one agency to another is the way the advertising business works (and it is the parties' assumption that neither party will attempt to obstruct such concurrence.) 24. For a period of three years after the signing of the definitive documentation concerning the agreements set forth herein, as long as Publicis owns 10 per cent or more of True North's stock, Publicis, within thirty days after receiving a written request form True North, will furnish True North with a pooling letter, in a conventional form, and, if reasonable requested, will take such other action in support of the transaction (other than a commitment to vote for the transaction) as would be customary with respect to an acquisition or other similar business transaction in which True North may participate, provided that the pooling letter may be withdrawn if any of the following conditions is not met within ninety days after the pooling letter has been furnished: Page 11. (a) True North has obtained a fairness opinion from a nationally-recognized investment bank with regard to the contemplated transaction; (b) A majority of the outside directors of True North has voted to approve the terms and conditions of the contemplated transaction; and (c) True North has obtaianed pooling letters (or similar action) by all other non-deminimis affiliates of True North. Not later than ninety days after Publicis has furnished the pooling letter, True North shall call a meeting of the True North shareholders, to be held within a futher sixty days, to vote on the contemplated transaction. If a majority vote of the outstanding shares of True North in favor of the contemplated transaction is not obtained at such meeting, Publicis may withdraw its pooling letter. The obligation of Publicis to furnish a pooling letter pursuant to this paragraph shall expire at the end of the earlier of (a) True North's successful completion of a significant transaction involving the pooling method of accounting or (b) three years after the signing of the definitive documentation concerning the agreements set forth herein. TRUE NORTH COMMUNICATIONS INC. PUBLICIS S.A. By: /s/ Bruce Mason By: /s/ Maurice Levy ---------------- ---------------- Bruce Mason Maurice Levy By: /s/ Stephen T. Vehslage ----------------------- Stephen T. Vehslage -----END PRIVACY-ENHANCED MESSAGE-----