-----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, MWFNhfoLqLKF2mUJrNb2WsjCVTRsOOp3JuFLb84i0URucPbdAp1zpC0BVWwwvEmP LDaEoXC511CsQF8mBcLLJQ== 0000950131-99-004968.txt : 19990817 0000950131-99-004968.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950131-99-004968 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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-Q SEC ACT: SEC FILE NUMBER: 001-05029 FILM NUMBER: 99691478 BUSINESS ADDRESS: STREET 1: 101 E ERIE ST CITY: CHICAGO STATE: IL ZIP: 60611-2897 BUSINESS PHONE: 3124256500 MAIL ADDRESS: STREET 1: 101 E ERIE ST CITY: CHICAGO STATE: IL ZIP: 60611-2897 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-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________ Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended June 30, 1999 Commission file no. 1-5029 ____________________ True North Communications Inc. ------------------------------ (Exact name of Registrant as specified in its charter) Delaware 36-108816 -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 101 East Erie Street, Chicago, Illinois 60611 -------------------------------- ----- (Address of principal (Zip Code) executive offices) Registrant's Telephone Number: (312) 425-6500 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ --- The number of shares of Common Stock, 33 1/3 cents per share par value, outstanding as of August 6, 1999 was 47,723,937. TRUE NORTH COMMUNICATIONS INC. INDEX
Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 1999 and 1998. 3 Condensed Consolidated Balance Sheets as of June 30, 1999 (Unaudited) and December 31, 1998. 4 Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998. 5 Notes to Unaudited Condensed Consolidated Financial Statements. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10 Item 3. Quantitative and Qualitative Disclosure about Market Risk. 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 16 Item 4. Submission of Matters to a Vote of Security Holders. 16 Item 6. Exhibits and Reports on Form 8-K. 17
2 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (Amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- ------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Revenues $355,652 $319,248 $659,098 $607,009 --------- --------- --------- --------- Operating Expenses: Salaries and employee benefits 217,416 196,306 419,880 387,158 Office and general 98,260 89,408 188,235 174,743 --------- --------- --------- --------- Total operating expenses 315,676 285,714 608,115 561,901 --------- --------- --------- --------- Operating Income 39,976 33,534 50,983 45,108 Other Income (Expense) (2,258) (4,236) (902) (7,592) --------- --------- --------- --------- Income Before Taxes, Minority Interest and Equity Income 37,718 29,298 50,081 37,516 Provision For Taxes 16,412 13,614 21,785 17,672 --------- --------- --------- --------- Income Before Minority Interest and Equity Income 21,306 15,684 28,296 19,844 Minority Interest Expense (752) (1,250) (779) (2,303) Equity Income 480 3,256 690 3,789 --------- --------- --------- --------- Net Income $ 21,034 $ 17,690 $ 28,207 $ 21,330 ========= ========= ========= ========= Per Share Information: - --------------------- Basic earnings per share $ 0.45 $ 0.39 $ 0.60 $ 0.47 ========= ========= ========= ========= Average common shares outstanding 47,296 45,661 46,637 45,497 ========= ========= ========= ========= Diluted earnings per share $ 0.43 $ 0.37 $ 0.58 $ .0.45 ========= ========= ========= ========= Average common shares outstanding, assuming dilution 48,871 47,968 48,235 47,550 ========= ========= ========= ========= Cash dividends per common share $ 0.15 $ 0.15 $ 0.30 $ 0.30 ========= ========= ========= =========
See accompanying notes to financial statements. 3 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1999 (Unaudited) and DECEMBER 31, 1998 (Amounts in thousands)
June 30, December 31, 1999 1998 ---------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 161,811 $ 88,685 Marketable securities 3,230 143,863 Accounts receivable, net 1,009,156 873,675 Other current assets 100,511 76,173 ---------- ---------- Total current assets 1,274,708 1,182,396 ---------- ---------- NONCURRENT ASSETS: Property and equipment, net 133,929 129,815 Goodwill, net 475,931 413,395 Investment in affiliated companies 20,505 22,335 Other noncurrent assets 36,761 41,137 ---------- ---------- Total noncurrent assets 667,126 606,682 ---------- ---------- Total assets $1,941,834 $1,789,078 ========== ========== CURRENT LIABILITIES: Accounts payable $1,056,398 $1,016,919 Short-term bank borrowings 149,092 115,452 Liability for federal and foreign taxes 16,710 23,467 Current portion of long-term debt 7,701 43,353 Accrued expenses 185,768 149,297 ---------- ---------- Total current liabilities 1,415,669 1,348,488 ---------- ---------- NONCURRENT LIABILITIES: Long-term debt 39,676 15,300 Liability for deferred compensation 63,674 69,193 Other noncurrent liabilities 91,538 52,491 ---------- ---------- Total noncurrent liabilities 194,888 136,984 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock -- -- Common stock 15,850 15,479 Paid-in capital 257,630 231,899 Retained earnings 84,525 70,496 Unrealized gain (loss) on marketable securities, net of tax 1,761 5,102 Cumulative translation adjustment (25,791) (14,220) Less-Treasury stock (6) (5,150) Less-Deferred compensation (2,692) -- ---------- ---------- Total stockholders' equity 331,277 303,606 ---------- ---------- Total liabilities and stockholders' equity $1,941,834 $1,789,078 ========== ==========
See accompanying notes to financial statements. 4 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (Amounts in thousands)
Six Months Ended June 30, --------------------------- 1999 1998 ----------- ----------- Cash flows provided (used) by operating activities: Net income $ 28,207 $ 21,330 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 26,935 24,141 Equity income (690) (3,788) Other 6,776 3,398 Changes in assets and liabilities, net of acquisitions: Accounts receivable (96,148) (3,419) Other current assets (22,962) (16,073) Accounts payable and accrued expenses 26,488 (71,791) --------- ----------- Net cash used by operating activities: (31,394) (46,202) --------- ----------- Cash flows provided (used) by investing activities: Purchases of property and equipment (24,024) (15,935) Acquisitions and investments in businesses (56,785) (32,376) Proceeds from sale of marketable securities 139,735 - --------- ----------- Net cash provided (used) by investing activities 58,926 (48,311) --------- ----------- Cash flows provided (used) by financing activities: Payments of long-term debt (37,128) (12,463) Additions to long-term debt 25,852 100,214 Increase (decrease) in short-term bank borrowings 33,640 (10,762) Proceeds from issuance of common stock 5,851 10,479 Proceeds from initial public offering of subsidiary 42,048 - Cash dividends paid (14,176) (13,317) Payments for purchases of common stock (6,989) - --------- ----------- Net cash provided by financing activities 49,098 74,151 --------- ----------- Effects of exchange rates on cash and cash equivalents (3,504) (927) --------- ----------- Net increase (decrease) in cash and cash equivalents 73,126 (21,289) Cash and cash equivalents at beginning of year 88,685 109,285 --------- ----------- Cash and cash equivalents at end of period $161,811 $ 87,996 ========= ===========
See accompanying notes to financial statements. 5 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share amounts) 1. Basis of Presentation The condensed consolidated financial statements included herein have been prepared by True North Communications Inc. (True North) without audit, and include all adjustments, consisting only of normal recurring accruals, which True North considers necessary for a fair presentation. The condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in True North's 1998 Annual Report on Form 10-K. The operating results for the first six months of the year are not necessarily indicative of the results for the year or other interim periods. 2. Acquisitions In February 1999, True North issued 1,201 shares of its Common Stock for all the outstanding capital stock of The Financial Relations Board, Inc. ("FRB"), a Chicago-based investor relations firm. This acquisition has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements have been restated for all periods prior to the acquisition. The following summarizes the separate results of True North and FRB prior to the restatement: True North FRB Combined ---------- --- -------- Year Ended December 31, 1998: Revenues $1,242,309 $31,974 $1,274,283 Net Income (Loss) 36,115 (8,854) 27,261 Year Ended December 31, 1997: Revenues $1,204,887 $35,134 $1,240,021 Net Income (Loss) (50,046) 104 (49,942) Included in the 1998 results of FRB are approximately $7,500 of merger related costs and other expense adjustments. Prior to the merger, FRB operated as an S-Corporation, therefore, their results do not reflect corporate income taxes. Pro-forma net income for FRB, assuming income taxes were charged (or credited) to operations, would be $(4,781) and $56 for the years ended December 31, 1998 and 1997, respectively. In the first six months of 1999, the cost of businesses acquired by True North in transactions accounted for as purchases was $41,196, including 239 shares of Common Stock and 225 shares of Treasury Stock. The excess of the purchase price over the fair value of net tangible assets acquired was $39,747 and is being amortized over periods not exceeding 40 years. 6 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except per share amounts) 3. Comprehensive Income True North classifies its comprehensive income, which includes foreign currency translation adjustments and unrealized gains and losses on marketable securities available for sale, as a separate component of stockholders' equity. Total comprehensive income for the three and six months ended June 30, 1999 and 1998 was as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------------ -------------------------- 1999 1998 1999 1998 ------- -------- --------- ------- Net income $21,034 $17,690 $ 28,207 $21,330 Foreign currency translation 724 (499) (11,571) (3,019) Unrealized gains on marketable securities 2,057 6,220 (3,341) 18,302 ------- ------- -------- ------- Total comprehensive income $23,815 $23,411 $ 13,295 $36,613 ======= ======= ======== =======
4. Marketable Securities True North's marketable securities consisted of:
June 30, December 31, 1999 1998 -------- ------------ Publicis SA $ - $140,854 DoubleClick, Inc. 3,230 3,009 ------ -------- $3,230 $143,863 ====== ========
True North has designated its investments in the above securities as available-for-sale and the investments are carried at fair value, with any unrealized gains or losses, net of tax, reported as a separate component of comprehensive income. On June 14, 1999, True North sold its entire investment in Publicis SA for net cash proceeds of $135,344 and realized a pre-tax gain of $1,363 ($770 after-tax or $0.02 per share). During the first quarter of 1999, True North sold 100 shares (adjusted for a 2 for 1 stock split) of DoubleClick, Inc. for net cash proceeds of $4,391 and realized a pre-tax gain of $4,070 ($2,300 after-tax or $0.05 per share). 5. Contingencies On December 2, 1997, Mazda Motor of America, Inc. ("Mazda"), a former client of True North's subsidiary, Foote, Cone & Belding Advertising, Inc. ("FCB"), initiated an arbitration before the American Arbitration Association in Los Angeles, California. Mazda seeks indemnity and reimbursement for liabilities it incurred or expects to incur in connection with automobile lease advertising that aired in 1996 and 1997. To date, Mazda seeks approximately $3.0 million in damages arising from Mazda's settlement of claims asserted by the Federal Trade Commission ("FTC"), various state attorneys general, and a class of consumers. Mazda has informally indicated that it will seek indemnification for costs it may incur to settle or defend additional claims, which may be asserted by the FTC and various state attorneys general. The amount Mazda seeks for these 7 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except per share amounts) additional claims may exceed $5.0 million. FCB intends to defend Mazda's claims vigorously. In addition, FCB has filed a counterclaim in the arbitration seeking approximately $5.5 million in unpaid commissions for planning and placing advertising during the final months of FCB's relationship with Mazda. The arbitration hearing is scheduled to commence on January 24, 2000. On November 6, 1998, Publicis SA announced its intention to convert True North's 26.5% investment in Publicis Communication to approximately 792 of its publicly traded shares. Despite True North's objections, this transaction was approved by the shareholders of Publicis SA and Publicis Communication in special shareholders' meetings held in December 1998 and closed shortly thereafter. As a result, True North owned approximately 8.8% of Publicis SA, which was recorded as an "available-for-sale security" in marketable securities. The book value of True North's 26.5% investment in Publicis Communication at the date of conversion was $164,513. The fair value of the Publicis SA shares (based upon a December 14, 1998 Publicis closing price of $169.15 per share) was $133,981. Accordingly, True North recorded a pretax loss of $30,532 in the fourth quarter of 1998 as a result of the involuntary conversion of its investment in Publicis Communication to shares of Publicis SA. In addition, True North recorded a deferred tax obligation of approximately $3,139 upon the exchange. As a result, the after tax impact of this transaction was a loss of approximately $33,671. As described in Note 4, on June 14, 1999, True North sold its entire investment in Publicis SA. On May 5, 1999 Publicis SA, a greater than 5% shareholder, filed counterclaims in international arbitration proceedings which had been instituted by True North with the London Court of International Arbitration. Publicis SA seeks damages in the amount of 382,000 French Francs (approximately $62,000) for among other things, the alleged breaches of the May 1997 Separation Agreement between the parties and other actions which Publicis SA alleges creates liabilities associated with the arbitration proceedings. The counterclaims follow True North's direct claims against Publicis SA in excess of $160,000 for alleged breaches by Publicis SA of its obligations under the May 1997 Separation Agreement and for additional compensation for its investment in Publicis Communication. True North believes it has meritorious defenses to Publicis' counterclaims and intends to vigorously defend them. True North is a party to several other lawsuits incidental to its business. It is not possible at the present time to estimate the ultimate liability, if any, of True North with respect to such litigation; however, management believes that any ultimate liability will not be material in relation to True North's consolidated results of operations or financial position. 6. Subsidiary Initial Public Offering Effective February 10, 1999, a majority-owned subsidiary of True North, Modem Media . Poppe Tyson, Inc. ("MMPT") completed an initial public offering ("IPO") of its common stock. The number of shares issued was 2,990 at a price of $16 per share, with net proceeds totaling $42,048. As a result of the IPO, True North now owns approximately 51% of MMPT, down from its previous 70% ownership, and controls approximately 80% of the related stockholder votes. MMPT will use the proceeds from the IPO for working capital and capital expenditures. As a result of this transaction, True North recorded a $2,638 gain, net of $2,031 of deferred income taxes, as a credit to stockholders' equity. In May 1999, True North and MMPT entered into a stockholders' agreement ("Stockholder' Agreement") which stipulates, among other things, that upon the earlier of (i) the date True North and its affiliates no longer own at least 35% of the outstanding capital stock of MMPT and (ii) June 30, 2000, True North agrees that it and its affiliates will convert all of their shares of Class B common stock of MMPT into shares of Class A common stock of MMPT. 8 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Amounts in thousands, except per share amounts) As part of the Stockholders' Agreement, True North and MMPT agreed to enter into a registration rights agreement that would contain provisions granting the holders of Class B common stock the right to participate in any underwritten public offering that MMPT may initiate, subject to certain limitations. In addition, the agreement would also provide the holders of Class B common stock the right to initiate the registration of their securities, subject to certain timing and other limitations. 7. Stock-Based Compensation Plans Effective in 1998, True North initiated a Restricted Stock Program for certain key employees whereby participants of the program can elect to exchange one-third of their cash incentive compensation for 115% of such cash compensation payable in restricted stock of the Company. One-third of the shares vest upon grant and the remaining shares vest equally over the following two years. During the first six months of 1999, 217 shares of restricted stock were issued. The shares issued under this plan were recorded at their market value on date of grant with a corresponding charge to stockholders' equity for the unearned portion. The unearned portion is being amortized as compensation expense on a straight-line basis over the vesting period. 9 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts in thousands, except per share amounts) Certain statements contained in this Form 10-Q under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" within the meaning of Section 21E(i)(1) of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the company to be materially different from any future results expressed or implied by these statements. Such factors include, among other things, the following: general economic and business conditions, changes in demand for the company's services, changes in competition, the ability of the company to integrate acquisitions or complete future acquisitions, interest rate fluctuations, dependence upon and availability of qualified personnel, and changes in government regulation. In light of these and other uncertainties, the forward-looking statements included in this document should not be regarded as a representation by the Company that the Company's plans and objectives will be achieved. THREE MONTHS ENDED JUNE 30, 1999 VERSUS 1998 - -------------------------------------------- Results of Operations - --------------------- Net income for the second quarter of 1999 was $21,034 or $0.43 per share on a diluted basis. This compares to net income of $17,690 or $0.37 per share in the corresponding quarter of 1998. The results for 1998 have been restated to reflect True North's February, 1999 pooling of interests with FRB. Consolidated revenues increased $36,404 or 11.4% to $355,652 in the second quarter of 1999 from $319,248 in the comparable period in 1998. Revenues from the U.S. operations increased $28,411 or 12.2% to $261,042 while international revenues increased 9.2% to $94,610. Approximately two-thirds of the worldwide growth in revenues was due to acquisitions while changes in foreign currency rates had a slight negative impact on international operations. Excluding acquisitions, divestitures and the effects of foreign currency translation, consolidated revenues increased by 5.0% from the prior year. Salaries and related benefits increased $21,110 or 10.8% in the second quarter of 1999 compared to the same year ago period. Excluding the impact of acquisitions, divestitures and foreign exchange variances, total salaries and related benefits increased 5.0%. Office and general expenses increased by 9.9% or $8,852 in the second quarter of 1999 over 1998. Excluding the impact of acquisitions, divestitures and foreign exchange variances, this expense category increased 3.0%. 10 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (Amounts in thousands, except per share amounts) Other Income (Expense) for both comparable periods was as follows: Three Months Ended June 30, --------------------- 1999 1998 --------- -------- Interest income $ 1,843 $ 838 Interest expense (5,458) (5,984) Gain on sale of marketable securities and other 1,357 910 --------- -------- $(2,258) $(4,236) ========= ======== Interest income increased by $1,005 in the second quarter of 1999 compared to 1998 due primarily to investment income at MMPT from the proceeds from their initial public offering in February, 1999. Interest expense decreased by $474 in the second quarter of 1999 versus 1998 due primarily to lower debt levels in the last half of June resulting from the use of the proceeds of the sale of True North's holdings in Publicis SA to reduce short term borrowings. During the second quarter of 1999, True North recognized a pre-tax gain of $1,363 ($770 after-tax or $0.02 per share) on the sale of its holdings in Publicis SA. The effective tax rate in the second quarter of 1999 was 43.5% versus 46.5% in 1998. The effective rate in 1998 was negatively impacted by losses of foreign subsidiaries with no corresponding tax benefit. Minority interest expense was $752 in three months ended June 30, 1999 compared to $1,250 in 1998. This decrease is due primarily to lower operating results in certain Latin American and European operations. Equity income decreased by $2,776 as a result of the Company no longer reflecting an equity pick-up in its investment in Publicis Communication. SIX MONTHS ENDED JUNE 30, 1999 VERSUS 1998 - ------------------------------------------ Results of Operations - --------------------- Net income for the first six months of 1999 was $28,207 or $0.58 per share on a diluted basis. This compares to net income of $21,330 or $0.45 per share in the corresponding period of 1998. The results for 1998 have been restated to reflect True North's February, 1999 pooling of interests with FRB. Consolidated revenues increased $52,089 or 8.6% to $659,098 in the first six months of 1999 from $607,009 in the comparable period in 1998. Revenues from the U.S. operations increased $40,712 or 9.1% to $488,114 while international revenues increased 7.1% to $170,984. Approximately three-fourths of the worldwide growth in revenues was due to acquisitions while changes in foreign currency rates had a slight negative impact on international operations. Excluding acquisitions, divestitures and the effects of foreign currency translation, consolidated revenues increased by 3.3% period over period. 11 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (Amounts in thousands, except per share amounts) Salaries and related benefits increased $32,722 or 8.5% in the first six months of 1999 compared to the same year ago period. Excluding the impact of acquisitions, divestitures and foreign exchange variances, total salaries and related benefits increased 4.0%. Office and general expenses increased by 7.7% or $13,492 in the first six months of 1999 over 1998. Excluding the impact of acquisitions, divestitures and foreign exchange variances, this expense category increased 2.7%. Other Income (Expense) for both comparable periods was as follows: Six Months Ended June 30, ------------------------ 1999 1998 -------- --------- Interest income $ 3,465 $ 2,113 Interest expense (9,846) (10,615) Gain on sale of marketable securities and other 5,479 910 -------- --------- $ (902) $ (7,592) ======== ========= Interest income increased by $1,352 in the second quarter of 1999 compared to 1998 due primarily to investment income at MMPT from the proceeds from their initial public offering in February, 1999. Interest expense decreased by $769 in the second three months of 1999 versus 1998 due primarily to lower debt levels. During the first six months of 1999, True North recognized a pre-tax gains of $5,433 ($3,070 after-tax or $0.06 per share) on the sale of its holdings in Publicis SA and a portion of its holdings in DoubleClick, Inc. The effective tax rate in the first half of 1999 was 43.5% versus 47.1% in 1998. The effective rate in 1998 was negatively impacted by losses of foreign subsidiaries with no corresponding tax benefit. Minority interest expense was $779 in six months ended June 30, 1999 compared to $2,303 in 1998. This decrease is due primarily to lower operating results in certain Latin American and European operations. Equity income decreased by $3,099 as a result of the Company no longer reflecting an equity pick-up in its investment in Publicis Communication. Liquidity and Capital Resources - ------------------------------- At June 30, 1999, the Company's cash and cash equivalents totaled $161,811, which is an increase of $73,126 over the 1998 year-end balances of $88,685. The increase is due primarily to the proceeds received by MMPT from the February 1999 initial public offering of its common stock. 12 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (Amounts in thousands, except per share amounts) Operating Activities - -------------------- True North's funds from operating activities consist primarily of net income adjusted for non-cash items, including depreciation and amortization, and changes in operating assets and liabilities. The net cash used by operating activities in the first six months of 1999 was $31,394. This reflects payments typically made in the first half of the year for bonuses and contributions to profit sharing plans for the prior year's performance. It also includes production costs of client commercials, which will be shown later in the year with such costs billed to clients when the commercials are completed. Investing Activities - -------------------- True North's net capital expenditures for property and equipment were $24,024 for the first six months of 1999. These expenditures were primarily related to the Company's worldwide investment in technology coupled with leasehold improvements related to office moves. In the first six months of 1999, True North acquired several companies to enhance its network, primarily in the U.S. These acquisitions were financed by the issuance of 464 shares of Common Stock, Treasury Stock and additional short- term borrowings. In the first six months of 1999, True North has received $139,735 of proceeds from the sale of marketable securities. Financing Activities - -------------------- The net change in short-term bank borrowings reflects the use of the $135,344 cash proceeds from the sale of True North's investment in Publicis SA to reduce such borrowings offset by additional debt used to finance the acquisition program and seasonal needs. In May 1999, True North obtained two three year term loans totaling $25,000 which refinanced similar loans expiring on May 24, 1999. A $15,000 loan carries a fixed interest rate of 6.52% and a $10,000 loan carries a fixed rate of 6.785%. On May 27, 1999, True North extended its 364-day credit agreement for up to $75,000 of borrowings as part of its $250,000 revolving credit agreement. The terms of the extension include the payment of a commitment fee to the bank of 0.07% and the increase in the spread over the Euro currency rate of 0.25%. At June 30, 1999, True North had $50,000 outstanding under its $175,000 five year revolving credit facility. At June 30, 1999, True North was in compliance with all covenants and conditions related to these agreements. 13 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (Amounts in thousands, except per share amounts) Year 2000 Compliance - -------------------- True North relies on both information technology ("IT") and non-IT computer systems in its operations. Critical IT systems include True North's operating and accounting systems, such as IT software applications that allow True North to maintain client advertising information and to communicate with its vendors and clients. The non-IT systems are primarily telecommunications systems and the embedded microprocessors that control building systems, such as security systems, lighting, fire and safety systems, and heating, ventilating and air condition systems. In 1997, True North began to address the year 2000 compliance issue (that is, the fact that some systems may fail or produce inaccurate results using dates in or around the year 2000). True North has formed a year 2000 task force under its Chief Information Officer and this task force has developed a comprehensive program to test the Company's principal hardware and software applications for potential year 2000 problems. True North is assessing the effect of the year 2000 compliance issue on its non-IT systems and intends to replace non-IT systems as necessary to become year 2000 ready by December 1999. True North licenses substantially all of its systems from third party software vendors. True North has received confirmation of year 2000 compliance status from suppliers of its primary business and financial systems. Internal testing, to the extent practical, is being done to ensure that such systems will function properly. True North has also retained outside consultants to assist in the testing and remediation efforts. Testing of all systems and appropriate remediation is scheduled to be completed prior to year end 1999. True North is continuing to develop written contingency plans to address the risks created by the year 2000 compliance issue. These plans include procuring alternative vendors, if available, should True North conclude that an existing supplier will not be year 2000 ready. During 1998 and 1997, True North incurred less than $0.5 million of expenses related to this issue in each year, and expects to incur an additional $3.0 million to $3.5 million of such expenses in 1999. Capital spending to replace non-compliant hardware and software is expected to be approximately $5 million in 1999. Funding for year 2000 remediation will be generated from on- going operations and available borrowings under the Company's various credit agreements. True North is currently unaware of any events, trends, or conditions regarding this issue that may have a material effect on True North's results of operations, liquidity, and financial position. However, there can be no assurance that year 2000 remediation by True North or third parties will be properly and timely completed and failure to do so could have a material adverse effect on True North's financial condition. Item 3. Quantitative and Qualitative Disclosures about Market Risk During 1993, True North entered into an interest rate swap contract with a bank which became effective in June 1994. Under this arrangement, True North received LIBOR and paid a fixed interest rate of 6.1% on a notional amount of $25,000 in borrowing during the period from June 1994 to June 1999. Other than this interest rate swap contract, True North has not entered into any market risk sensitive contracts during the past three years. 14 TRUE NORTH COMMUNICATIONS INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (Amounts in thousands, except per share amounts) True North's consolidated financial statements are denominated in U.S. dollars. In 1998 and in the first six months of 1999, True North derived over 25% of its revenues from operations outside of the United States. Currency fluctuations may give rise to translation gains and losses when financial statements of foreign operating units are translated into U.S. dollars. Significant strengthening of the U.S. dollar against major foreign currencies could have an adverse impact on True North's results of operations. In general, True North incurs most of its costs to support the related revenues in the same currency in which these revenues are billed, thereby reducing exposure to currency fluctuations. In the past, True North has not hedged foreign currency profits into U.S. dollars, because its management has believed that, over time, the costs of a hedging program outweigh any benefit of greater predictability in the Company's U.S. dollar denominated profits. However, as True North continues to extend the depth and breadth of its foreign operations, management will from time-to-time reconsider the issue of whether a foreign currency hedging program would be beneficial to its operations. 15 PART II. OTHER INFORMATION Item 1. Legal proceedings Response to this item is incorporated by reference to Note 5 to the Registrant's unaudited notes to financial statement in this Quarterly Report. Item 4. Submission of Matters to a Vote of Security Holders. On May 26, 1999, Registrant held its Annual Meeting of Stockholders to consider and vote upon the following matters: 1. A proposal to elect 12 directors.
- -------------------------------------------------------------------------------- For Withheld --- -------- - -------------------------------------------------------------------------------- David A. Bell 35,706,705 1,412,061 - -------------------------------------------------------------------------------- Ronald W. Bess 35,717,771 1,400,995 - -------------------------------------------------------------------------------- Joseph A. Califano, Jr. 35,714,714 1,404,052 - -------------------------------------------------------------------------------- Donald L. Elliman, Jr. 35,719,998 1,398,768 - -------------------------------------------------------------------------------- H. John Greeniaus 35,270,985 1,847,781 - -------------------------------------------------------------------------------- Leo-Arthur Kelmenson 35,718,433 1,400,333 - -------------------------------------------------------------------------------- Michael E. Murphy 35,719,198 1,399,568 - -------------------------------------------------------------------------------- Charles D. Peebler, Jr. 35,712,642 1,406,124 - -------------------------------------------------------------------------------- J. Brendan Ryan 35,706,781 1,411,985 - -------------------------------------------------------------------------------- Donald L. Seeley 35,722,571 1,396,195 - -------------------------------------------------------------------------------- Marilyn R. Seymann 35,720,270 1,398,496 - -------------------------------------------------------------------------------- Stephan T. Vehslage 35,714,398 1,404,368 - --------------------------------------------------------------------------------
2. A proposal to approve the amended and restated True North Stock Option Plan.
- -------------------------------------------------------------------------------- For Against Abstain Non-Vote --- ------- ------- -------- - -------------------------------------------------------------------------------- 25,550,057 7,569,301 573,564 3,425,844 - --------------------------------------------------------------------------------
3. A proposal to ratify the appointment of Arthur Andersen LLP as Registrant's independent accountants.
- -------------------------------------------------------------------------------- For Against Abstain --- ------- ------- - -------------------------------------------------------------------------------- 36,799,408 220,982 93,376 - --------------------------------------------------------------------------------
16 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10.1 Amended and Restated 364-Day Credit Agreement, dated May 27, 1999, by and among Registrant, the banks, financial institutions and other institutional lenders party thereto and Citibank, N.A., as administrative agent. 10.2 Amendment to Employment Agreement dated as of July 30, 1997 by and between Registrant and Charles D. Peebler, Jr. entered into as of May 1, 1999. (b) Reports on Form 8-K. (1) 8-K filed April 14, 1999 reported certain recent events concerning Registrant's officers. (2) 8-K filed April 16, 1999 reported certain recent events concerning Registrant's preferred stock purchase rights plan. (3) 8-K filed June 17, 1999 reported certain recent events concerning the disposition of securities by Registrant. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRUE NORTH COMMUNICATIONS INC. (Registrant) Kevin J. Smith ------------------------------- (Signature) Kevin J. Smith Senior Vice President Chief Accounting Officer Date: August 13, 1999 18 EX-10.1 2 AMENDED & RESTATED 364-DAY CREDIT AGREEMENT Exhibit 10.1 EXECUTION COPY AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT Dated as of May 27, 1999 TRUE NORTH COMMUNICATIONS, INC., a Delaware corporation (the "Borrower"), the banks, financial institutions and other institutional lenders (collectively, the "Initial Lenders") party hereto and CITIBANK, N.A., as administrative agent (together with any successor thereto appointed pursuant to Article VII of the Existing Credit Agreement referred to below, the "Administrative Agent") for the Lenders (as defined in the Existing Credit Agreement referred to below), hereby agree as follows: PRELIMINARY STATEMENTS (1) The Borrower is party to a 364-Day Credit Agreement dated as of May 29, 1998 (as amended, supplemented or otherwise modified from time to time to (but not including) the date of this Amendment and Restatement, the "Existing Credit Agreement") with the banks, financial institutions and other institutional lenders party thereto and Citibank, N.A., as Administrative Agent for the Lenders and such other lenders. Capitalized terms not otherwise defined in this Amendment and Restatement shall have the same meanings as specified in the Existing Credit Agreement. (2) The parties to this Amendment and Restatement desire to amend the Existing Credit Agreement as set forth herein and to restate the Existing Credit Agreement in its entirety to read as set forth in the Existing Credit Agreement with the following amendments. (3) The Borrower has requested that the Lenders agree to extend credit to it from time to time in an aggregate principal amount of up to $75,000,000 for general corporate purposes of the Borrower and its Subsidiaries not otherwise prohibited under the terms of this Agreement. The Lenders have indicated their willingness to agree to extend credit to the Borrower from time to time in such amount on the terms and conditions of this Amendment and Restatement. SECTION 1. Amendments to the Existing Credit Agreement. (a) Section 1.01 of the Existing Credit Agreement is, effective as of the date of this Amendment and Restatement and subject to the satisfaction of the conditions precedent set forth in Section 2, hereby amended by deleting the definitions of "Applicable Margin", "Commitment" and "Revolver Termination Date" set forth therein and replacing them, respectively, with the following new definitions thereof: 2 "Applicable Margin" means a percentage per annum equal to the applicable percentage set forth below for the Performance Level set forth below:
----------------------------------------------------------------------- Performance Base Rate Eurocurrency Level Advances Rate Advances ----------------------------------------------------------------------- I 0.000% 0.525% ----------------------------------------------------------------------- II 0.000% 0.550% ----------------------------------------------------------------------- III 0.000% 0.625% -----------------------------------------------------------------------
The Applicable Margin for each Eurocurrency Rate Advance shall be determined by reference to the Performance Level in effect from time to time. "Commitment" means, with respect to any Lender, the amount set forth in US Dollars opposite such Lender's name on Schedule I hereto under the caption "Commitment" or, if such Lender has entered into an Assignment and Acceptance, the amount set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(d) or, if such Lender has entered into an Assumption Agreement, the amount set forth as the Commitment of such Lender in its Assumption Agreement, in each case as such amount may be reduced pursuant to Section 2.05 or increased pursuant to Section 2.16. "Revolver Termination Date" means the earlier of (a) May 26, 2000, subject to the extension thereof pursuant to Section 2.17, and (b) the date of termination in whole of the aggregate Commitments pursuant to Section 2.05 or 6.01; provided, however, that the Revolver Termination Date of any Lender that is a Non-Consenting Lender to any requested extension pursuant to Section 2.17 shall be the Revolver Termination Date in effect immediately prior to the applicable Extension Date for all purposes of this Agreement. (c) Schedule I to the Existing Credit Agreement is, effective as of the date of this Amendment and Restatement and subject to the satisfaction of the conditions precedent set forth in Section 2, deleted in its entirety and replaced with Schedule I to this Amendment and Restatement. SECTION 2. Conditions of Effectiveness of this Amendment and Restatement. This Amendment and Restatement shall become effective as of the date first above written (the "Restatement Effective Date") when and only if: (a) The Administrative Agent shall have received counterparts of this Amendment and Restatement executed by the Borrower and all of the Initial Lenders or, as to any of the Initial Lenders, advice satisfactory to the Administrative Agent that such Initial Lender has executed this Amendment and Restatement. (b) The Administrative Agent shall have received for the benefit of each of the Initial Lenders a fee equal to 0.07% of the Commitment of each Initial Lender. 3 (c) The Administrative Agent shall have received on or before the Restatement Effective Date the following, each dated such date and (unless otherwise specified below) in form and substance satisfactory to the Administrative Agent and in sufficient copies for each Initial Lender: (i) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the name and true signatures of the officers of the Borrower authorized to sign this Amendment and Restatement and the Notes, if any, and the other documents to be delivered hereunder by the Borrower. (ii) A favorable opinion of the Assistant General Counsel of the Borrower, in form and substance reasonably satisfactory to the Agent. (c) The representations and warranties contained in Section 4.01 of the Existing Credit Agreement shall be correct on and as of the Restatement Effective Date, before and after giving effect to the Restatement Effective Date, as though made on and as of such date. (d) No event shall have occurred and be continuing, or shall occur as a result of the occurrence of the Restatement Effective Date, that constitutes a Default. SECTION 3. Reference to and Effect on the Existing Credit Agreement and the Notes. (a) On and after the effectiveness of this Amendment and Restatement, each reference in the Existing Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Existing Credit Agreement, and each reference in the Notes to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Existing Credit Agreement, shall mean and be a reference to the Existing Credit Agreement, as amended by this Amendment and Restatement. (b) The Existing Credit Agreement and the Notes, as specifically amended by this Amendment and Restatement, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. (c) Without limiting any of the other provisions of the Existing Credit Agreement, as amended by this Amendment and Restatement, any references in the Existing Credit Agreement to the phrases "on the date hereof", "on the date of this Agreement" or words of similar import shall mean and be a reference to the date of the Existing Credit Agreement (which is May 29, 1998). SECTION 4. Costs and Expenses. The Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment and Restatement, the Notes and the other documents to be delivered hereunder (including, without limitation, the reasonable and documented fees and expenses of counsel for the Administrative Agent with respect hereto and thereto) in accordance with the terms of Section 8.04 of the Existing Credit Agreement. SECTION 5. Execution in Counterparts. This Amendment and Restatement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute 4 one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment and Restatement by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment and Restatement. SECTION 6. Governing Law. This Amendment and Restatement shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE BORROWER ------------ TRUE NORTH COMMUNICATIONS INC. By /s/ Kenneth J. Ashley -------------------------------- Name: Kenneth J. Ashley Title: Treasurer THE AGENT --------- CITIBANK, N.A., as Administrative Agent By /s/ Carolyn A. Kee -------------------------------- Name: Carolyn A. Kee Title: Vice President THE INITIAL LENDERS ------------------- CITIBANK, N.A. By /s/ Carolyn A. Kee -------------------------------- Name: Carolyn A. Kee Title: Vice President 5 THE FIRST NATIONAL BANK OF CHICAGO By /s/ Richard T. Bedell -------------------------------- Name: Richard T. Bedell Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ Timothy J. Pepowski -------------------------------- Name: Timothy J. Pepowski Title: Senior Vice President THE CHASE MANHATTAN BANK By /s/ Thomas J. Cox -------------------------------- Name: Thomas J. Cox Title: Vice President THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By /s/ Hisashi Miyashiro -------------------------------- Name: Hisashi Miyashiro Title: Deputy General Manager BANQUE NATIONALE DE PARIS By /s/ Arnand Collin du Bocage -------------------------------- Name: Arnand Collin du Bocage Title: Executive Vice President & General Manager THE NORTHERN TRUST COMPANY By /s/ Nicole Boehm -------------------------------- Name: Nicole Boehm Title: Commercial Banking Officer FLEET BANK, N.A. By /s/ Thomas J. Levy -------------------------------- Name: Thomas J. Levy Title: Vice President SCHEDULE I TO THE AMENDMENT AND RESTATEMENT COMMITMENTS AND APPLICABLE LENDING OFFICES
Name of Domestic Eurocurrency Initial Lender Commitment Lending Office Lending Office - -------------- ---------- -------------- -------------- Citibank, N.A. $18,000,000 Two Penns Way, Two Penns Way, Suite 200 Suite 200 New Castle, DE 19720 New Castle DE 19720 Attn: Kent Leonard Attn: Kent Leonard Tel: (302) 894-6016 Tel: (302) 894-6016 Fax: (302) 894-6120 Fax: (302) 894-6120 Bank of America $10,500,000 231 South LaSalle 231 South LaSalle National Trust Street, 11th Floor Street, 11th Floor and Savings Chicago, IL 60697 Chicago, IL 60697 Association Attn: Fred Johnson Attn: Fred Johnson Tel: (312) 828-6706 Tel: (312) 828-6706 Fax: (312) 974-1199 Fax: (312) 974-1199 The First $10,500,000 One First National One First National National Bank Plaza, Suite 0088 1-14 Plaza, Suite 0088 1-14 of Chicago Chicago, IL 60670 Chicago, IL 60670 Attn: Richard Bedell Attn: Richard Bedell Tel: (312) 732-2413 Tel: (312) 732-2413 Fax: (312) 732-1117 Fax: (312) 732-1117 The Chase $10,500,000 600 Fifth Avenue, 600 Fifth Avenue, Manhattan Bank 5th Floor 5th Floor New York, NY 10020 New York, NY 10020 Attn: Tom Cox Attn: Tom Cox Tel: (212) 332-4355 Tel: (212) 332-4355 Fax: (212) 332-4370 Fax: (212) 332-4370 The Bank of $7,500,000 227 W. Monroe Street, 227 W. Monroe Street, Tokyo-Mitsubishi, Suite 2300 Suite 2300 Ltd., Chicago Chicago, IL 60606 Chicago, IL 60606 Branch Attn: Diane Tkach Attn: Diane Tkach Tel: (312) 696-4663 Tel: (312) 696-4663 Fax: (312) 696-4535 Fax: (312) 696-4535 Banque Nationle $6,000,000 209 South LaSalle 209 South LaSalle de Paris Chicago, IL 60604 Chicago, IL 60604 Attn: Jo Ellen Bender Attn: Jo Ellen Bender Tel: (312) 977-2225 Tel: (312) 977-2225 Fax: (312) 977-1380 Fax: (312) 977-1380
2
Name of Domestic Eurocurrency Initial Lender Commitment Lending Office Lending Office - -------------- ---------- -------------- -------------- The Northern $6,000,000 50 South LaSalle 50 South LaSalle Trust Company Street Street Chicago, IL 60675 Chicago, IL 60675 Attn: Michelle Teleak Attn: Michelle Teleak Tel: (312) 444-3506 Tel: (312) 444-3506 Fax: (312) 444-5055 Fax: (312) 444-5055 Fleet Bank, N.A. $6,000,000 1185 Avenue of the 1185 Avenue of the Americas Americas New York, NY 10036 New York, NY 10036 Attn: Thomas Levy Attn: Thomas Levy Tel: (212) 819-5751 Tel: (212) 819-5751 Fax: (212) 819-4112 Fax: (212) 819-4112 - ------------ TOTAL OF $75,000,000 COMMITMENTS
EX-10.2 3 EMPLOYMENT AGREEMENT AMENDMENT Exhibit 10.2 EMPLOYMENT AGREEMENT AMENDMENT ------------------------------ This AMENDMENT to the Employment Agreement dated as of July 30, 1997 (the "Employment Agreement"), by and between True North Communications Inc., a Delaware corporation (the "Company"), and Charles D. Peebler, Jr. (the "Executive") is entered into as of May 1, 1999. W I T N E S S E T H - - - - - - - - - - WHEREAS, the Company and the Executive have entered into the above- referenced Employment Agreement pursuant to which the Executive has served as the President of the Company and the Chairman and Chief Executive Officer of the True North Diversified Companies; WHEREAS, the Employment Agreement replaced and superseded the Employment Agreement dated as of April 1, 1992, between the Executive and Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Bozell"), and was entered into in connection with the execution of the Agreement and Plan of Merger, dated as of July 30, 1997, among the Company, Cherokee Acquisition Corporation and Bozell, pursuant to which Bozell became a wholly-owned subsidiary of the Company as of December 30, 1997; and WHEREAS, the Company and the Executive have mutually agreed to modify the Executive's title, duties, responsibilities and corresponding compensation, and the parties desire to amend the Employment Agreement accordingly, as set forth below. NOW, THEREFORE, it is agreed that the Employment Agreement is hereby amended, effective as of May 1, 1999, in the following respects: 1. Position and Duties. Section 1.1 of the Employment Agreement is amended in its entirety to read as follows: "The Company hereby agrees to employ the Executive, and the Executive hereby agrees to accept employment by the Company, upon the terms and subject to the conditions contained in this Agreement, as the Company's Chairman Emeritus. The Executive shall report directly to the Chief Executive Officer of the Company or, as applicable, to the Board of Directors of the Company (the `Board'). The Executive's services hereunder shall be performed on a part-time basis at the Company's offices located in New York City except for travel reasonably required to perform such services. During the Term of Employment (as hereinafter defined), the Executive shall work as an employee hereunder the equivalent of at least 10 full business days each month. It shall not be a violation of this Agreement for the Executive to manage his personal finances, investments and business affairs, or to engage in or serve such civic, community, charitable, education, religious and similar type activities and organizations as he may select, or to serve as a director of a reasonable number of business corporations, so long as such activities do not impact the performance of the Executive's duties and responsibilities hereunder, and so long as no such service as a director is inconsistent with his positions and duties hereunder. During the Term of Employment, Company management will recommend that the Executive be slated for election as a member of the Board." 2. Responsibilities. Section 1.2 of the Employment Agreement is amended in its entirety to read as follows: "Subject to the powers, authority and responsibilities vested in the Board and the Chief Executive Officer and in duly constituted committees of the Board, the Executive, as an employee hereunder, shall have the authority and responsibility for (i) providing advisory and leadership assistance to the True North Diversified Companies, (ii) seeking opportunities for Company clients to benefit from total consolidation of their business with the Company's operating units, (iii) providing advice to the Chairman of the `Warriors Council,' (iv) developing business opportunities for the Company's operating units, including through the use of current and former business networks, (v) generating and presenting strategies and opportunistic ideas for the Company and its operating units, (vi) providing reports and recommendations to the Chief Executive Officer at least semi-annually, (vii) representing the Company in the New York community, and (viii) serving as an ex-officio member of staff and management meetings, as desired." 3. Term of Employment. Section 2.1 of the Employment Agreement is amended to provide that the term of the Employment Agreement, as amended hereby, shall commence on May 1, 1999 and shall continue through July 31, 2002, unless earlier terminated in accordance with Section 2.2 of the Employment Agreement. This revised term of employment and any mutually agreed-upon extension thereof shall be referred to as the "Term of Employment." 4. Base Salary and Incentive Compensation. Section 3.1 of the Employment Agreement is amended in its entirety to read as follows: "The Company shall pay to the Executive base salary at the rate of $300,000 per annum in accordance with the Company's regular payroll practices, but not less often than monthly. The Executive shall also be entitled to receive annual incentive compensation in accordance with the Company's Executive Compensation Program on a pro-rated basis for the period January 1, 1999 through April 30, 1999 (subject to a minimum amount of $250,000). Other than the stock option grant described in the first paragraph of Section 3.2 below, the Executive shall not be entitled to any incentive compensation with respect to the Term of Employment after May 1, 1999." 5. Stock Options. Section 3.2 of the Employment Agreement is amended to read as follows: "The Executive is granted an option to purchase up to 15,000 shares of Company common stock under and pursuant to the terms and conditions of the True North Communications Inc. Stock Option Plan. This option is granted as of May 1, 1999, the per-share exercise price is the closing price of 2 Company common stock on that date, and it shall vest over three years. The specific terms and conditions of this option shall be set forth in a stock option agreement to be executed between the Executive and the Company. Subject to the third paragraph of this Section 3.2, upon termination or expiration of the Term of Employment, for any reason, or prior to the occurrence of a Change in Control (as hereinafter defined), all of the stock options theretofore granted to the Executive by the Company then held by the Executive shall be fully exercisable until the end of the full term thereof. The foregoing paragraph shall not apply to the stock option for 100,000 shares granted to the Executive on March 3, 1998 (the "Option"), if the Executive terminates his Employment pursuant to Section 4.2 hereof. Upon such elective termination, the Option, to the extent not previously exercised, shall automatically expire. Furthermore, if the Executive terminates his Employment pursuant to Section 4.2 hereof, he shall be obligated to repay promptly to the Company the dollar amount of any gain realized/1/ by him upon his exercise of the Option or to direct the Company to offset the dollar amount of any such gain against any amounts due to him from the Company at that time. In either event, to the extent legally permissible, the Company shall offset the dollar amount of any such repaid gain against the total of the Executive's compensation that is reported to the IRS on Form W-2 for the applicable calendar year." 6. Other Compensation and Benefits. The following phrase is deleted from Section 3.4 of the Employment Agreement: "Executive shall be entitled to participate in the most favorable compensation plans, programs and arrangements (including any stock- related or incentive plans) maintained by, or offered to senior executives of, Bozell or its subsidiaries or affiliates from time to time, in accordance with the terms thereof, and the" 7. Termination not for Cause or for Good Reason. Subsections (a) and (d) of Section 4.1 of the Employment Agreement are amended in their entirety to read as follows: "(a) the Executive shall be entitled to receive: (i) all Base Salary payable with respect to the Term of Employment through the date of the Notice of Termination, (ii) any unpaid incentive compensation for the period January 1, 1999 through April 30, 1999 (subject to the guaranteed minimum amount of $250,000), and (iii) reimbursement, in accordance with Section 3.5, of expenses incurred by him through the date of such Notice of Termination;" "(d) the Company will pay to the Executive $4,050,000 in a single lump-sum cash payment." - ----------------------------- /1/ The gain realized is defined as the number of shares exercised times the difference between the per share exercise price and the per share fair market value on the date of such exercise. 3 8. Elective Termination. Section 4.2 of the Employment Agreement is amended by changing the date February 28, 1999 to October 1, 1999, changing the date June 30, 1999 to April 30, 2000, and by amending subsections (a) and (c) in their entirety to read as follows: "(a) the payments and benefits provided in Section 4.1(a), (b) and (c); provided, however, that the benefits described in Section 4.1(b) shall not apply to the Option described in the third paragraph of Section 3.2, except to the extent the benefits described in Section 4.1(b) are applied under Section 4.3 or 4.4 below;" "(c) cash compensation equal to $1,350,000 and benefits otherwise payable hereunder during the remaining Term of Employment as if no Notice of Termination has been delivered, and for the balance of the Term of Consultancy, cash compensation equal to $810,000, payable in accordance with the usual payroll practices of the Company, but not less often than monthly." 9. Definition of Good Reason. Section 4.6 of the Employment Agreement is amended to read as follows: "For purposes of this Agreement, `Good Reason' shall mean termination of the Executive's employment by the Executive due to the occurrence, without the Executive's express written consent, of any of the following events: (a) the assignment to the Executive of any duties that either (i) are inconsistent with the Executive's position, duties, responsibilities or status with the Company as set forth in Sections 1.1 and 1.2 or (ii) result in a diminution of Executive's responsibilities, (b) an adverse change in the Executive's reporting responsibilities, titles or offices with the Company, (c) a material breach of the Company's obligations set forth in this Agreement, including a breach of the covenant contained in Section 9.2, (d) a decrease in the Executive's base salary, (e) any requirement of the Company that the location where the Executive is based be materially changed, (f) any purported termination of the Executive's employment by the Company not effected in accordance herewith, or (g) the Executive shall have relinquished his position with the Company hereunder within two years after the occurrence of a Change in Control. For purposes of this Agreement, any action taken by the Company in good faith that is of such a nature that correction can be effected and that is fully corrected by the Company within 30 days after receipt of written notice thereof given by the Executive shall not constitute a basis for Good Reason." 10. Termination for Cause or for other than Good Reason. Section 5.1 of the Employment Agreement is amended as follows: a. Subsections (b) and (c) are replaced by the following subsection (b): "any unpaid incentive compensation for the period January 1, 1999 4 through April 30, 1999 (subject to the guaranteed minimum amount of $250,000);" b. Subsection (d) and (e) are renumbered as subsections (c) and (d). c. The following phrase is deleted from the end of the first sentence of Section 5.1: "provided that in determining the aggregate amount of the Base Salary payable pursuant to clause (a) of this Section 5.1 and the Incentive Compensation payable pursuant to clause (c) of this Section 5.1, the Calendar Year Minimum Compensation shall be prorated through the date of termination of the Executive's employment hereunder for Cause or the Notice of Termination is given by the Executive, as applicable." IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the 30th day of May, 1999, to be effective as of May 1, 1999. TRUE NORTH COMMUNICATIONS INC. By: /s/ David A. Bell --------------------------------------- David A. Bell, Chief Executive Officer By: /s/ Marilyn R. Seymann --------------------------------------- Marilyn R. Seymann, Chairman of the Compensation Committee of the Board of Directors EXECUTIVE /s/ Charles D. Peebler, Jr. ------------------------------------------ Charles D. Peebler, Jr. 5 EX-27.1 4 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED BALANCE SHEET AS OF JUNE 30, 1998 AND THE UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS DATA HAS BEEN RESTATED AS A RESULT OF A POOLING OF INTEREST TRANSACTION CONSUMMATED IN THE FIRST QUARTER OF 1999. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 71,348 0 821,381 11,682 0 1,004,056 314,205 192,016 1,732,457 1,185,763 0 0 0 227,897 78,798 1,732,457 0 607,009 0 560,988 (3,023) 913 10,615 37,516 17,672 21,330 0 0 0 21,330 0.47 0.45
EX-27.2 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 161,811 3,230 1,020,563 11,407 0 100,511 325,008 191,079 1,941,834 1,415,669 0 0 0 273,474 57,803 1,941,834 0 659,098 0 606,754 (8,944) 1,361 9,846 50,081 21,785 28,207 0 0 0 28,207 0.60 0.58
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