As filed with the Securities and Exchange Commission on July 26, 1995
Registration No. 33-60167
================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
----------------------
OMNICOM GROUP INC.
(Exact Name of Registrant as Specified in Charter)
New York 7311 13-1514814
(State or other jurisdiction (Primary Standard (IRS Employer
of incorporation Industrial Classification Ident. No.)
or organization) Code Number)
437 Madison Avenue
New York, New York 10022
(212) 415-3600
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
BARRY J. WAGNER, ESQ.
Secretary
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
(212) 415-3600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
Copies to:
MICHAEL D. DITZIAN, ESQ. JAMES M. COTTER, ESQ.
Davis & Gilbert Simpson Thacher & Bartlett
1740 Broadway 425 Lexington Avenue
New York, New York 10019 New York, New York 10017
(212) 468-4800 (212) 455-2000
----------------------
Approximate date of commencement of proposed sale to public: From time to
time after this Registration Statement becomes effective and all other
conditions to the purchase of assets pursuant to the Acquisition Agreement
described in the enclosed Prospectus/ Information Statement have been satisfied
or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box: [ ]
----------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
OMNICOM GROUP INC.
Cross Reference Sheet Pursuant to Rule 404(a) of the Securities Act of 1933
and Item 501(b) of Regulation S-K, Showing the Location or Heading in the
Prospectus/Information Statement of the Information required by Part I of Form
S-4.
Location or Heading in
S-4 Item Number and Caption Prospectus/Information Statement
- --------------------------- --------------------------------
A. Information about the Transaction
Forepart of Registration Statement and Outside Front Cover Page of
Outside Front Cover Page of Prospectus Prospectus/Information Statement
Inside Front and Outside Back Cover Inside Front Cover Page of
Pages of Prospectus Prospectus/Information Statement;
Available Information
Risk Factors, Ratio of Earnings to Fixed Summary; Comparative Per Share
Charges and Other Information Data; Market Price Data
Terms of the Transaction The Transactions; The Acquisition
Agreement; The Advertising Stock
Sale Agreement; Proposed
Amendment of the Holdings
Certificate; the Plan of
Liquidation; Federal Income Tax
Consequences of the Sales of
Assets and Dissolution and
Liquidation; Comparison of
Shareholder Rights; Description
of Omnicom Capital Stock
Pro Forma Financial Information *
Material Contacts with the Company Being The Transactions
Acquired
Additional Information Required for *
Reoffering by Persons and Parties Deemed
to Be Underwriters
Interests of Named Experts and Counsel *
Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities
B. Information About the Registrant
Information with Respect to Incorporation of Certain
S-3 Registrants Documents by Reference; Business
Information Concerning Omnicom;
Selected Financial Data of
Omnicom; Description of Omnicom
Capital Stock
Incorporation of Certain Information by Incorporation of Certain
Reference Information by Reference
Information with Respect to S-2 or S-3 *
Registrants
Incorporation of Certain Information by *
Reference
<PAGE>
Location or Heading in
S-4 Item Number and Caption Prospectus/Information Statement
- --------------------------- --------------------------------
Information with Respect to Registrants *
Other Than S-3 or S-2 Registrants
C. Information about the Company
Being Acquired
Information with Respect to S-3 Companies *
Information with Respect to S-2 or S-3 *
Companies
Information with Respect to Companies Business Information Concerning
Other Than S-3 or S-2 Companies Holdings; Selected Financial Data
of Holdings; Management's
Discussion and Analysis
of Financial Condition and
Results of Operations of
Holdings; Description of Holdings
Capital Stock; Index to Holdings
Financial Statements
D. Voting and Management Information
Information if Proxies, Consents or *
Authorizations are to be Solicited
Information if Proxies, Consents or Incorporation of Certain
Authorizations are not to be Solicited Documents by Reference; The
or in an Exchange Offer Special Meeting; The
Transactions; Description of
Holdings Capital Stock
- -----------------
* Not applicable
<PAGE>
[Letterhead]
CHIAT/DAY HOLDINGS, INC.
August__, 1995
Dear Shareholder:
You are cordially invited to attend a special meeting of stockholders of
Chiat/Day Holdings, Inc., a Delaware corporation ("Holdings"), on Tuesday,
August 29, 1995, at 9:30 a.m. at 180 Maiden Lane, New York, New York 10038 (the
"Special Meeting") to consider and vote upon the following proposals
(collectively, the "Holdings Vote Matters"): (a) the sale by Holdings and
Chiat/Day inc. Advertising, a Delaware corporation and a wholly-owned subsidiary
of Holdings ("Advertising"), of their assets and businesses, (i) to TBWA
International Inc., a Delaware corporation ("TBWA"), in exchange for shares of
Common Stock of Omnicom Group Inc., a New York corporation ("Omnicom"), and
TBWA's assumption of liabilities pursuant to an Asset Purchase Agreement (the
"Acquisition Agreement") dated May 11, 1995 among Omnicom, TBWA, Holdings and
Advertising and (ii) pursuant to a certain stock purchase agreement dated as of
May 11, 1995 between Holdings and Adelaide Horton (the "Advertising Stock Sale
Agreement"); (b) following the Closing under the Acquisition Agreement, the
amendment of the Certificate of Incorporation of Holdings (the "Holdings
Certificate"), to change the corporate name of Holdings to CDH Corporation; (c)
the approval and adoption of a Plan of Liquidation pursuant to which Holdings
will, among other things, (i) dissolve, (ii) establish a liquidating trust
pursuant to a liquidating trust agreement, with Thomas Patty and David C. Wiener
as trustees for the benefit of its stockholders, and (iii) distribute to its
stockholders and/or the liquidating trust all its remaining assets; and (d) such
other matters as may come before the Special Meeting.
Holders of record of Class A Common Stock and Class B Common Stock of
Holdings at the close of business on August 1, 1995, will be entitled to vote at
the Special Meeting or any postponement or adjournment thereof.
The affirmative vote of the holders of a majority of the voting power
represented by the outstanding shares of Class A Common Stock and Class B Common
Stock (the "Holdings Common Stock"), voting together as a single class, is
necessary to approve the transactions contemplated by the Acquisition Agreement
and the Advertising Stock Sale Agreement, to approve the amendment to the
Holdings Certificate, and to approve and adopt the Plan of Liquidation.
Directors and executive officers of Holdings owning as of August 1, 1995
approximately 77.98% of the Holdings Common Stock in the aggregate have
expressed an intention to vote in favor of the transactions contemplated herein.
None of the Holdings Vote Matters shall become effective unless all of the
proposals are adopted by the requisite vote of the Holdings Stockholders.
The Holdings Board of Directors believes that the foregoing transactions
are fair to, and in the best interests of, Holdings and the Holdings
stockholders and recommends that the Holdings stockholders vote FOR the approval
of the transactions contemplated by the Acquisition Agreement and the
Advertising Stock Sale Agreement, FOR the approval of the amendment of the
Holdings Certificate, and FOR the approval of the Plan of Liquidation.
The attached Prospectus/Information Statement describes the proposed
transactions more fully. Please give this information careful attention.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
Very truly yours,
JAY CHIAT
Chief Executive Officer
<PAGE>
CHIAT/DAY HOLDINGS, INC.
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
To be Held on Tuesday, August 29, 1995
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
stockholders of Chiat/Day Holdings, Inc., a Delaware corporation ("Holdings"),
will be held on Tuesday, August 29, 1995, at 180 Maiden Lane, New York, New York
10038, commencing at 9:30 a.m., to consider and vote upon the following matters
described in the accompanying Prospectus/Information Statement:
1. To consider and vote upon the transfer by Holdings and Chiat/Day
inc. Advertising, a Delaware corporation and a wholly-owned subsidiary of
Holdings ("Advertising"), of their assets and businesses (i) to TBWA
International Inc., a Delaware corporation ("TBWA"), in exchange for shares
of Common Stock, par value $.50 per share, of Omnicom Group Inc., a New
York corporation ("Omnicom"), and TBWA's assumption of liabilities pursuant
to an Asset Purchase Agreement (the "Acquisition Agreement") dated May 11,
1995, among Omnicom, TBWA, Holdings and Advertising and (ii) pursuant to a
certain stock purchase agreement dated as of May 11, 1995 between Holdings
and Adelaide Horton.
2. To consider and vote upon an amendment to the Certificate of
Incorporation of Holdings (the "Holdings Certificate") to change the name
of Holdings, following the Closing under the Acquisition Agreement, to CDH
Corporation.
3. To consider and vote upon the approval and adoption of a plan of
complete liquidation (the "Plan of Liquidation") pursuant to which Holdings
would (i) dissolve, (ii) establish a liquidating trust (the "Liquidating
Trust") pursuant to a liquidating trust agreement, with Thomas Patty and
David C. Wiener as trustees, for the benefit of its stockholders, and (iii)
distribute to its stockholders and/or the Liquidating Trust all its
remaining assets. Approval of the Plan of Liquidation requires the
acceptance by the Holdings stockholders of such trustees as their
collective agent under the terms of the Liquidating Trust, with such
trustees (a) to receive on their behalf certain liquidating distributions
from Holdings, (b) to act as their agent in connection with the
administration of an escrow agreement established in connection with the
Acquisition Agreement and more fully described herein (the "Escrow
Agreement"), (c) to respond to the assertion of any and all claims for
indemnification by TBWA, or to assert claims on behalf of the stockholders,
pursuant to the terms of the Acquisition Agreement and the Escrow
Agreement, and (d) to complete the winding up of the affairs of Holdings
and payment of its liabilities not assumed by TBWA pursuant to the
Acquisition Agreement from the assets of the Liquidating Trust.
4. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Only holders of record of Class A Common Stock, par value $.01 per share
("Class A Common Stock"), and Class B Common Stock, par value $.01 per share
("Class B Common Stock"), of Holdings at the close of business on August 1, 1995
will be entitled to vote at the Special Meeting and any adjournment or
postponement thereof.
The affirmative vote of the holders of a majority of the voting power
represented by the outstanding shares of Class A Common Stock and Class B Common
Stock (the "Holdings Common Stock"), voting together as a single class, is
necessary to approve the transactions contemplated by the Acquisition Agreement
and the Advertising Stock Sale Agreement, to approve the amendment to the
Holdings Certificate, and to approve and adopt the Plan of Liquidation.
Directors and executive officers of Holdings owning as of August 1, 1995
approximately 77.98% of Holdings Common Stock in the aggregate have expressed a
present intention to vote in favor of the transactions contemplated herein.
None of such matters shall become effective unless all of the proposals are
adopted by the requisite vote of the Holdings Stockholders.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
By Order of the Holdings Board of Directors
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<PAGE>
SUBJECT TO COMPLETION
DATED JULY 26, 1995
CHIAT/DAY HOLDINGS, INC.
INFORMATION STATEMENT
------------------------
OMNICOM GROUP INC.
PROSPECTUS
------------------------
This Prospectus/Information Statement is being furnished to holders of
Class A Common Stock, par value $.01 per share ("Class A Common Stock"), and
holders of Class B Common Stock, par value $.01 per share ("Class B Common
Stock"), (collectively, "Holdings Common Stock") of Chiat/Day Holdings, Inc., a
Delaware corporation ("Holdings"), in connection with the special meeting of the
stockholders of Holdings to be held on August 29, 1995 at 180 Maiden Lane, New
York, New York 10038, commencing at 9:30 a.m., local time, and at any
adjournment or postponement thereof (the "Special Meeting"). The purpose of the
Special Meeting is to consider and vote upon the following proposals (a) the
sale by Holdings and Chiat/Day inc. Advertising, a Delaware corporation and a
wholly-owned subsidiary of Holdings ("Advertising") of their assets and
businesses (i) to TBWA International Inc., a Delaware corporation ("TBWA"), in
exchange for shares of voting Common Stock, par value $.50 per share, of its
ultimate parent Omnicom Group Inc., a New York corporation ("Omnicom") (such
shares of Common Stock, "Omnicom Common Stock") and TBWA's assumption of
liabilities pursuant to an Asset Purchase Agreement (the "Acquisition
Agreement") dated May 11, 1995, among Omnicom, TBWA, Holdings and Advertising
(the transactions contemplated by the Acquisition Agreement are herein called
the "Acquisition") and (ii) pursuant to a certain stock purchase agreement dated
as of May 11, 1995 between Holdings and Adelaide Horton (the "Advertising Stock
Sale Agreement" and the sale thereunder the "Advertising Stock Sale"), (b)
following the Closing under the Acquisition Agreement (the "Closing"), the
amendment of the Certificate of Incorporation of Holdings (the "Holdings
Certificate") to change the name of Holdings to CDH Corporation, and (c) the
approval and adoption of a plan of complete liquidation (the "Plan of
Liquidation") pursuant to which Holdings will (i) dissolve, (ii) establish a
liquidating trust (the "Liquidating Trust") pursuant to a liquidating trust
agreement (the "Liquidating Trust Agreement"), between Holdings and Thomas Patty
and David C. Wiener, as trustees (the "Liquidating Trustees"), for the benefit
of its stockholders, and (iii) distribute to its stockholders and/or the
Liquidating Trust all its remaining assets (the "Liquidation" and, together with
the Acquisition, the Advertising Stock Sale and the amendment to the Holdings
Certificate, the "Transactions").
The Acquisition Agreement provides a formula in which TBWA pays shares of
Omnicom Common Stock with an aggregate value (determined as more fully described
herein) of a base price which will be $25,180,563 if the Closing occurs on or
prior to August 31, 1995, or $25,930,880 if the Closing occurs between November
1, 1995 and December 31, 1995, plus an amount equal to $2,418 multiplied by the
number of days between the Closing and October 31, 1995 or December 31, 1995,
respectively. The aggregate acquisition price from the sale of assets to TBWA is
expected to be $25,328,061 if the Acquisition is consummated as expected on
August 31,1995, although it could range as high as $26,078,378 if consummated on
November 1, 1995.
The approval of the various proposals will require the affirmative vote of
the holders of a majority of the voting power represented by the outstanding
shares of Class A Common Stock and Class B Common Stock, voting together as a
single class. Directors and executive officers of Holdings owning as of August
1, 1995 approximately 77.98% of Holdings Common Stock in the aggregate have
expressed a present intention to vote in favor of the Transactions and
accordingly the Transactions can be approved by the affirmative vote of such
persons even if all other Holdings Stockholders vote against the proposals.
This Prospectus/Information Statement is also being furnished to holders of
Equity Appreciation Rights ("EARs") issued under the 1993 Equity Appreciation
Rights Plan of Holdings (the "EAR Plan") and of Equity Participation Units
("EPUs") issued under the 1988 Amended and Restated Equity Participation Plan of
Holdings (the "EPU Plan") (collectively, the "Rightsholders") who will receive
shares of Omnicom Common Stock as payment under such Plans subject to the same
terms and conditions as other stockholders of Holdings.
This Prospectus/Information Statement constitutes both an information
statement of Holdings with respect to the Special Meeting and a prospectus of
Omnicom with respect to up to 600,000 shares of Omnicom Common Stock, which may
be issued to Holdings and Advertising in connection with the Acquisition and
distributed to the holders of Holdings Common Stock and to the Rightsholders.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROSPECTUS/INFORMATION STATEMENT
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
------------------------
The date of this Prospectus/Information Statement is [ ], 1995.
------------------------
<PAGE>
All information contained in this Prospectus/Information Statement relating
to Holdings and the Special Meeting (including, without limitation, financial
statements and other financial information regarding Holdings, background of and
Holdings' reasons for the Transactions, descriptions of the businesses,
properties, assets, and the liabilities of Holdings and Advertising, description
of the federal income tax consequences of the sale of assets and dissolution and
liquidation, and descriptions of the Liquidating Trust, the Plan of Liquidation,
and the Liquidating Trust Escrow Fund have been supplied by Holdings and are the
sole responsibility of Holdings and Omnicom assumes no responsibility therefor.
All information contained in this Prospectus/Information Statement relating to
Omnicom (including, without limitation, financial information regarding Omnicom,
Omnicom's reasons for the Acquisition, and the description of the business of
Omnicom) has been supplied by Omnicom and is the sole responsibility of Omnicom
and Holdings assumes no responsibility therefor.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus/Information
Statement in connection with the Special Meeting or the offering of securities
made hereby and, if given or made, such information or representation must not
be relied upon as having been authorized by Omnicom, Holdings or any other
person. This Prospectus/Information Statement does not constitute an offer to
sell, or a solicitation of any offer to buy, any securities in any jurisdiction
to or from any person to whom it is not lawful to make any such offer or
solicitation. Neither the delivery of this Prospectus/Information Statement, nor
any distribution of securities made hereunder shall, under any circumstances,
create an implication that there has been no change in the affairs of Omnicom or
Holdings since the date hereof or that the information contained herein is
correct as of any time subsequent to the date hereof.
------------------------
AVAILABLE INFORMATION
Omnicom is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). The reports, proxy statements
and other information filed by Omnicom with the SEC can be inspected and copied
at the public reference facilities maintained by the SEC at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the SEC at 7 World Trade Center, 13th Floor, New York, New York
10048-1102 and Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material also can be obtained from
the Public Reference Section of the SEC, Washington, D.C. 20549 at prescribed
rates. In addition, material filed by Omnicom can be inspected at the offices of
the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New
York 10005, on which the Omnicom Common Stock is listed.
Omnicom has filed with the SEC a Registration Statement on Form S-4
(together with all amendments, exhibits, annexes and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Omnicom Common Stock to be
issued pursuant to the Acquisition. This Prospectus/Information Statement does
not contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the SEC. Such additional information may be obtained from the SEC's principal
office in Washington, D.C. Statements contained in this Prospectus/Information
Statement or in any document incorporated in this Prospectus/Information
Statement by reference as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by Omnicom (File No. 1-10551)
pursuant to the Exchange Act are incorporated by reference in this
Prospectus/Information Statement:
1. Omnicom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
2. Omnicom's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995;
3. Omnicom's Proxy Statement dated April 7, 1995, for the Annual
Meeting of Shareholders held on May 22, 1995; and
4. The description of Omnicom's Common Stock contained in Omnicom's
Registration Statement pursuant to the Exchange Act, together with all
amendments or reports filed for the purpose of updating such description.
All documents and reports subsequently filed by Omnicom pursuant to
Sections 13(a), 13(c), l4 or 15(d) of the Exchange Act after the date of this
Prospectus/Information Statement shall be deemed to be incorporated by reference
in this Prospectus/Information Statement and to be a part hereof from the date
of filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus/Information Statement
to the extent that a statement contained herein or in any other subsequently
filed document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus/Information Statement.
This Prospectus/Information Statement incorporates documents by reference
that are not presented herein or delivered herewith. Such documents (other than
exhibits to such documents, unless such exhibits are specifically incorporated
herein by reference) are available to any person, including any beneficial
owner, to whom this Prospectus/Information Statement is delivered, without
charge, on written or oral request directed to Omnicom Group Inc., 437 Madison
Avenue, New York, New York 10022, Attention: Secretary (telephone number (212)
415-3600). In order to ensure timely delivery of the documents, any requests
should be made by August 22, 1995.
3
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION ................................................ 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ...................... 3
SUMMARY .............................................................. 6
COMPARATIVE PER SHARE DATA ........................................... 18
MARKET PRICE DATA .................................................... 19
THE SPECIAL MEETING .................................................. 20
Date, Time and Place of Special Meeting .......................... 20
Business to Be Transacted at the Special Meeting ................. 20
Record Date, Voting Rights ....................................... 20
Voting Requirements .............................................. 20
Approval Under Holdings Certificate .............................. 20
Affiliate Ownership .............................................. 21
THE TRANSACTIONS ..................................................... 21
Background of and Holdings' Reasons for the Transactions;
Recommendation of the Holdings Board of Directors ............. 21
Omnicom's Reasons for the Acquisition ............................ 22
Interests of Certain Persons in the Transactions ................. 23
Accounting Treatment ............................................. 24
Regulatory Approvals ............................................. 24
Resale Restrictions .............................................. 25
Stock Exchange Listing ........................................... 25
No Dissenters' Rights ............................................ 25
THE ACQUISITION AGREEMENT ............................................ 26
The Acquisition .................................................. 26
Other Terms and Conditions of the Acquisition Agreement .......... 30
THE ADVERTISING STOCK SALE AGREEMENT ................................. 34
PROPOSED AMENDMENT OF THE HOLDINGS CERTIFICATE ....................... 34
THE PLAN OF LIQUIDATION .............................................. 35
General .......................................................... 35
Liquidating Distribution to Holdings Stockholders ................ 35
Liquidating Distribution to Rightsholders ........................ 36
Fractional Shares ................................................ 36
Operation of the Liquidating Trust ............................... 36
The Liquidation Trust Escrow ..................................... 37
FEDERAL INCOME TAX CONSEQUENCES OF THE SALES OF ASSETS AND
DISSOLUTION AND LIQUIDATION .......................................... 38
Corporate Tax .................................................... 38
Holder Tax ....................................................... 38
Withholding Taxes ................................................ 41
BUSINESS INFORMATION CONCERNING OMNICOM .............................. 42
4
<PAGE>
SELECTED FINANCIAL DATA OF OMNICOM ................................... 43
BUSINESS INFORMATION CONCERNING HOLDINGS ............................. 44
SELECTED FINANCIAL DATA OF HOLDINGS .................................. 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF HOLDINGS .................................... 47
Results of Operations ............................................ 47
Liquidity and Capital Resources .................................. 48
DESCRIPTION OF OMNICOM CAPITAL STOCK ................................. 49
DESCRIPTION OF HOLDINGS CAPITAL STOCK ................................ 50
COMPARISON OF SHAREHOLDER RIGHTS ..................................... 53
LEGAL MATTERS ........................................................ 58
EXPERTS .............................................................. 59
5
<PAGE>
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SUMMARY
(The following is a summary of certain information contained elsewhere in
this Prospectus/Information Statement and does not purport to be complete. This
summary is qualified in all respects by the remainder of this
Prospectus/Information Statement, which should be read in its entirety.)
The Companies
Omnicom Group Inc. ......... Omnicom, though its wholly and partially owned
companies, operates advertising agencies which
plan, create, produce and place advertising in
various media such as television, radio,
newspaper and magazines; and offers clients such
additional services as marketing consultation,
consumer market research, design and production
of merchandising and sales promotion programs and
materials, direct mail advertising, corporate
identification, and public relations. According
to the unaudited industry-wide figures published
in the trade journal, Advertising Age, in 1994
Omnicom was ranked as the third largest
advertising agency group worldwide.
Omnicom operates three separate, independent
agency networks: the BBDO Worldwide Network, the
DDB Needham Worldwide Network and the TBWA
International Network. Omnicom also operates
independent agencies, Altschiller & Company and
Goodby, Silverstein & Partners, and certain
marketing service and specialty advertising
companies through Diversified Agency Services.
The principal executive offices of Omnicom are
located at 437 Madison Avenue, New York, New York
10022, telephone number (212) 415-3600.
TBWA International Inc. .... TBWA International Inc., is the holding company
for that portion of Omnicom's TBWA International
Network operating in the United States.
Chiat/Day Holdings, Inc. and
Chiat/Day inc. Advertising . Holdings, primarily through its wholly owned
subsidiary Chiat/Day inc. Advertising, is engaged
in the business of planning and creating
advertising campaigns for clients, purchasing
various media spots (television, radio,
newspapers and magazines), and providing
marketing consultation, market research and
production services. In 1994, Holdings was the
16th largest advertising agency in the U.S. and
27th largest in the world according to statistics
published in Advertising Age.
The principal executive offices of Holdings are
located at 180 Maiden Lane, New York, New York
10038, telephone number (212) 804-1000.
The Special Meeting
Meeting Time, Date
and Place .................. The Special Meeting will be held at 9:30 am.,
local time, on Tuesday, August 29, 1995, at 180
Maiden Lane, New York, New York 10038, and at any
adjournment or postponement thereof.
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6
<PAGE>
- --------------------------------------------------------------------------------
Record Date; Shares
Entitled To Vote ........... Holders of record of shares of Class A Common
Stock and Class B Common Stock of Holdings
(collectively, "Holdings Stockholders") at the
close of business on August 1, 1995 (the "Record
Date"), are entitled to notice of and to vote at
the Special Meeting. At such date there were
outstanding 13,527,269 shares of Class A Common
Stock, each of which will be entitled to one vote
at the Special Meeting, and 38,513,160 shares of
Class B Common Stock, each of which will be
entitled to one vote at the Special Meeting.
Purpose of the Special
Meeting .................... The purpose of the Special Meeting is to consider
and vote upon the following matters:
(a) a proposal to approve the sale by
Holdings and Advertising of their assets
and businesses pursuant to (i) the
Acquisition Agreement, by and among
Omnicom, TBWA, Holdings and Advertising,
and (ii) the Advertising Stock Sale
Agreement between Holdings and Adelaide
Horton;
(b) a proposal to amend the Holdings
Certificate effective as of the Closing
under, and as defined in, the
Acquisition Agreement to change its
corporate name to CDH Corporation;
(c) the approval and adoption of the Plan of
Liquidation, including the dissolution
of Holdings, the creation of the
Liquidating Trust pursuant to the
Liquidating Trust Agreement and the
appointment of the Liquidating Trustees;
and
(d) such other proposals as may properly be
brought before the Special Meeting.
Votes Required ............. The approval of the various proposals by Holdings
Stockholders will require the affirmative vote of
the holders of a majority of the voting power
represented by the outstanding shares of Class A
Common Stock and of Class B Common Stock, voting
together as a single class. Directors and
executive officers of Holdings owning as of
August 1, 1995 approximately 77.98% of the
Holdings Common Stock in the aggregate have
expressed an intention to vote in favor of the
various proposals.
The Acquisition
The Acquisition ............ Pursuant to the Acquisition Agreement, TBWA will
acquire assets of Holdings and Advertising
relating to their advertising businesses (the
"Businesses") for consideration payable by the
issuance to Holdings and Advertising of shares of
Omnicom Common Stock for distribution to the
Holdings Stockholders and the Rightsholders, and
the assumption by TBWA of liabilities of Holdings
and Advertising relating to the Businesses.
The shares of Omnicom Common Stock to be issued
to Holdings and Advertising shall be valued at
the "Market Value" (which shall be determined by
the average of the closing prices per share of
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Omnicom Common Stock reported on the New York
Stock Exchange for the 20 consecutive trading
days ending three business days immediately prior
to the Closing Date under, and as defined in, the
Acquisition Agreement). The number of shares of
Omnicom Common Stock to be issued shall be
calculated and applied as follows:
(a) TBWA will pay Holdings shares of Omnicom
Common Stock having an aggregate Market
Value of (x) if the Closing is held on
or prior to October 31, 1995, (i)
$11,180,563 plus (ii) an amount equal to
$2,418 multiplied by the number of days
in the period commencing on the Closing
Date and ending on October 31, 1995, or
(y) if the Closing is held after October
31, 1995 and on or prior to December 31,
1995, (iii) $11,930,880 plus (iv) an
amount equal to $2,418 multiplied by the
number of days in the period commencing
on the Closing Date and ending on
December 31, 1995. Of this Omnicom
Common Stock, shares having such Market
Value as may be necessary to insure the
satisfaction of obligations of Holdings
and Advertising to the Rightsholders,
will be contributed to Advertising (the
"Contributed Stock").
(b) TBWA will pay Advertising shares of
Omnicom Common Stock having an aggregate
Market Value of $14,000,000.
It is anticipated that the Closing Date will
occur on August 31, 1995, which would result in
an aggregate purchase price of $25,328,061.
Nevertheless, the aggregate purchase price could
range from $26,078,378 to $25,930,880 if the
Closing is held between November 1, 1995 and
December 31, 1995.
Notwithstanding the foregoing, the Acquisition
Agreement provides that prior to the Closing the
parties will negotiate in good faith an upwards
adjustment to the acquisition price if the
"Annualized Revenues" of Holdings and its
subsidiaries, being the commissions and fees
expected to be earned by Holdings and its
subsidiaries from clients who are such at the
time of the calculation for the fiscal year
ending October 31, 1995 (the "1995 Fiscal Year")
exceed $100,000,000 and the profits before taxes
(as adjusted to exclude net interest expense and
certain other items agreed between the parties)
("EBIT") of Holdings and its subsidiaries for the
1995 Fiscal Year is reasonably expected to exceed
$17,200,000. If an upwards adjustment is not
agreed, Holdings has the right to either
terminate the Acquisition Agreement or proceed
with the Closing at the original price. Any
additional consideration payable will be made in
shares of Omnicom Common Stock valued at the
Market Value. However, based on operating results
of Holdings and its subsidiaries achieved through
July 31, 1995, it is highly unlikely that any
such adjustment will occur.
On the date on which Omnicom publishes financial
results covering at least 30 days of combined
operations for Omnicom and the Businesses (the
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"Distribution Date"), the shares of Omnicom
Common Stock paid to Holdings and to Advertising
will be distributed as follows:
(a) Ten percent of the Omnicom Common Stock
paid to Holdings (after deducting the
Contributed Stock) and to Advertising
(including ten percent of the
Contributed Stock) will be placed into
an escrow account (the "General Escrow
Fund") under the terms of an escrow
agreement (the "Escrow Agreement") among
TBWA, Holdings, Advertising and The
Chase Manhattan Bank, N.A., as escrow
agent (the "Escrow Agent"), to provide
for payment of indemnification
obligations to Omnicom and TBWA arising
out of the Acquisition Agreement more
fully described under "Escrow Agreement
and Indemnification Obligations".
(b) Shares of Omnicom Common Stock having a
Market Value of $1,700,000, contributed
by Holdings and Advertising on a pro
rata basis, will be placed into an
additional escrow account (the "Special
Escrow Fund") under the Escrow Agreement
to provide for the payment of
indemnification obligations to Omnicom
and TBWA relating to an asset whose
collectibility could not reasonably be
assured at the signing of the
Acquisition Agreement (the "Indemnified
Receivable").
(c) Five percent of the Omnicom Common Stock
paid to Holdings (after deducting the
Contributed Stock) will be delivered to
the Liquidating Trust to fund the
payment and satisfaction of obligations
and liabilities of Holdings and
Advertising as shall not have been
assumed by TBWA under the Acquisition
Agreement; and five percent of the
Omnicom Common Stock paid to Advertising
(including five percent of the
Contributed Stock) will be delivered to
a separate escrow fund (the "Liquidating
Trust Escrow Fund") to fund (together on
a pro rata basis with the Holdings
Stockholders) the payment and
satisfaction of Liabilities of Holdings
and Advertising as shall not have been
assumed by TBWA under the Acquisition
Agreement.
(d) The remainder of the Omnicom Common
Stock held by Holdings will be delivered
to the holders of the Holdings Common
Stock pro rata in accordance with their
respective shareholdings; and the
remainder of the Omnicom Common Stock
held by Advertising will be delivered to
the Rightsholders pro rata in accordance
with their respective interests.
(e) After the distribution by Advertising to
the Rightsholders, Holdings shall
consummate the sale of the capital stock
of Advertising pursuant to the
Advertising Stock Sale Agreement.
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See "The Acquisition Agreement--The Acquisition--
Determination of Acquisition Price",
"--Renegotiation of Acquisition Price",
"--Payment of Obligations to Rightsholders" and
"--The Escrow Agreement"; "The Acquisition
Agreement--Other Terms and Conditions of the
Acquisition Agreement--Indemnification"; and "The
Advertising Stock Sale Agreement".
Distribution Date .......... The distributions of the shares of Omnicom Common
Stock by Holdings and Advertising will not occur
until the "Distribution Date". The Distribution
Date will be the date of publication by Omnicom
of financial results covering at least 30 days of
combined operations for Omnicom and the
Businesses after the Closing Date, provided that
if the Closing occurs on or prior to August 31,
1995, the Distribution Date will be the earlier
of the date of such publication and October 30,
1995 (whether or not such financial results are
published). Assuming the Closing occurs on or
before August 31, 1995, the earliest that such
financial results would be published is October
26, 1995. During the period from the Closing Date
through the Distribution Date, Holdings
Stockholders and Rightsholders will bear the risk
of fluctuations in the market price of the
Omnicom Common Stock.
Payment of Obligations
to Rightsholders ........... In 1993 and 1988, Holdings adopted the EAR Plan
and EPU Plan, respectively, and has issued awards
under such Plans. If the employment of a
participant is terminated for any reason, then
under the terms of the EAR Plan, such participant
shall have the right, but not the obligation, to
cause Holdings or Advertising to, and under the
EPU Plan Holdings or Advertising shall, redeem
vested units for cash in each case at their book
value as at the end of the most recent fiscal
quarter. At April 30, 1995, such book value was
less than zero. However, in the event of a
liquidation, with respect to their priority, each
EAR and EPU shall be deemed equivalent in value
to one share of Holdings Common Stock and shall
be treated in the same manner as Holdings Common
Stock. Therefore, Rightsholders will receive
shares of Omnicom Common Stock as payment under
such Plans, subject to the same terms and
conditions as if they were Holdings Stockholders,
including without limitation the escrow and
indemnification provisions more fully described
herein.
Per Share and Per Right
Consideration .............. The total value of Omnicom Common Stock to be
paid by TBWA to Holdings and Advertising pursuant
to the Acquisition Agreement will be dependent on
when the Closing Date occurs (as described above
and as more fully described under "The
Acquisition Agreement--The Acquisition--
Determination of Acquisition Price"). In order to
make certain estimates relating to the
consideration to be paid to the Holdings
Stockholders and the Rightsholders which are
included in this Prospectus/Information
Statement, it has been assumed that the Closing
Date will occur on August 31, 1995 and the Market
Value of the Omnicom Common Stock will be $563/8.
Based on an estimated total acquisition price of
$25,328,061, after deposits are made on behalf of
the Holdings Stockholders and Rightsholders into
the General Escrow Fund, the Special Escrow Fund,
the Liquidating Trust and the Liquidating Trust
Escrow Fund (as applicable), each holder of Class
A Common Stock, Class B Common Stock, EPUs and
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EARs will be entitled to receive in a liquidating
distribution, per share of Holdings Common Stock
or per EPU or EAR, shares of Omnicom Common Stock
with a value (determined in accordance with the
terms of the Acquisition Agreement) equal to
$0.178. The remaining shares of Omnicom Common
Stock received by Holdings and Advertising will
be used to fund the Liquidating Trust and the
Liquidating Trust Escrow Fund, which will be
responsible for taxes and the expenses of winding
up the affairs of Holdings, as well as possible
contingent liabilities, and to fund the General
Escrow Fund and the Special Escrow Fund
(individually sometimes referred to as an "Escrow
Fund" and collectively as the "Escrow Funds").
Based upon current estimates of taxes and
expenses, if there were no claims for
indemnification or other contingent liabilities,
each Holdings Stockholder and Rightsholder would
be entitiled to receive upon the release of such
funds from the applicable trust and/or escrows
shares of Omnicom Common Stock with an aggregate
value (determined in accordance with the terms of
the Acquisition Agreement) equal to approximately
$0.037, for a total per share or per unit value
equal to approximately $0.215.
Since the amounts held in such escrows and such
trust are subject to claims in respect of
contingent liabilities, there can be no
assurances that amounts held therein will in fact
be distributed to Holdings Stockholders and
Rightholders.
See "The Plan of Liquidation--Liquidating
Distribution to Holdings Stockholders" and
"--Liquidating Distribution to Rightsholders".
Escrow Agreement and
Indemnification ............ Obligations The obligation of Holdings to
indemnify Omnicom and TBWA against losses and
damages may arise in one of two ways: pursuant to
the general indemnification obligations under the
Acquisition Agreement, or as a result of
inaccurate or misleading information supplied by
Holdings for use in this Prospectus/Information
Statement.
The indemnification obligations of Holdings under
the Acquisition Agreement will be limited to and
satisfied solely from the Escrow Funds under the
Escrow Agreement (such that neither Omnicom nor
TBWA nor any of their affiliates will have any
recourse for the payment of any losses or other
damages of any kind against Holdings or
Advertising or their respective affiliates or
past, present or future directors, officers or
employees or the Holdings Stockholders or
Rightsholders, nor shall any of such persons be
personally liable for any such losses or
damages). The General Escrow Fund will be
separated into two sub-accounts: the
"Stockholders General Escrow Fund" and the
"Rightsholders General Escrow Fund".
Indemnification obligations to be satisfied out
of the General Escrow Fund will terminate on the
earlier of the first independent audit report, if
any, of TBWA and the Businesses following the
Closing Date or one year from the Closing Date
(except that claims asserted in writing on or
prior to such date will survive until they are
decided and are final and binding on the
parties). The Special Escrow Fund will also be
separated into two sub-accounts: the
"Stockholders Special Escrow Fund" and the
"Rightsholders Special Escrow Fund".
Indemnification obligations to be satisfied out
of the Special Escrow Fund will terminate no
later than the second anniversary of the Closing
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under the Acquisition Agreement (except that
claims asserted in writing on or prior to such
date will survive until they are decided and are
final and binding on the parties). Following the
termination of the Escrow Agreement, shares then
remaining on deposit in the Stockholders General
and Special Escrow Funds and the Rightsholders
General and Special Escrow Funds, respectively,
will be distributed to the Liquidating Trust and
the Liquidating Trust Escrow Fund in each case to
satisfy contingent liabilities of Holdings in
accordance with the Liquidating Trust Agreement
and the Liquidating Trust Escrow Agreement,
respectively. Each sub-account of an Escrow Fund
will satisfy its pro rata share of the applicable
category of losses based on the number of shares
of Omnicom Common Stock then on deposit in such
account. For purposes of satisfying any claims,
each share of Omnicom Common Stock deposited in
any Escrow Fund will be valued at the Market
Value, regardless of actual fluctuations in the
market value of the Omnicom Common Stock after
the Closing Date.
The indemnification obligations of Holdings which
may arise to the extent it furnishes inaccurate
or incomplete information for inclusion in the
Prospectus/Information Statement are not limited
to amounts on deposit in the Escrow Funds nor to
the limited periods of survival.
Deposit and Pledge
Agreement .................. The applicable shares of Omnicom Common Stock
will be deposited into the Escrow Funds on the
Distribution Date. Prior to such time, the
applicable shares of Omnicom Common Stock will be
delivered by Holdings and Advertising to The
Chase Manhattan Bank, N.A., as deposit agent (the
"Deposit Agent"), pursuant to the terms of a
deposit and pledge agreement among Omnicom, TBWA,
Holdings, Advertising and the Deposit Agent (the
"Deposit and Pledge Agreement"), to be held as
security for the fulfillment of the obligation of
Holdings and Advertising to deliver the said
shares into such Escrow Funds.
Arrangements with Respect to
Holdings Preferred Stock ... On July 10, 1995, the Trustee of the Chiat/Day
Profit Sharing and 401(k) Plan (the "Profit
Sharing Plan"), the sole record owner of the
preferred stock, cumulative, $.01 par value per
share, of Holdings (the "Holdings Preferred
Stock"), pursuant to an Agreement dated as of May
9, 1995 between Holdings and the Trustee of the
Profit Sharing Plan (the "Profit Sharing Plan
Purchase Agreement"), sold to Holdings for a cash
payment of $14,081,773.93 all the shares of
Holdings Preferred Stock it owned. Holdings paid
for such shares by obtaining a loan which was
guaranteed by Omnicom.
Other Terms and Conditions of the Acquisition Agreement
Financial Actions .......... Between the date of the Acquisition Agreement and
the Closing Date, certain financial arrangements
are required to occur: (i) TBWA shall lend
Holdings $55,000,000 and lend Advertising
$1,000,000 on reasonable commercial terms and
pursuant to financing documents reasonably
acceptable to the parties thereto and in
substantially the form of the Amended and
Restated Credit Agreement between Holdings and
Omnicom, among others, more fully described in
"The Transactions--Background of and Reasons for
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the Transactions; Recommendations of the Holdings
Board of Directors" below, and the documents
ancillary thereto; (ii) Holdings shall make a
capital contribution of not less than $55,000,000
to Advertising; and (iii) Advertising shall repay
in full all outstanding principal, together with
accrued interest, of its 8.17% Junior
Subordinated Installment Notes, its 13.25% Junior
Subordinated Notes, its 13.25% Senior
Subordinated Notes, and the notes issued under
the Amended and Restated Credit Agreement, which
principal and interest amounts would equal
approximately $53,600,000 in the aggregate at
August 31, 1995.
Conditions to the
Acquisition ................ The obligations of Omnicom, TBWA, Holdings and
Advertising to consummate the Acquisition are
subject to the satisfaction of certain mutual
conditions, including, without limitation:
obtaining the requisite approval of the Holdings
Stockholders; the absence of any pending
litigation, proceeding, investigation or claim by
governmental authorities seeking to restrain or
invalidate the consummation of the Acquisition;
the Registration Statement having been declared
effective by the SEC and not subject to a stop
order or threatened stop order and the Omnicom
Common Stock being registered thereunder having
been approved for listing on the New York Stock
Exchange.
The obligations of Omnicom and TBWA to consummate
the Acquisition are also subject to the
satisfaction of certain additional conditions
including, without limitation: the SEC not having
objected to Omnicom's treatment of the
acquisition of the Businesses as a
pooling-of-interests for accounting purposes;
Advertising continuing to be the advertising
agency of record for certain key clients, or,
with respect to some of these clients,
Advertising having replaced a loss of any such
client with an account of similar size (measured
by revenues); the receipt by Holdings of letters
from Rightsholders who own in the aggregate at
least 83% of the outstanding EARs and EPUs on the
Closing Date, which group must include all
Rightsholders who are also Holdings Stockholders,
to the effect that they will not raise any
objection to the payment of their outstanding
awards being made in shares of Omnicom Stock and
their corresponding participation in the
indemnification obligations of Holdings (each, a
"Consent Letter"); the execution of employment
agreements with TBWA or one of its affiliates by
each of Robert Kuperman, Thomas Patty, Adelaide
Horton, Ira Matathia, Steven Hancock and Robert
Wolf, and the execution of non-competition
agreements by each of such individuals; there not
having been a material and adverse change in the
Businesses (which shall include TBWA not having
received reasonable assurances and financial data
that (a) if the Closing is on or prior to August
31, 1995, EBIT for the nine months ended July 31,
1995 is at least $7,500,000 and EBIT for the 1995
Fiscal Year is reasonably expected to exceed
$13,500,000; and (b) if the Closing is on or
after November 1, 1995, EBIT for the 1995 Fiscal
Year is at least $13,500,000).
The obligations of Holdings and Advertising to
effect the Acquisition are also subject to the
satisfaction of certain additional conditions
including, without limitation: that the
Annualized Revenues of Holdings and its
subsidiaries for the 1995 Fiscal Year, shall not
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be greater than $100,000,000 and EBIT of Holdings
and its subsidiaries for the 1995 Fiscal Year is
not reasonably expected to exceed $17,200,000;
TBWA or one of its affiliates having entered into
each of the employment agreements described
above; and TBWA having assumed the employment
agreement between Holdings and Leland Clow and
the employment and consulting agreement between
Holdings and Jay Chiat (and TBWA having validly
assigned Mr. Chiat's contract to Omnicom).
See "The Acquisition Agreement--Other Terms and
Conditions of the Acquisition Agreement", "The
Acquisition Agreement--The Acquisition--Renegoti-
ation of Acquisition Price" and "The
Transactions--Interests of Certain Persons in the
Transactions--Employment and Consulting
Agreements; Non-Competition Agreements".
Termination of the
Acquisition Agreement ...... The Acquisition Agreement may be terminated under
certain circumstances, notwithstanding approval
of the Acquisition by the Holdings Stockholders,
(i) by mutual consent of the Boards of Directors
of Omnicom, TBWA, Holdings and Advertising or
(ii) by either Omnicom and TBWA or by Holdings
and Advertising (a) if there has been a breach of
any representation, warranty or covenant by the
other party and such breach is not cured within
30 days after notice of such breach, unless such
breach does not materially adversely affect the
business or assets of the breaching party or the
ability of any or all parties, to consummate the
transactions contemplated by the Acquisition
Agreement, (b) if a final, nonappealable order or
judgment is issued enjoining the transactions
contemplated by the Acquisition Agreement, or (c)
if the Acquisition is not consummated by December
31, 1995 or at any time after October 31, 1995 if
the conditions to such parties' obligation to
close shall have become incapable of being
satisfied by December 31, 1995. See "The
Acquisition Agreement--Other Terms and Conditions
of the Acquisition Agreement".
Operation of the Businesses
After the Closing under the
Acquisition Agreement ..... After the Closing under the Acquisition
Agreement, the Businesses will be combined with
the TBWA International network of companies to
form a combined full service operating network
operating as one integrated unit. The integrated
unit will operate under the name "TBWA Chiat/Day"
in North America. See "The
Transactions--Interests of Certain Persons in the
Transactions."
The Amendment
Change of Holdings'
Corporate Name ............. The Holdings Certificate sets forth Holdings'
corporate name as "Chiat/Day Holdings Inc."
Following the Closing under the Acquisition
Agreement, TBWA will own all rights of Holdings
in and to the "Chiat/Day" name, and Holdings has
agreed that immediately following the Closing
thereunder it would change its corporate name to
a name not including the "Chiat/Day" designation
or any variation thereof. Under the proposed
amendment, Holdings name will be changed to "CDH
Corporation". See "Proposed Amendment of the
Holdings Certificate."
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The Liquidation
Dissolution ................ Following the Closing under the Acquisition
Agreement, Holdings will be dissolved in
accordance with the procedures prescribed under
the Delaware General Corporation Law (the
"DGCL"). Upon dissolution, Holdings will
establish the Liquidating Trust, the trustees of
which will have the authority to wind up
Holdings' affairs.
Establishment and Operation
of Liquidating Trust ...... The Liquidating Trust will hold all of the assets
of Holdings remaining after the initial
distributions of Omnicom Common Stock described
above under "--The Acquisition" (these remaining
assets are expected to be nominal). Pursuant to
the terms of the Liquidating Trust Agreement
governing the operation of the Liquidating Trust,
each share of Holdings Common Stock, regardless
of class, shall have an equal interest in the
Liquidating Trust.
The Liquidating Trust will be funded, on behalf
of the Holdings Stockholders, with five percent
of the Omnicom Common Stock paid by TBWA to
Holdings as part of the acquisition price under
the Acquisition Agreement (after deducting the
Contributed Stock). The Liquidating Trust may
also receive from time to time, on behalf of the
Holdings Stockholders, distributions of Omnicom
Common Stock pursuant to the terms of the Escrow
Agreement.
The Liquidating Trustees will distribute the
assets in the Liquidating Trust to the Holdings
Stockholders, pro rata in accordance with their
interests, as expeditiously as possible, provided
that adequate reserves shall be taken for Trust
Liabilities (as defined below), expenses of the
Liquidating Trustees (which shall include
ordinary and customary expenses) and to make
distributions to any missing beneficiaries.
Payments made from the Liquidating Trust to
satisfy such liabilities will be reimbursed in
part from the Liquidating Trust Escrow Fund.
See "The Plan of Liquidation--General" and
"--Operation of the Liquidating Trust".
The Liquidating
Trust Escrow Fund .......... The Liquidating Trust Escrow Fund will be funded,
on behalf of the Rightsholders, with five percent
of the Omnicom Common Stock paid by TBWA to
Advertising as part of the acquisition price
under the Acquisition Agreement (including five
percent of the Contributed Stock). The
Liquidating Trust Escrow Fund may also receive
from time to time, on behalf of the
Rightsholders, distributions of Omnicom Common
Stock pursuant to the terms of the Escrow
Agreement.
The Liquidating Trust Escrow Fund will be used to
satisfy the Rightsholders' share of Trust
Liabilities.
Whenever the Liquidating Trustee makes a
distribution of trust property to the Holdings
Stockholders, a proportionate amount of the
Liquidating Trust Escrow Fund will be distributed
to the Rightsholders, pro rata in accordance with
their interests.
See "The Plan of Liquidation--The Liquidating
Trust Escrow".
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Other Considerations
Recommendation of the Board
of Directors of Holdings ... The Board of Directors of Holdings, by unanimous
vote, approved each of the matters constituting
part of the Transactions, and recommends the
approval of each of such matters by the Holdings
Stockholders.
Interests of Certain Persons
in the Transactions ........ As of August 1, 1995, directors and executive
officers of Holdings owned of record an aggregate
of 77.98% of the outstanding shares of Holdings
Common Stock. Accordingly, the Transactions can
be approved without the affirmative vote of any
other Holdings Stockholders. Each of such
directors and executive officers has expressed an
intention to vote the shares of Holdings Common
Stock owned by him or her in favor of the
Transactions.
As of August 1, 1995, directors and executive
officers of Holdings owned of record an aggregate
of 84.44% of the outstanding awards under the EAR
and EPU Plans. Each of such directors and
executive officers have executed and delivered to
Holdings his or her Consent Letter as described
above.
For a description of certain interests of certain
directors and executive officers of Holdings in
the Transactions that are in addition to the
interests of Holdings Stockholders generally, see
"The Transactions--Interests of Certain Persons
in the Transactions".
Accounting Treatment ....... The Acquisition will be accounted for by Omnicom
as a pooling-of-interests. See "The
Transactions--Accounting Treatment".
Federal Income
Tax Consequences ........... The Acquisition will be a taxable transaction to
Holdings and Advertising; and the distributions
pursuant to the Plan of Liquidation will be a
taxable transaction to Holdings Stockholders and
Rightsholders. Holders of Class A Common Stock
and of Class B Common Stock issued in July, 1989
pursuant to a certain stock purchase agreement
between Holdings and certain management and other
investors ("Mojo B Common Stock") will recognize
gain or loss as a result of the Transactions
equal to the difference between the sum of (i)
the fair market value of all Omnicom Common Stock
received (whether distributed or placed in the
Liquidating Trust or the Stockholders General or
Special Escrow Funds) plus (ii) the cash received
in respect of any fractional shares, and their
adjusted basis in the Class A Common Stock or
Mojo B Common Stock. Holders of Class B Common
Stock other than the Mojo B Common Stock will
recognize compensation income equal to the excess
of the sum of (a) the fair market value of the
Omnicom Common Stock received (whether
distributed or placed in the Liquidating Trust or
the Stockholders General or Special Escrow Funds)
plus (b) the cash received in respect of any
fractional shares, over the sum of (x) the amount
paid for their Class B Common Stock, and (y) the
amount, if any, of ordinary income which they
have previously recognized in respect of their
Class B Common Stock.
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Each Holdings Stockholder's share of the income
(including dividends on the Omnicom Common
Stock), gain or loss realized by the Liquidating
Trust or the Stockholders General or Special
Escrow Funds will be recognized by such Holdings
Stockholder (whether or not distributed) in
computing his or her federal income tax.
Rightsholders will recognize compensation income
equal to the fair market value of the Omnicom
Common Stock received (whether distributed or
placed in the Liquidating Trust Escrow Fund or
the Rightsholders General or Special Escrow
Funds) plus the cash received in respect of any
fractional shares. Each Rightsholder's share of
the income (including dividends on the Omnicom
Common Stock), gain or loss realized by the
Liquidating Trust Escrow Fund or the
Rightsholders General or Special Escrow Funds
will be recognized by such Rightsholder (whether
or not distributed) in computing his or her
federal income tax.
See "Federal Income Tax Consequences of the Sales
of Assets and Dissolution and Liquidation".
EACH HOLDINGS STOCKHOLDER AND RIGHTSHOLDER SHOULD
CAREFULLY REVIEW THE MATTERS DISCUSSED UNDER THE
CAPTION "FEDERAL INCOME TAX CONSEQUENCES OF THE
SALES OF ASSETS AND DISSOLUTION AND LIQUIDATION"
AND SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE TRANSACTIONS TO HIM OR HER.
Regulatory Approvals ....... Omnicom and Holdings filed notification and
report forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended
(the "Hart-Scott-Rodino Act") with the Federal
Trade Commission (the "FTC") and the Antitrust
Division of the Justice Department (the
"Antitrust Division") on June 27, 1995 and June
28, 1995, respectively, and each was advised that
there was early termination of the applicable
waiting period on July 11, 1995. See "The
Transactions--Regulatory Approvals".
Resale Restrictions ........ Resales of Omnicom Common Stock by Holdings
Stockholders or Rightsholders who are deemed to
be "affiliates" (as such term is understood under
the Securities Act) of Holdings prior to the
Acquisition may be subject to certain
restrictions. See "The Transactions-- Resale
Restrictions".
No Dissenters' Rights ...... Holders of Holdings Common Stock are not entitled
to dissenters' rights under the DGCL in
connection with the Transactions. See "The
Transactions--No Dissenters' Rights".
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COMPARATIVE PER SHARE DATA
Set forth below are unaudited income from continuing operations, cash
dividends declared and book value per common share data of Omnicom and Holdings
on both historical and pro forma combined bases. Pro forma combined income from
continuing operations per share is calculated under the pooling-of-interests
accounting method and assumes that the Acquisition had occurred immediately
prior to the period being reported upon. Since Omnicom is on a calendar year for
financial reporting purposes, while Holdings' fiscal year ends on October 31,
the combined results for the three months ended March 31, 1995 and for each year
in the three years ended December 31, 1994, respectively, reflect Omnicom's
results for those periods and Holdings' results for the three months ended
January 31, 1995, and for each year in the three years ended October 31, 1994.
Pro forma combined cash dividends declared per share reflects Omnicom cash
dividends declared in the periods indicated. The per share equivalent pro forma
combined data has been calculated based upon the material assumptions that the
aggregate acquisition price will be $25,328,061, and the Market Value of the
Omnicom Common Stock will be $563/8. The information set forth below should be
read in conjunction with the respective audited and unaudited financial
statements of Omnicom incorporated by reference in this Prospectus/Information
Statement and of Holdings included in this Prospectus/Information Statement.
<TABLE>
<CAPTION>
As of March 31 , 1995 As of December 31, 1994
---------------------- -----------------------
<S> <C> <C>
Book Value per Share:
Omnicom ........................... $ 15.86 $14.96
Holdings .......................... $ (1.62) $(1.60)
Pro forma ......................... $ 13.29 $12.45
Equivalent pro forma ............. $ 0.05 $ 0.05
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
Three Months ended --------------------------------
March 31, 1995 1992 1993 1994
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Cash Dividends Declared
per Share:
Omnicom ........................... $ 0.31 $1.21 $ 1.24 $1.24
Holdings .......................... -- -- -- --
Pro forma ......................... $ 0.31 $1.21 $ 1.24 $1.24
Equivalent pro forma .............. -- -- -- --
Net Income per Share:
Omnicom:
Primary ......................... $ 0.68 $2.31 $ 2.79 $3.15
Fully Diluted ................... $ 0.68 $2.20 $ 2.62 $3.07
Holdings:
Primary ......................... $(0.03) $0.03 $(0.39) $0.11
Primary (including
EPUs and EARs) ................ $(0.03) $0.02 $(0.39) $0.05
Pro forma:
Primary ......................... $ 0.65 $2.35 $ 2.14 $3.23
Fully Diluted ................... $ 0.65 $2.24 $ 2.09 $3.14
Equivalent Pro Forma:
Primary ......................... -- $0.01 $ 0.01 $0.01
Fully diluted ................... -- $0.01 $ 0.01 $0.01
</TABLE>
18
<PAGE>
MARKET PRICE DATA
There is no public market for Holdings Common Stock. Holdings has not
declared or paid any cash dividends on any shares of Holdings Common Stock in
the current fiscal year, or in any of the periods presented in "Selected
Financial Data of Holdings". In the event that the Acquisition is not
consummated, it is not expected that any cash dividends would be paid on any
shares of Holdings Common Stock in the foreseeable future.
Omnicom Common Stock is listed on the NYSE. The table below sets forth, for
the calendar quarters indicated, the reported high and low sale prices of
Omnicom Common Stock as reported on the NYSE Composite Tape, in each case based
on published financial sources, and the dividends paid per share on the Omnicom
Common Stock for such periods.
Omnicom Common Stock
----------------------------------
High Low Dividends
---- --- ---------
1993
First Quarter .................... 47 1/2 38 3/8 .310
Second Quarter ................... 47 1/4 38 1/4 .310
Third Quarter .................... 46 1/4 37 .310
Fourth Quarter ................... 46 1/2 41 1/2 .310
1994
First Quarter ..................... 49 7/8 43 3/4 .310
Second Quarter .................... 49 1/2 44 7/8 .310
Third Quarter ..................... 51 1/2 48 .310
Fourth Quarter .................... 53 3/4 49 .310
1995
First Quarter ..................... 56 7/8 50 .310
Second Quarter .................... 62 53 7/8 .310
Third Quarter (through _____, 1995)
On May 10, 1995, the last full trading day prior to the execution and
delivery of the Acquisition Agreement, the closing price of Omnicom Common Stock
on the NYSE Composite Tape was $56 3/8 per share.
On [ ], 1995, the most recent practicable date prior to the printing of
this Prospectus/Information Statement, the closing price of Omnicom Common Stock
on the NYSE Composite Tape was $[ _____] per share.
19
<PAGE>
THE SPECIAL MEETING
Date, Time and Place of Special Meeting
This Prospectus/Information Statement is being furnished to the holders of
Class A Common Stock and the holders of Class B Common Stock in connection with
the Special Meeting of Holdings Stockholders to be held on Tuesday, August 29,
1995, at the offices of Holdings, 180 Maiden Lane, New York, New York 10038, at
9:30 A.M., local time, and at any adjournment or postponement thereof.
This Prospectus/Information Statement is first being mailed to the Holdings
Stockholders on or about August 1, 1995.
Business to Be Transacted at the Special Meeting
At the Special Meeting, Holdings Stockholders will consider and vote upon
the following matters (collectively, the "Holdings Vote Matters"):
(i) a proposal to approve the sale by Holdings and Advertising of
their assets and businesses pursuant to (i) the Acquisition
Agreement and (ii) the Advertising Stock Sale Agreement;
(ii) a proposal to amend the Holdings Certificate effective as of the
Closing under the Acquisition Agreement to change its corporate
name to CDH Corporation;
(iii) the approval and adoption of the Plan of Liquidation, including
the dissolution of Holdings, the creation of the Liquidating
Trust pursuant to the Liquidating Trust Agreement and the
appointment of the Liquidating Trustees; and
(iv) such other proposals as may properly be brought before the
Special Meeting or any adjournment thereof.
None of the Holdings Vote Matters shall become effective unless all of the
proposals are adopted by the requisite vote of the Holdings Stockholders.
Each of the directors and executive officers of Holdings has expressed an
intention to vote in favor of the Transactions.
Record Date, Voting Rights
Only stockholders of record of Class A Common Stock and Class B Common
Stock at the close of business on August 1, 1995 will be entitled to vote at the
Special Meeting. On that date, there were issued and outstanding 13,527,269
shares of Class A Common Stock and 38,513,160 shares of Class B Common Stock.
Each share of each class of Holdings Common Stock is entitled to one vote per
share on the Holdings Vote Matters at the Special Meeting or any adjournment or
postponement thereof.
Voting Requirements
The presence of the holders of a majority of the voting power of all shares
of Class A Common Stock and Class B Common Stock entitled to vote outstanding on
the record date is necessary to constitute a quorum for the transaction of
business at the Special Meeting.
Under the DGCL and the Holdings Certificate, the affirmative vote of the
holders of the majority of the outstanding shares of Class A Common Stock and
Class B Common Stock, voting together as a class, will be required to approve
the Holdings Vote Matters. Abstentions have the effect of negative votes.
Approval Under Holdings Certificate
Under the Holdings Certificate, the approval of a majority of the holders
of Class A Common Stock, excluding certain shares that were originally issued to
Morgan Capital Corporation, is required for the sale of the assets pursuant to
the Acquisition Agreement as well as certain transactions provided for herein
with affiliated parties. See "The Transactions--Interests of Certain Persons in
the Transaction". The holders of a majority of such Class A Common Stock have
consented to such matters as provided in the Holdings Certificate and in the
manner provided for in Holdings' by-laws and Section 228 of the DGCL.
20
<PAGE>
Affiliate Ownership
As of the Record Date, directors and executive officers of Holdings owned
an aggregate of approximately 7,419,533 shares of Class A Common Stock and
33,159,475shares of Class B Common Stock, representing approximately 77.98% of
the aggregate outstanding shares of Holdings Common Stock. Accordingly the
Transactions can be approved by the affirmative vote of such persons even if all
other Holdings Stockholders vote against the proposals. These persons have
expressed an intention to vote in favor of the Transactions.
THE TRANSACTIONS
(The information contained in this Registration Statement of which this
Prospectus/Information Statement froms a part is qualified in its entirety by
reference to the complete texts of the Acquisition Agreement, the Advertising
Stock Sale Agreement, the Escrow Agreement, the Plan of Liquidation, the
Liquidating Trust Agreement and the Liquidating Trust Escrow Agreement, which
are filed as Exhibits thereto and are incorporated herein by reference.)
Background of and Holdings' Reasons for the Transactions;
Recommendation of the Holdings Board of Directors
Overview
After the Closing, the Businesses will be combined with the TBWA
International network of companies to form a combined advertising network
operating as one integrated unit. In furtherance of this, the members of the
TBWA International group operating under the TBWA name in North America will
change their corporate names to include the designation "TBWA Chiat/Day". See
"Interests of Certain Persons in the Transactions" for a description of the
positions within this integrated network that will be held by certain executive
officers of Holdings and its subsidiaries.
The terms of the Acquisition, including the terms of the Escrow Agreement,
are the result of arm's-length negotiation between representatives of Omnicom
and TBWA and representatives of Holdings and Advertising.
Background of the Transactions
In early 1993, Holdings commenced exploring strategic alternatives in order
to expand internationally and reduce the debt on its balance sheet. These
alternatives included possible strategic combinations with other advertising
agencies and groups, including Omnicom. Preliminary discussions were held with
parties other than Omnicom but such discussions did not lead to serious
negotiations. Holdings and Omnicom began informally discussing possible
combinations in 1993 shortly after Omnicom acquired TBWA, but at such time these
discussions did not advance to substantive negotiations and ceased. Since 1993,
however, TBWA and Holdings frequently consulted with respect to their joint
representation of Nissan.
In late 1994 and January 1995, Holdings was engaged in discussions with
potential lenders regarding the refinancing of its bank credit facility (the
"Bank Credit Agreement") which was to mature in May 1995 and $11 million of
Holding's 13.25% Senior Subordinated Notes which matured and were paid in full
on August 1, 1995. The terms proposed by prospective institutional lenders
included substantial penalties for early repayment and the equivalent of an
equity participation in Holdings in the event that it were sold while such
financing was outstanding. During the period Holdings was considering whether to
accept such terms of refinancing, discussions with Omnicom were renewed and
began to assume the characteristics of negotiations in January of 1995. Holdings
realized that to proceed with the proposed refinancing would create significant
obstacles to consummating any acquisition transaction. Instead, Omnicom agreed
to assume the liabilities of the banks under the Bank Credit Agreement and
extended the maturity until December 10, 1995 (as assumed and amended, the
"Amended and Restated Credit Agreement").
The negotiations with Omnicom concerning a possible combination with TBWA
and Holdings continued through January and on February 1, the parties reached
preliminary agreement in principle and a public announcement was made. The
negotiations continued through March and April 1995 and culminated on May 11,
1995 in the execution of the definitive Acquisition Agreement and related
documents following approval by the Board of Directors of each company.
21
<PAGE>
Holding's Reasons for the Transactions
The decision of the Board of Directors of Holdings to enter into the
Acquisition was largely influenced by the Board's assessment of the perceived
benefits of a strategic combination with TBWA in the United States and Europe as
well as the limited growth opportunities of an independent Holdings in light of
its highly leveraged balance sheet. The Board also took into consideration that
the shareholders of Holdings, including the Profit Sharing Plan, had been
holding for a significant period of time an illiquid investment in Holdings. The
Board of Directors believes that the Acquisition offers a fair price for the
assets of Holdings and Advertising, provides the Holdings Stockholders a liquid
investment and that the combination with TBWA contemplated by the Acquisition
provides an excellent strategic fit and the increased liquidity needed to
capitalize on growth opportunities for the combined organization.
The Holdings Board of Directors made its determination without the
assistance of a financial advisor and without a "fairness opinion". Instead, the
Holdings Board of Directors has relied upon its own experience and the knowledge
of its management in assessing the advantages and disadvantages of the
Transactions.
Recommendation of the Holdings Board of Directors
For the reasons set forth above, the Holdings Board of Directors believes
that the Transactions are fair to, and in the best interests of, Holdings and
the Holdings Stockholders and recommends that the Holdings Stockholders vote FOR
the approval of the sale of the assets and businesses of Holdings and
Advertising pursuant to the Acquisition Agreement and the Advertising Stock Sale
Agreement, FOR the approval of the amendment of the Holdings Certificate, and
FOR the approval of the Plan of Liquidation.
Omnicom's Reasons for the Acquisition
Omnicom's and TBWA's respective Board of Directors each believes that the
Acquisition represents an opportunity for TBWA to strengthen its position as a
major global advertising agency network without diminishing its overall
financial strength. TBWA's international strength is concentrated outside of the
United States, while Holdings and Advertising have a strong North American
presence; the Acquisition is therefore a natural geographic fit which will
expand TBWA's worldwide capabilities.
The fit is also strategic from a client servicing perspective. Advertising
is the advertising agency of record in the United States and Canada for the
Nissan and Infiniti divisions of the Nissan Motor Corp.; while TBWA handles the
Nissan business on a Pan European basis as well as the local business in 9
European countries. The Acquisition represents an opportunity to strengthen the
Nissan relationship by being in a position to service this client throughout the
world.
The Boards of Directors of Omnicom and TBWA believe that the corporate
cultures of the two networks will combine well, as both networks have
historically placed their major emphasis on creative output. The Boards of
Directors of TBWA and Omnicom also considered the potential synergies which
would result in lower costs as a result of the combining of the operations.
Omnicom has not retained an outside party to evaluate the proposed
Acquisition but has instead relied upon the knowledge of its management in
considering the financial aspects of the Acquisition.
In reaching its conclusion, the Board of Directors of Omnicom and TBWA
considered, among other things: (i) information concerning the financial
performance, condition, business operations and prospects of each of Holdings
and Advertising; and (ii) the proposed terms and structure of the Acquisition.
It is anticipated that the Acquisition will be non-dilutive to Omnicom's results
of operations. Accordingly, the Board of Directors of Omnicom has unanimously
approved the Acquisition Agreement and the transactions contemplated thereby.
22
<PAGE>
Interests of Certain Persons in the Transactions
(The following describes certain interests of the directors and executive
officers of Holdings in the Transactions that are in addition to the interests
of Holdings Stockholders generally.)
Employment and Consulting Agreements; Non-Competition Agreements
Pursuant to the Acquisition Agreement, the employment and consulting
agreement dated May 11, 1995 between Jay Chiat and Holdings will be assumed by
TBWA and then assigned to Omnicom. Upon the completion of the Acquisition, Mr.
Chiat will serve as a consultant under the employment and consulting agreement
and will serve as such until the seventh anniversary of the Closing Date, and
the agreement automatically extends until the earlier of the tenth anniversary
of the Closing Date or such earlier date on which Holdings no longer maintains
certain key client relationships. Mr. Chiat's compensation in Omnicom's opinion
is reasonable for the services he is to render and in any event is significantly
less than he was earning immediately prior to the Acquisition. Mr. Chiat will
not be provided with any employee benefits. In addition, pursuant to the terms
of the Acquisition Agreement, Mr. Chiat will enter into a non-competition
agreement with Omnicom which will have a term of 10 years commencing on the
Closing Date of the Acquisition. No additional consideration is being paid with
respect to such non-competition agreement.
Pursuant to the Acquisition Agreement, the employment agreement dated May
11, 1995 between Leland Clow and Holdings will be assumed by TBWA. Such
employment agreement extends to December 31, 1998 and provides for annual salary
compensation at the same levels as the predecessor employment agreement.
Following the consummation of the Acquisition, Mr. Clow's salary level will be
subject to increases in connection with the salary review procedures of TBWA and
Mr. Clow will participate in TBWA bonus plans. Benefits substantially equivalent
to those Mr. Clow was receiving under his predecessor employment agreement will
also be provided. In addition, pursuant to the terms of the Acquisition
Agreement, Mr. Clow will enter into a non-competition agreement with Omnicom
which will have a term commencing on the Closing Date of the Acquisition and
ending on the later of December 31, 1998 or two years after the termination of
Mr. Clow's employment. No additional consideration is being paid with respect to
such non-competition agreement.
Pursuant to the Acquisition Agreement, TBWA or one of its affiliates will
enter into employment agreements with Steve Hancock, the President/CEO of the
Toronto office of Advertising, and each of the following key executive officers
who are also directors of Holdings: Adelaide Horton; Robert Kuperman; Ira
Matathia; and Tom Patty. It is anticipated that the employment agreements will
have a term commencing on the Closing Date of the Acquisition and ending on
December 31, 1998 and provide for annual salary compensation and fringe benefits
substantially equivalent to those such persons were receiving immediately prior
to the Acquisition. Such persons will also be eligible to participate in TBWA
bonus plans. In addition, the Acquisition Agreement provides that Robert Wolf,
also a director of Holdings, will enter into an employment agreement with
Omnicom with a term ending on December 31, 1996. Mr. Wolf's employment agreement
provides for the same annual salary he was receiving immediately prior to the
Acquisition and benefits customarily provided by Omnicom to its employees.
Pursuant to the terms of the Acquisition Agreement, the executives and
directors listed in the first sentence of the immediately preceding paragraph
and Mr. Wolf will enter into non-competition agreements with Omnicom which will
have a term commencing on the closing date of the Acquisition and ending on the
later of December 31, 1998 or two years after termination of the applicable
party's employment. There is no additional consideration being paid in
connection with these non-competition agreements.
In connection with the Transactions, a 1987 deferred compensation
arrangement between Advertising and Robert Kuperman will be canceled by the
payment of the present value of the vested benefits thereunder. The liability
for such vested benefits has already been recorded on the books of Advertising.
The terms of the Acquisition Agreement permit Holdings and Advertising to
pay to their directors and employees bonuses accrued for fiscal year 1994, and
permit Advertising to accrue for bonuses for the 1995 Fiscal Year an amount up
to 10% of profit from normal advertising operations before all federal, state,
local and foreign income taxes and adjusted to exclude interest income and
interest expense, with such accrual to be reviewed and adjusted upward or
downward after completion of the 1995 Fiscal Year consistent with past practice
(provided that for the period from the Closing Date through October 31, 1995,
the accrual shall be based on the financial results of the Businesses as
conducted by TBWA). Holdings has established a bonus pool of approximately
23
<PAGE>
$2,500,000 with respect to fiscal year 1994, 40% of which will be allocated to
its senior officers, all of whom are directors. Bonuses with respect to Fiscal
Year 1995 have not yet been determined, but it is expected that all or a
substantial portion of such bonuses will be paid to the same individuals. In
addition, if such profits exceed budgeted amounts for the 1995 Fiscal Year,
additional bonus payments will be made.
Pursuant to the Acquisition Agreement, all other employees of Holdings or
Advertising (many of whom are stockholders of Holdings) will be offered
employment by TBWA or its affiliates on substantially equivalent terms as their
employment prior to the Acquisition.
Other Agreements
Prior to the Closing Date, Holdings will redeem its 8.17% Junior
Subordinated Installment Notes due 2005 and its 13.25% Junior Subordinated Notes
due 2005 (collectively, the "Junior Notes") at their face value plus accrued
interest to the date of redemption. Jay Chiat, a director of Holdings,
beneficially owns $3,522,000 in principal amount of the Junior Notes and will
receive $5,328,001 as a result of this redemption. The funds required to redeem
such notes shall be borrowed from TBWA; see "The Acquisition Agreement--Other
Terms and Conditions of the Acquisition Agreement--Financial Actions."
Pursuant to the Acquisition Agreement, certain works of art owned by Mr.
Chiat will be leased to TBWA on the same basis as the art is currently leased
for a nominal sum commencing on the consummation of the Acquisition. In
connection with such lease, TBWA will pay for the costs of insuring such works
of art against theft, loss and damage. The lease will be terminable upon one
month's notice by either party thereto.
Following the Distribution Date, Ms. Horton (together with any permitted
assignees) will purchase from Holdings for $250,000 in cash, all of the issued
and outstanding common stock of Advertising pursuant to the Advertising Stock
Sale Agreement. At the time of such purchase, the only asset which Advertising
will own will be its rights, through its ownership of all of the capital stock
of Chiat/Day Direct Marketing, Inc., under the litigation entitled Chiat/Day
Direct Marketing, Inc. f/k/a/ Perkins/Butler Direct Marketing Inc. v. National
Car Rental Systems, Inc., No. 93 Civ. 2717 (S.D.N.Y.)(the "National Car Suit").
Pursuant to the Advertising Stock Sale Agreement, Holdings has agreed to
indemnify Ms. Horton and Advertising for any losses incurred in respect of
liabilities of Advertising not assumed by TBWA under the Acquisition Agreement.
To the extent that Holdings were unable to fully indemnify Ms. Horton and
Advertising, any recovery from the National Car Suit received by Advertising
would be at risk. The Board of Directors of Holdings believes that the sale of
Advertising toMs. Horton is on terms no less favorable to Holdings than would
result from an arms-length negotiation conducted with unrelated parties. See
"The Advertising Stock Sale Agreement".
David C. Wiener and Company, P.C., of which David C. Wiener is a principal,
will receive fees for services rendered to Holdings and Advertising in
connection with the Acquisition in an aggregate amount estimated to be
approximately $350,000. Mr. Wiener is a member of the Board of Directors of
Holdings.
Prior to the consummation of the Acquisition, pursuant to the Profit
Sharing Plan Purchase Agreement the shares of Preferred Stock held in the Profit
Sharing Plan are being acquired by Holdings for $14,081,773.93 in cash. All of
the directors and senior executive officers of Holdings (together with
approximately 600 other employees), other than Mr. Wiener, are participants in
such plan.
See also "Description of Holdings Capital Stock" for a description of the
security ownership of management of Holdings.
Accounting Treatment
The Acquisition will be accounted for by Omnicom as a pooling-of-interests
for financial reporting purposes in accordance with generally accepted
accounting principles. Accordingly, upon consummation of the Acquisition, the
assets and liabilities of Holdings and Advertising will be included in the
consolidated balance sheet of Omnicom and its subsidiaries in the amounts which
were included in the books of Holdings immediately before the Acquisition,
subject to adjustments required to conform the accounting policies of Holdings
to those utilized by Omnicom, and such other adjustments as may be necessary to
comply with pooling-of-interests accounting rules and regulations.
Regulatory Approvals
Under the Hart-Scott-Rodino Act and the rules promulgated therewith by the
FTC, the Acquisition may not be consummated until notifications have been given
and certain information has been furnished to the FTC and the Antitrust Division
and specified waiting period requirements have been satisfied. Omnicom and
24
<PAGE>
Holdings filed notification and report forms under the Hart-Scott-Rodino Act
with the FTC and the Antitrust Division on June 27, 1995 and June 28, 1995,
respectively. The required waiting period under the Hart-Scott-Rodino Act was
terminated early on July 11, 1995.
At any time before or after consummation of the Acquisition, the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the Acquisition or seeking divestiture of assets of Omnicom. At
any time before or after the Closing Date, and notwithstanding that the
Hart-Scott-Rodino Act waiting period has expired, any state could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Acquisition or seeking divestiture of assets of Omnicom. Private parties may
also seek to take legal action under the antitrust laws under certain
circumstances.
Based on information available to them, Omnicom and Holdings believe that
the Acquisition can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the consummation of
the Acquisition on antitrust grounds will not be made or that, if such a
challenge were made, Omnicom and Holdings would prevail or would not be required
to accept certain conditions, possibly including certain divestitures of assets
of Omnicom, in order to consummate the Acquisition.
Resale Restrictions
All shares of Omnicom Common Stock received by Holdings Stockholders and
Rightsholders as a result of the Acquisition will be freely transferable, except
that shares of Omnicom Common Stock received by persons who are deemed to be
"affiliates" (as such term is understood under the Securities Act) of Holdings
prior to the Acquisition ("Holdings Affiliates") shall be subject to certain
restrictions, as more fully described below. Persons who may be deemed to be
affiliates of Holdings or Omnicom generally include individuals or entities that
control, are controlled by, or are under common control with, such party and may
include certain officers and directors of such party as well as principal
stockholders of such party. The Acquisition Agreement provides that Holdings
will furnish Omnicom with a list identifying all persons who may be considered
to be Holdings Affiliates, and gives Omnicom the right to review such list and
require changes. Holdings is required to use its best efforts to cause each of
the Holdings Affiliates to execute a written agreement to comply fully with the
restrictions described below.
Federal Securities Laws. Shares of Omnicom Common Stock received by
Holdings Affiliates may be resold by such Holdings Affiliates only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Securities Act or as otherwise permitted under the Securities Act.
Pooling-of-Interests Rules. In order to satisfy a condition of the
pooling-of-interests rules as the accounting treatment to be accorded the
Acquisition, Holdings Affiliates may not sell, assign, transfer, convey,
encumber or dispose of, directly or indirectly, or otherwise reduce their risk
relative to, any shares of Omnicom Common Stock until the publication by Omnicom
of its financial results covering a period of at least thirty days of combined
operations of Omnicom and the Businesses after the Closing Date (except that
this restriction will lapse no later than October 30, 1995 as long as the
Closing of the Acquisition has occurred on or prior to August 31, 1995). This
prohibition precludes the use of "hedging" techniques during this period.
Stock Exchange Listing
It is a condition to the Acquisition that the shares of Omnicom Common
Stock required to be issued in connection with the Acquisition be authorized for
listing on the NYSE, subject to official notice of issuance. An application has
been filed for listing such Omnicom Common Stock on the NYSE.
No Dissenters' Rights
Holders of Holdings Common Stock are not entitled to any rights of
dissenting shareholders under Delaware law in connection with the Transactions.
25
<PAGE>
THE ACQUISITION AGREEMENT
(The following is a brief summary of the Acquisition Agreement and the
related Escrow Agreement. Copies of the Acquisition Agreement and the Escrow
Agreement are filed as Exhibits to the Registration Statement of which this
Prospectus/Information Statement forms a part and are incorporated herein by
reference. This summary is qualified in its entirety by reference to the
Acquisition Agreement and the Escrow Agreement.)
The Acquisition
General
Omnicom, TBWA, Holdings and Advertising entered into the Acquisition
Agreement on May 11, 1995. It provides for TBWA to acquire the assets of
Holdings and Advertising other than (a) their respective corporate seals and
minute books, (b) the issued and outstanding capital stock of Advertising and
Chiat/Day Direct Marketing, Inc. and any other subsidiary which is inactive, has
no assets or is in the process of liquidation, (c) the rights of Holdings
arising under the Advertising Stock Sale Agreement, other than the right to the
cash acquisition price thereunder to the extent reflected in the books and
records of Holdings, and (d) the rights of Advertising in and to the National
Car Suit (the value of which will be obtained by TBWA through the right to
receive the cash acquisition price receivable under the Advertising Stock Sale
Agreement), in exchange for the payment of the acquisition price as more fully
described below and the assumption by TBWA of liabilities of Holdings and
Advertising relating to the Businesses (certain non-operating liabilities of
Holdings and Advertising are not to be assumed by TBWA pursuant to the terms of
the Acquisition Agreement).
Determination of Acquisition Price
Subject to the potential adjustment described below in "The Acquisition
Agreement--The Acquisition--Renegotiation of Acquisition Price", the
consideration payable by TBWA for the Businesses will be determined as follows:
(a) TBWA will pay Holdings shares of Omnicom Common Stock having an
aggregate Market Value of (x) if the Closing is held on or prior to October
31, 1995, (i) $11,180,563 plus (ii) an amount equal to $2,418 multiplied by
the number of days in the period commencing on the Closing Date and ending
on October 31, 1995, or (y) if the Closing Date is held after October 31,
1995 and on or prior to December 31, 1995, (iii) $11,930,880 plus (iv) an
amount equal to $2,418 multiplied by the number of days in the period
commencing on the Closing Date and ending on December 31, 1995. Of this
Omnicom Common Stock, the Contributed Stock (being shares having such
Market Value as may be necessary to insure the satisfaction of obligations
of Holdings and Advertising to the Rightsholders) will be contributed to
Advertising for the benefit of the Rightsholders.
(b) TBWA will pay Advertising shares of Omnicom Common Stock having an
aggregate Market Value of $14,000,000.
The "Market Value" of the shares of Omnicom Common Stock will be determined
by the average of the closing prices per share of Omnicom Common Stock reported
on the New York Stock Exchange for the 20 consecutive trading days ending three
business days immediately prior to the Closing Date. Omnicom has agreed that it
will not, and will not permit TBWA or any of its other subsidiaries to, purchase
any Omnicom Common Stock (whether pursuant to open-market purchases or
otherwise) during the period during which the Market Value is calculated.
The shares of Omnicom Common Stock received as acquisition price will be
allocated on a pro rata basis to the Holdings Stockholders after allocating
sufficient shares to satisfy Holdings' and Advertising's obligations under the
EPU and EAR Plans. Accordingly, such shares of Omnicom Common Stock will be
distributed to the Holdings Stockholders and the Rightsholders as described in
"The Acquisition Agreement--The Acquisition --Payment of Obligations to
Rightsholders" and "The Plan of Liquidation--Liquidating Distributions to
Holdings Stockholders" and "--Liquidating Distributions to Rightsholders".
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Renegotiation of Acquisition Price
In the event that on the scheduled Closing Date the "Annualized Revenues"
of Holdings and its subsidiaries exceeds $100,000,000, and the EBIT of Holdings
for its 1995 Fiscal Year exceeds or is reasonably expected to exceed
$17,200,000, then Omnicom, TBWA, Holdings and Advertising have agreed that each
would negotiate in good faith whether or not there should be an upwards
adjustment to the acquisition price. If agreement is reached to so increase the
acquisition price, the Acquisition Agreement and related documents would be
amended to the extent necessary to reflect this adjustment. If the parties do
not agree on such an increase, Holdings would have the option to either
terminate the Acquisition Agreement or proceed with the Closing at the original
acquisition price.
"Annualized Revenues" has been defined in the Acquisition Agreement to mean
the commissions and fees of Holdings and its subsidiaries for the fiscal year
commencing November 1, 1994 and ending October 31, 1995 (forecasted, to the
extent necessary) from those clients that were such on October 31, 1994 and from
new clients won since November 1, 1994, annualized as if those clients had been
clients during the entire year. The calculation excludes commissions and fees
earned from clients lost since November 1, 1994 or expected to be lost in the
near future.
Holdings does not currently anticipate, based on its existing clients and
their specified budgets, that Annualized Revenues or EBIT will exceed the
renegotiation thresholds.
Closing Date
The Acquisition Agreement provides that the Closing Date shall be
determined by Omnicom by notice given to Holdings within five days after the
date of the Special Meeting. The Closing Date chosen by Omnicom must not be
later than thirty days after its giving of the notice; and each party is
required to use its best efforts to close on or prior to August 31, 1995, except
that if the Closing has not occurred by August 31, 1995, then each party is
required to use its best efforts to close as soon as is practicable after
October 31, 1995. Notwithstanding these requirements, the Closing Date will be
delayed in the event of a dispute as to whether Annualized Revenues exceed
$100,000,000 and/or EBIT exceeds $17,200,000, or during the pendency of any
renegotiation of the acquisition price, pending final determination of such
matters.
Arrangements With Respect to Holdings Preferred Stock
On July 10, 1995 (the "Preferred Stock Purchase Date"), the Trustee of the
Profit Sharing Plan, the sole record owner of the Holdings Preferred Stock, sold
to Holdings for a cash payment of $14,081,773.93 (representing the aggregate
liquidation preference of such Holdings Preferred Stock) all the shares of
Holdings Preferred Stock it owned, pursuant to the terms of the Profit Sharing
Plan Purchase Agreement.
Certain financial arrangements were made in order to finance this purchase
of Holdings Preferred Stock. On the Preferred Stock Purchase Date, Omnicom
guaranteed a loan to Holdings in the principal amount of $15,100,000 (the
"Preferred Stock Purchase Loan"), the proceeds of which were applied by Holdings
to purchase the Holdings Preferred Stock pursuant to the Profit Sharing Plan
Purchase Agreement and to repay certain other indebtedness. On the day prior to
the Closing Date, TBWA shall lend Holdings an amount equal to the outstanding
balance of the Preferred Stock Purchase Loan (the "TBWA Loan"), the proceeds of
which will be applied by Holdings to repay the Preferred Stock Purchase Loan.
Holdings is in the process of obtaining all governmental approvals
(including approval by the Internal Revenue Service) and of taking all other
action necessary to terminate the Profit Sharing Plan effective on or about the
Closing Date under the Acquisition Agreement, even though such approvals may be
obtained and such action taken on or after the Closing Date. Amounts on deposit
in the Profit Sharing Plan will then be distributed to participants in
accordance with their respective interests in the Profit Sharing Plan.
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Payment of Obligations to Rightsholders
In 1993 and 1988, Holdings adopted the EAR Plan and EPU Plan, respectively,
and has issued awards under such Plans. If the employment of a participant is
terminated for any reason, then under the terms of the EAR Plan such participant
shall have the right, but not the obligation within ninety days of such
termination to cause Holdings or Advertising to, and under the EPU Plan Holdings
or Advertising shall, redeem vested units for cash in each case at the net book
value of the phantom shares which are the subject of the awards as at the end of
the most recent fiscal quarter. However, in the event of a liquidation, with
respect to their priority, each EAR and EPU shall be deemed equivalent in value
to one share of Holdings Common Stock and shall be treated in the same manner as
Holdings Common Stock.
Therefore, as is the case with Holdings Stockholders, obligations of
Holdings and Advertising to the Rightsholders will be settled by the
distribution to the Rightsholders of shares of Omnicom Common Stock. To ensure
that Advertising will be able to satisfy such obligations, Holdings shall
contribute to Advertising the Contributed Stock, if any is required to meet such
obligations.
This Prospectus/Information Statement is being furnished to Rightsholders
because the Rightsholders will receive shares of Omnicom Common Stock as payment
under such Plans, subject to the same terms and conditions as if they were
Holdings Stockholders. Accordingly, on the Distribution Date (a) shares of
Omnicom Common Stock paid to Advertising under the Acquisition Agreement
(including the Contributed Stock) will be subject to the indemnification
obligations of Holdings, such that (i) ten percent of such shares will be placed
in the General Escrow Fund under the Escrow Agreement and (ii) shares of Omnicom
Common Stock having an aggregate Market Value equal to the Rightsholders' pro
rata share of $1,700,000 will be placed in the Special Escrow Fund under the
Escrow Agreement, and (b) five percent of the shares of Omnicom Common Stock
paid to Advertising under the Acquisition Agreement (including the Contributed
Stock) will be transferred to the Liquidating Trust Escrow Fund to fund
(together on a pro rata basis with the Holdings Stockholders) the payment and
satisfaction of any obligations and liabilities of Holdings and Advertising as
shall not have been assumed by TBWA under the Acquisition Agreement. The
remainder of the shares of Omnicom Common Stock paid to Advertising under the
Acquisition Agreement (including the Contributed Stock) will be distributed to
the Rightsholders. See "The Plan of Liquidation--The Liquidating Trust Escrow".
It is a condition of Closing of the Acquisition Agreement that
Rightsholders that hold in the aggregate at least 83% of the outstanding EARs
and EPUs on the Closing Date, which group must include all Rightsholders that
are also Holdings Stockholders, shall have delivered to Holdings their written
Consent Letters to the effect that they will not raise any objection to this
treatment and consenting to the appointment of Holdings as their collective
agent in connection with the administration of the Escrow Agreement.
As of August 1, 1995, directors and executive officers of Holdings held an
aggregate of 84.44% of the outstanding awards under the EAR and EPU Plans as of
such date. Each of such directors and executive officers has executed and
delivered to Holdings his or her Consent Letter in respect of such awards.
Accordingly, the above described condition of Closing has been satisfied.
The Escrow Agreement
Holdings on behalf of itself and the Holdings Stockholders, and
Advertising, on behalf of itself and the Rightsholders shall establish, pursuant
to the Escrow Agreement, the General Escrow Fund by the deposit with the Escrow
Agent of certificates in negotiable form duly endorsed in blank representing
shares of Omnicom Common Stock equal to ten percent of the shares of Omnicom
Common Stock issued and delivered as part of the acquisition price. The General
Escrow Fund will be segregated into two funds: the Stockholders General Escrow
Fund and the Rightsholders General Escrow Fund, based on the respective number
of shares of Omnicom Common Stock contributed by Holdings and Advertising, and
each Fund will satisfy its pro rata share of any indemnification payment based
on the number of shares of Omnicom Common Stock then on deposit in such Fund.
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Holdings and Advertising will also establish, pursuant to the Escrow
Agreement, the Special Escrow Fund, by the deposit with the Escrow Agent of
shares of Omnicom Common Stock having an aggregate Market Value of $1,700,000,
of which approximately $750,000 will be contributed by Holdings, on behalf of
the Holdings Stockholders, and approximately $950,000 will be contributed by
Advertising, on behalf of the Rightsholders. The Special Escrow Fund will also
be segregated into two funds: the Stockholders Special Escrow Fund and the
Rightsholders Special Escrow Fund, each of which will satisfy its pro rata share
of any indemnification payment based on the number of shares of Omnicom Common
Stock on deposit in such Fund. (For a description of the indemnification
obligations of Holdings and the Holdings Stockholders and the Rightsholders to
Omnicom, see "The Acquisition Agreement--Other Terms and Conditions of the
Acquisition Agreement--Indemnification".)
Pursuant to the Escrow Agreement, Holdings, on behalf of itself and the
Holdings Stockholders, and Advertising, on behalf of itself and the
Rightsholders, shall grant to Omnicom a security interest in the Escrow Funds to
secure the performance of the indemnification obligations of Holdings under the
Acquisition Agreement and the performance of its obligations to Omnicom under
the Escrow Agreement.
Pursuant to the Escrow Agreement, Omnicom and Holdings have agreed to
indemnify and hold the Escrow Agent and its directors, officers and employees
harmless from and against any and all costs, charges, damages and attorney's
fees which the Escrow Agent in good faith may incur or suffer in connection with
or arising out of the Escrow Agreement. The fees and charges of the Escrow Agent
with respect to the Escrow Agreement shall be shared between Omnicom and
Holdings in accordance with the Escrow Agent's customary fees as charged from
time to time. The Escrow Agent may deduct any unpaid fees from the Escrow Funds
prior to the Escrow Agent's distributing any assets in connection with the
termination of the Escrow Funds.
The Liquidating Trustees shall replace Holdings as a party to the Escrow
Agreement following the creation and funding of the Liquidating Trust.
The Escrow Agreement shall automatically terminate if and when all the
shares of Omnicom Common Stock held in any Escrow Fund shall have been
distributed by the Escrow Agent in accordance with the terms of the Escrow
Agreement.
General Escrow Fund. The Escrow Agreement provides that wherever there
shall be delivered to the Escrow Agent either (i) a certificate signed by
Omnicom and Holdings, or (ii) a certified copy of an arbitration award rendered
pursuant to the arbitration proceedings specified in the Escrow Agreement
determining, that an indemnification payment is due from the General Escrow
Funds to Omnicom, the Escrow Agent shall, to the extent that the shares of
Omnicom Common Stock then on deposit in the General Escrow Fund shall be
sufficient for the purpose, deliver to Omnicom the number of shares of Omnicom
Common Stock, valued at the original Market Value, equal to the indemnification
payment.
On the next business day following the earlier of (x) the first independent
audit report, if any, of TBWA and the Businesses following the Closing Date, or
(y) one year from the Closing Date, the Escrow Agent shall deliver to the
Liquidating Trust (on behalf of the Holdings Stockholders) the remaining shares
of Omnicom Common Stock then on deposit in the Stockholders General Escrow Fund,
and to the Liquidating Trust Escrow Fund (on behalf of the Rightsholders) the
remaining shares of Omnicom Common Stock then on deposit in the Rightsholders
General Escrow Fund; as reduced in each case by any amounts necessary to cover
outstanding claims for indemnification.
All dividends, interest and other amounts received with respect to shares
of Omnicom Common Stock held in the General Escrow Fund shall be income for tax
purposes to Holdings (or the Holdings Stockholders following the dissolution of
Holdings) and the Rightsholders, shall be paid directly to the Liquidating
Trustees (on behalf of the Holdings Stockholders) or the Liquidating Trust
Escrow Agent (on behalf of the Rightsholders), as the case may be, and shall not
constitute part of the General Escrow Fund.
Special Escrow Fund. The Escrow Agreement provides that whenever there
shall be delivered to the Escrow Agent either (i) a certificate signed by
Omnicom and Holdings, or (ii) a certified copy of a final nonappealable judgment
of an arbitration award rendered pursuant to the arbitration proceedings
specified in the Escrow Agreement determining, that a payment is due from the
Special Escrow Fund to Holdings or Omnicom, the Escrow Agent shall, to the
extent that the shares of Omnicom Common Stock then on deposit in the Special
Escrow Fund shall be sufficient for the purpose, deliver to such party the
number of shares of Omnicom Common Stock, valued at the original Market Value,
equal to the payment.
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Amounts will be due from the Special Escrow Fund when the collectibility of
the Indemnified Receivable becomes determined or, if earlier, on the second
anniversary of the Closing Date under the Acquisition Agreement. Therefore, at
such time, if any, as TBWA recovers the payments in respect of said asset
("Asset Proceeds"), it shall give notice to such effect to Holdings and to the
Escrow Agent, together with an accounting of the costs and expenses incurred in
connection with recovering any such payments at any time after the Execution
Date of the Acquisition Agreement ("Asset Costs"). TBWA shall be entitled to
receive payment from the Stockholders Special Escrow Fund and the Rightsholders
Special Escrow Fund, pro rata in accordance with the number of shares of Omnicom
Common Stock then on deposit in each such Fund, in the amount of the Asset
Costs; the Liquidating Trustees (on behalf of the Holdings Stockholders) and the
Liquidating Trust Escrow Agent (on behalf of the Rightsholders) shall be
entitled to receive payment from the Stockholders Special Escrow Fund and the
Rightsholders Special Escrow Fund, pro rata in accordance with the number of
shares of Omnicom Common Stock then on deposit in each such Fund, in an
aggregate amount equal to (i) the amount of the Asset Proceeds, less (ii) the
Asset Costs, less (iii) $250,000 if the final determination of the matter occurs
within one year from the Closing Date, or $300,000 if the matter is determined
thereafter; TBWA shall then be entitled to receive the balance, if any,
remaining in the Special Escrow Fund.
All dividends, interest and other amounts received with respect to shares
of Omnicom Common Stock held in the Special Escrow Fund shall be income for tax
purposes to Holdings (or the Holdings Stockholders following the dissolution of
Holdings) and the Rightsholders, shall be paid directly to the Liquidating
Trustees (on behalf of the Holdings Stockholders) or the Liquidating Trust
Escrow Agent (on behalf of the Rightsholders), as the case may be, and shall not
constitute part of the Special Escrow Fund.
The Deposit and Pledge Agreement
Pursuant to the Deposit and Pledge Agreement, Holdings and Advertising will
deliver to the Deposit Agent all the shares of Omnicom Common Stock received by
them on the Closing Date.
On the Distribution Date, the Deposit Agent will make the distributions of
such shares of Omnicom Common Stock described under "Summary--The
Acquisition--The Acquisition" to the Liquidating Trust, the Liquidating Trust
Escrow Fund, the Holdings Stockholders and the Rightsholders.
On the Distribution Date, the Deposit Agent will also deposit the
applicable shares of Omnicom Common Stock into the Escrow Funds. Prior to such
time, the applicable shares of Omnicom Common Stock will be held by the Escrow
Agent as security for the fulfillment of the obligation of Holdings and
Advertising to deliver such shares into the Escrow Funds.
Employment Arrangements
The Acquisition Agreement provides that TBWA or one of the other companies
operating within the TBWA International network will offer employment to
substantially all employees of Holdings and its subsidiaries following the
Closing of the Acquisition; and that such personnel who accept such employment
will be employed on substantially equivalent terms and conditions as such
personnel were employed by Holdings or a subsidiary immediately prior to the
Closing Date. The Acquisition Agreement also provides for specific employment
arrangements with certain key executives; see "The Transactions--Interests of
Certain Persons in the Transactions".
Other Terms and Conditions of the Acquisition Agreement
Representations and Warranties
The Acquisition Agreement contains various customary representations and
warranties of Holdings and Advertising relating to, among other things: (a) the
organization and similar corporate matters of Holdings and each of the
subsidiaries; (b) the capital structure of Holdings and each of its
subsidiaries; (c) authorization, execution, delivery, performance and
enforceability of the Acquisition Agreement and related matters; (d) absence of
conflicts under charters or by-laws, required consents or approvals and
violations of any instruments or laws; (e) financial statements provided to
Omnicom by Holdings; (f) absence of certain material adverse events, changes or
effects; (f) certain accounting matters; (g) certain contracts, including, but
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not limited to, certain employment, consulting and benefit matters; (h)
litigation; (i) certain tax matters; (j) undisclosed liabilities; (k) insurance;
(l) compliance with law and licenses, authorizations and permits held by
Holdings necessary to conduct its business; (m) client relations; (n) employment
relations; (o) retirement and other employee plans and matters relating to the
Employee Retirement Income Security Act of 1974, as amended; (p) the shareholder
votes required; (q) change in capital structure; and (r) trademarks, trade
names, assumed or fictitious names, copyrights, logos, service marks and
slogans.
The Acquisition Agreement also contains various customary representations
and warranties of Omnicom and TBWA relating to, among other things; (a)
organization and similar corporate matters of Omnicom and TBWA; (b)
authorization, execution and delivery of the Acquisition Agreement and related
matters; (c) absence of any conflicts under charters or by-laws, required
consents or approvals and no violations of any instruments or laws; (d) the
shares of Omnicom Common Stock to be issued in the transaction; (e) financial
statements provided to Holdings by Omnicom; (f) absence of certain adverse
events, changes or effects; and (g) litigation.
Certain Covenants
Pursuant to the Acquisition Agreement, Holdings has agreed that, during the
period from the date of the Acquisition Agreement until the Closing Date,
Holdings and each of its subsidiaries will, among other things: (a) obtain all
government approvals and other action necessary to terminate the Profit Sharing
Plan of Holdings; (b) not solicit, initiate or encourage any other offer or
inquiry concerning the acquisition of the Businesses; (c) give timely notice of
a meeting to its shareholders to approve the Acquisition, the amendment of the
Holdings Certificate and the Plan of Liquidation and recommend approval of the
transactions contemplated by the Acquisition Agreement; (d) inform Omnicom's
management as to the operation, management and business of the Businesses to be
acquired; (e) permit Omnicom and TBWA to make such reasonable investigation of
the assets, properties and businesses of Holdings and Advertising as they deem
necessary or advisable; and (f) except (i) as permitted by the Acquisition
Agreement and (ii) as otherwise consented to in writing by Omnicom (on behalf of
itself and TBWA), operate its businesses in the ordinary course and, to the
extent consistent with past practice, and use reasonable commercial efforts to
preserve existing business organization, existing business relationships, and
goodwill intact.
Pursuant to the Acquisition Agreement, Holdings and Advertising and Omnicom
and TBWA have covenanted with one another to take certain additional actions,
including without limitation; (a) Holdings and Omnicom each shall take all
corporate and other action, make all filings with courts or governmental
authorities and use its reasonable efforts to obtain in writing all approvals
and consents required to be taken, made or obtained by it in order to effectuate
the Acquisition; (b) to prepare this Prospectus/Information Statement and the
Registration Statement of which it is a part, with each party representing and
warranting to the other as to the accuracy of the information supplied by it for
inclusion herein; (c) to each use its reasonable efforts to consummate the
Acquisition and the other transactions contemplated by the Acquisition
Agreement; (d) to obtain all necessary sales tax exemptions and take all such
other action as may be necessary or advisable to cause the transfer of the
Assets to TBWA pursuant to the Acquisition not to be subject to sales tax; and
(e) to take the actions more fully described in "Financial Actions" below.
Financial Actions
Between the date of the Acquisition Agreement and the Closing Date, certain
financial arrangements are required to occur: (i) TBWA shall lend Holdings
$55,000,000 and lend Advertising $1,000,000 on reasonable commercial terms and
pursuant to financing documents reasonably acceptable to the parties thereto and
in substantially the form of the Amended and Restated Credit Agreement and the
documents ancillary thereto; (ii) Holdings shall make a capital contribution of
not less than $55,000,000 to Advertising; and (iii) Advertising shall repay in
full all outstanding principal, together with accrued interest, of the 8.17%
Junior Subordinated Installment Notes, the 13.25% Junior Subordinated Notes, the
13.25% Senior Subordinated Notes, and the notes issued under the Amended and
Restated Credit Agreement. Upon the payment in full of amounts outstanding under
the Amended and Restated Credit Agreement in accordance with clause (iii) and
prior to the Closing, Omnicom agrees to release or cause to be released (by,
among other things, filing UCC termination statements in all appropriate
jurisdictions) all liens and other security interests granted to secure the
obligations of Holdings and Advertising thereunder.
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Indemnification
The Acquisition Agreement provides that Holdings shall indemnify and hold
harmless, and shall reimburse TBWA and its affiliates, directors, officers, and
employees for all losses, claims, damages and liabilities (to the extent not
covered by insurance), and all fees, costs and expenses (including reasonable
attorneys' fees) related thereto (together referred to herein as "Loss" or
"Losses"), arising out of, based upon, or resulting from (i) the inaccuracy or
breach of any representation or warranty (other than that referred to in clause
(iv) below) of Holdings or Advertising or any covenant of Holdings or
Advertising contained in or made pursuant to the Acquisition Agreement, (ii) the
breach of or failure by Holdings or Advertising to perform or discharge its
obligations under the Acquisition Agreement or under the transactions
contemplated thereby, (iii) a claim or cause of action by a third party relating
to any liability of Holdings or Advertising not assumed by TBWA, or (iv) any
inaccuracy in or breach of a specified representation and warranty relating to
the Indemnified Receivable. Pursuant to the Acquisition Agreement, no Losses
arising out of a matter referred to in (i), (ii) or (iii) above shall be
reimbursed to TBWA until such time as all Losses arising out of a matter
referred to in (i) through (iii) above shall exceed $300,000, in which case
Holdings shall be liable for all Losses in excess of $300,000 (Losses arising
out of the matter referred to in clause (iv) above shall be reimbursable without
regard to the $300,000 "cushion"). Losses arising out of matters referred to in
clauses (i) through (iii) above shall be satisfied only out of the General
Escrow Fund and Losses arising out of the matter referred to in clause (iv)
above shall be satisfied only out of the Special Escrow Fund. The aggregate
indemnity obligation of Holdings as so determined shall be satisfied from the
Escrow Funds as provided in the Escrow Agreement, and neither Omnicom nor TBWA
nor any of their affiliates will have any recourse for the payment of any such
indemnity obligations against Holdings or Advertising (or the Holdings
Stockholders or Rightsholders), nor will any of such persons be personally
liable for any such indemnity obligations. See "The Acquisition Agreement--The
Acquisition--Escrows". Indemnity obligations shall be paid by returning to
Omnicom out of the relevant Escrow Fund the number of whole shares of Omnicom
Common Stock, valued at the original Market Value, equal to the Losses (subject
to the $300,000 "cushion," where applicable).
The obligation of Holdings to indemnify shall terminate and be of no
further force and effect on the earlier to occur of (x) the date of first
independent audit report, if any, of the consolidated financial results of TBWA
and the Businesses following the Closing Date, and (y) one year from the Closing
Date (the "Indemnity Period"). Upon the expiration of the Indemnity Period, all
such representations, warranties, covenants and agreements shall expire,
terminate, and be of no further force or effect, except that claims asserted in
writing against Holdings on or prior to such expiration shall survive until they
are decided and are final and binding upon TBWA and Holdings. However, in that
the collectibility of the Indemnified Receivable cannot reasonably be assured at
the present time, these limitations will not apply to the matter as to which
TBWA is entitled to be indemnified under that clause. Instead, this
indemnification obligation will terminate on the earlier of (i) the second
anniversary of the Closing Date, the date by which the parties expect such
collectibility to have been finally determined and (ii) the date on which such
collectibility shall in fact have been finally determined, provided that claims
asserted in writing prior to such expiration shall survive until they are final
and binding.
See "The Acquisition Agreement--The Acquisition--The Escrow
Agreement--General Escrow Fund" and "--Special Escrow Fund."
Pursuant to the Acquisition Agreement, Omnicom and Holdings have also
agreed to indemnify the other, including its directors, officers, agents,
"controlling persons" as defined by the Securities Act, and attorneys (and, with
respect to Holdings, the Holdings Stockholders and Rightsholders) against any
liability, damage, cost, loss, or expense arising out of any untrue statement of
a material fact furnished by it for inclusion in the Registration Statement, or
caused by any omission to furnish a material fact concerning it that is required
to be stated therein or that is necessary to make the statements furnished by it
not misleading. This indemnification obligation is separate from the
indemnification obligation of Holdings to TBWA discussed above, and is not
limited to amounts on deposit in the Escrow Funds under the Escrow Agreement,
nor to the limited periods of survival.
Conditions
In addition to approval of the Acquisition Agreement, the Advertising Stock
Sale Agreement, the amendment of the Holdings Certificate and the Plan of
Liquidation by Holdings Stockholders at the Special Meeting, and to the required
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regulatory approvals, the respective obligations of Omnicom, TBWA, Holdings and
Advertising to consummate the Acquisition are subject to the satisfaction of
certain conditions, including without limitation: (i) the accuracy in all
material respects of the representations and warranties made by the parties in
the Acquisition Agreement; (ii) the performance by the parties of their
respective obligations under the Acquisition Agreement prior to the Closing
Date; (iii) the absence of any material adverse changes in the condition of the
businesses of Holdings or Advertising on the one hand or Omnicom, on the other
hand; (iv) the effectiveness of the Registration Statement under the Securities
Act with respect to the shares of Omnicom Common Stock to be issued pursuant to
the Acquisition Agreement and the approval of the listing of such Omnicom Common
Stock on the New York Stock Exchange; (v) the execution and delivery of the
Escrow Agreement; (vi) the absence of any action or proceeding enjoining the
transactions contemplated by the Acquisition Agreement; (vii) the absence of any
action or proceeding by any governmental agency that might result in enjoining
the consummation of said transactions; and (viii) the consummation of the
transactions contemplated by the Profit Sharing Plan Purchase Agreement.
The obligations of Omnicom to effect the Acquisition are subject to
satisfaction of certain additional conditions including, without limitation: (i)
the SEC not having objected to Omnicom's treatment of the Acquisition as a
pooling-of-interests for accounting purposes; (ii) Advertising continuing to be
the advertising agency of record for certain key clients or, with respect to
some of these clients, Advertising's having replaced a loss of any such client
with an account of similar size (measured by revenues); (iii) the receipt by
Holdings of Consent Letters from Rightsholders holding in the aggregate at least
83% of the outstanding EARs and EPUs on the Closing Date, including all
Rightsholders who are also Holdings Stockholders; (iv) the execution of
employment agreements with TBWA or one of its affiliates by each of Robert
Kuperman, Thomas Patty, Adelaide Horton, Ira Matathia, Steven Hancock and Robert
Wolf and the execution and delivery of non-competition agreements by each of
such individuals; and (v) there not having been a material and adverse change in
the Businesses (which shall include TBWA not having received reasonable
assurances and financial data that (a) if the Closing is on or prior to August
31, 1995, EBIT for the nine months ended July 31, 1995 is at least $7,500,000
and EBIT for the 1995 Fiscal Year is reasonably expected to exceed $13,500,000;
and (b) if the Closing is on or after November 1, 1995, EBIT for the 1995 Fiscal
Year is at least $13,500,000).
The obligations of Holdings and Advertising to effect the Acquisition are
subject to the satisfaction of certain additional conditions including, without
limitation: (i) that Annualized Revenues of Holdings and its subsidiaries during
the 1995 Fiscal Year shall not be in excess of $100,000,000 and EBIT for the
1995 Fiscal Year shall not exceed (or shall not reasonably be expected to
exceed) $17,200,000; (ii) TBWA or one of its affiliates having entered into the
employment agreements described above; and (iii) TBWA having assumed the
existing employment agreement between Holdings and Leland Clow and the existing
employment and consulting agreement between Holdings and Jay Chiat (and TBWA
having validly assigned such contract to Omnicom). See "The Acquisition
Agreement--The Acquisition--Renegotiation of Acquisition Price" and "The
Transactions--Interests of Certain Persons in the Transactions".
Pursuant to the terms of the Acquisition Agreement, each of Omnicom and
Holdings is entitled to waive any of its conditions to consummation of the
Acquisition to the extent that any such condition is not satisfied in full by
the other party, other than conditions relating to the absence of any objection
by the SEC to Omnicom's treatment of the Acquisition as a pooling-of-interests
for accounting purposes and the approval of the Transactions by the Holdings
Stockholders.
Additional Agreements
Pursuant to the Acquisition Agreement, Omnicom, TBWA, Holdings and
Advertising have made certain additional agreements with respect to periods
following the Closing Date, including without limitation the following: (a) each
of Holdings and Advertising shall change its corporate name to a name not
including the "Chiat/Day" designation or any variation thereof and will cause
each inactive subsidiary which is not being acquired by TBWA under the
Acquisition Agreement to similarly change its corporate name; (b) TBWA shall
change its corporate name, and shall cause those members of the TBWA
international group operating under the TBWA name in North America to change
their corporate names, in each case to include the designation "TBWA Chiat/Day";
(c) Holdings shall provide Omnicom with copies of all appropriate tax returns
and certificates, all of which shall be made consistent with the allocation of
acquisition price agreed to between the parties; and (d) Holdings and
Advertising will, if requested by Omnicom, make certain tax elections under U.S.
and Canadian laws.
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Termination
The Acquisition Agreement may be terminated and the contemplated
Acquisition may be abandoned at any time prior to the Closing, whether before or
after approval by the Holdings Stockholders, (a) by mutual consent of the Boards
of Directors of Omnicom, TBWA, Holdings and Advertising; (b) by either Omnicom
and TBWA, on the one hand, or Holdings and Advertising, on the other hand, if
there has been a breach of any representation, warranty or covenant on the part
of the other party set forth in the Acquisition Agreement which breach has not
been cured within 30 days following receipt by the breaching party of notice of
such breach, unless the breach of any such representation, warranty, or covenant
does not materially adversely affect the business or assets of the breaching
party or the ability of either party or parties to consummate the Acquisition;
(c) by the Board of Directors of Omnicom, TBWA, Holdings or Advertising if a
final and nonappealable order, decree or judgment of any court or other
governmental authority is issued which would enjoin the Acquisition; or (d) by
either Omnicom and TBWA or Holdings and Advertising if the Closing Date shall
not have occurred prior to the close of business on December 31, 1995 or at any
time after October 31, 1995 if the conditions to such parties' obligation to
close shall have become incapable of being satisfied by December 31, 1995.
In the event of any termination of the Acquisition Agreement by either
Omnicom and TBWA or by Holdings and Advertising as provided above, the
Acquisition Agreement shall become void and there will be no liability or
obligation on the part of any party or its respective officers or directors
except that such termination does not preclude any action or claim for damages
to which any party is otherwise entitled as a result of a breach by the other
party.
Amendment
The Acquisition Agreement and the exhibits and schedules thereto may be
amended, supplemented or qualified by the parties only by an agreement in
writing signed by all parties with due authorization.
THE ADVERTISING STOCK SALE AGREEMENT
(A copy of the Advertising Stock Sale Agreement is filed as an Exhibit to
the Registration Statement of which this Prospectus/Information Statement forms
a part and is incorporated herein by reference. This summary of the Advertising
Stock Sale Agreement is qualified in its entirety by reference to such
agreement.)
Pursuant to the Advertising Stock Sale Agreement, as soon as practicable
after the Distribution Date, Adelaide Horton (together with any permitted
assignees) will purchase from Holdings all of the issued and outstanding common
stock of Advertising. At such time, the only asset which Advertising will own
will be its rights, through its ownership of all of the capital stock of
Chiat/Day Direct Marketing, Inc., under the National Car Suit. Pursuant to the
Advertising Stock Sale Agreement, Holdings has agreed to indemnify Ms. Horton
and Advertising for any losses incurred in respect of liabilities of Advertising
not assumed by TBWA under the Acquisition Agreement. To the extent that Holdings
were unable to fully indemnify Ms. Horton and Advertising, any recovery from the
National Car Suit received by Advertising would be at risk.
PROPOSED AMENDMENT OF THE HOLDINGS CERTIFICATE
The Holdings Certificate sets forth the corporate name of Holdings as
"Chiat/Day Holdings, Inc." Following the Closing under the Acquisition
Agreement, TBWA will own all rights in and to the "Chiat/Day" name, and Holdings
has agreed that immediately following the Closing thereunder it would change its
corporate name to a name not including the "Chiat/Day" designation or any
variation thereof. Under the proposed amendment Holdings' name will be changed
to "CDH Corporation". Pursuant to the Acquisition Agreement, Advertising will
also change its corporate name to a name not including the "Chiat/Day"
designation or any variation thereof, and each of Holdings and Advertising will
cause its inactive subsidiaries which are not being acquired by TBWA under the
Acquisition Agreement, to effect a similar change to its corporate name.
Advertising intends to change its name to "CDAD Corporation" . Approval by the
Holdings Stockholders of this amendment to the Holdings Certificate is a
condition of Omnicom's and TBWA's obligation to consummate the Acquisition under
the Acquisition Agreement.
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THE PLAN OF LIQUIDATION
(Copies of the Plan of Liquidation, the Liquidating Trust Agreement and the
Liquidating Trust Escrow Agreement are filed as Exhibits to the Registration
Statement of which this Prospectus/Information Statement forms a part and are
incorporated herein by reference. This summary of the Plan of Liquidation, the
Liquidating Trust Agreement and the Liquidating Trust Escrow Agreement is
qualified in its entirety by reference to such agreements.)
General
The Plan of Liquidation provides that, upon consummation of the Closing
under the Acquisition Agreement, Holdings will be dissolved pursuant to the
provisions of the DGCL. Following the procedures prescribed in the DGCL, the
Board of Directors of Holdings will file with the Secretary of State of the
State of Delaware a Certificate of Dissolution, thereby terminating the
corporate existence of Holdings. Thomas Patty and David Wiener, the Liquidating
Trustees of the Liquidating Trust established pursuant to the Liquidating Trust
Agreement will, however, function with authority to wind up Holdings' affairs,
pay, satisfy and discharge certain liabilities and obligations not assumed by
TBWA under the Acquisition Agreement, and distribute to the Holdings
Stockholders all of the remaining assets of Holdings.
The distribution of the shares of Omnicom Common Stock will not occur until
the Distribution Date. Assuming the Closing occurs on August 31, 1995, the
earliest that the Distribution Date would occur is October 26, 1995. During the
period from the Closing Date until the Distribution Date, Holdings Stockholders
and Rightsholders will bear the risk of fluctuations in the market price of the
Omnicom Common Stock.
The Liquidating Trust, after the Acquisition and the distributions to occur
on the Distribution Date, shall hold all the remaining assets of Holdings
(except to the extent Holdings distributes any such assets directly to Holdings
Stockholders), including the right to receive any assets remaining after the
termination of the Escrow Agreement. If any assets remain in the Liquidating
Trust after all claims, charges, liabilities and obligations of the Liquidating
Trust have been paid or discharged, the Liquidating Trustees will, as
expeditiously as is practicable, distribute such assets to the former holders of
Holdings Common Stock on a pro rata basis according to their interests.
All of the directors and officers of Holdings who are also Holdings
Stockholders have indicated that they intend to vote for the Plan of Liquidation
in their capacity as Holdings Stockholders. In order to effectuate the Plan of
Liquidation, Holdings will give notice to all known creditors, if any, after
giving effect to the assumption of liabilities by TBWA pursuant to the
Acquisition Agreement, and will pay or make adequate provision for any Trust
Liabilities. It is intended that the consummation of the transactions
contemplated by the Acquisition Agreement, followed by the distribution to the
Holdings Stockholders in complete liquidation of Holdings, will not give rise to
dissenter's rights in favor of Holdings Stockholders under Delaware law.
Liquidating Distribution to Holdings Stockholders
Pursuant to the Plan of Liquidation, on the Distribution Date, Holdings
Stockholders will receive a distribution of the shares of Omnicom Common Stock
paid by TBWA to Holdings as acquisition price under the Acquisition Agreement
(exclusive of the Contributed Stock), as reduced by (i) the five percent of such
shares which will be deposited by Holdings on the Distribution Date into the
Liquidating Trust on behalf of the Holdings Stockholders and (ii) the shares of
Omnicom Common Stock used to fund on the Distribution Date the Stockholders
General Escrow Fund and the Stockholders Special Escrow Fund under the Escrow
Agreement.
Based on an estimated total acquisition price of $25,328,061 (see "The
Acquisition Agreement--The Acquisition--Determination of Acquisition Price"),
each holder of Holdings Common Stock will be entitled to receive in such initial
distribution, per share of Holdings Common Stock, shares of Omnicom Common Stock
with a value (determined in accordance with the terms of the Acquisition
Agreement) equal to $0.178. The remaining shares of Omnicom Common Stock
received by Holdings will be used to fund the Liquidating Trust, which will be
responsible for the Holdings Stockholders' taxes and the expenses of winding up
the affairs of Holdings, as well as possible contingent liabilities, and to fund
the Stockholders General Escrow Fund and the Stockholders Special Escrow Fund.
Based upon current estimates of taxes and expenses, if there were no claims for
indemnification or other contingent liabilities, each Holdings Stockholder would
be entitled to receive upon the release of such funds from the Liquidating Trust
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and such escrows shares of Omnicom Common Stock with a value (determined in
accordance with the terms of the Acquisition Agreement) equal to approximately
$0.037, for a total per share value of approximately $0.215. Since the amounts
held in such escrows and such trust are subject to claims in respect of
contingent liabilities, there can be no assurances that amounts held therein
will in fact be distributed to the Holdings Stockholders.
Liquidating Distribution to Rightsholders
On the Distribution Date, the Rightsholders will also receive a
distribution of Omnicom Common Stock from Advertising. See "The Acquisition
Agreement--The Acquisition--Payment of Obligations to Rightsholders". The shares
of Omnicom Common Stock available for such distribution will be the shares of
Omnicom Common Stock paid by TBWA to Advertising as acquisition price under the
Acquisition Agreement (inclusive of the Contributed Stock), as reduced by (i)
the five percent of such shares which will be deposited by Advertising on the
Distribution Date into the Liquidating Trust Escrow Fund on behalf of the
Rightsholders and (ii) the shares of Omnicom Common Stock used to fund on the
Distribution Date the Rightsholders General Escrow Fund and the Rightsholders
Special Escrow Fund under the Escrow Agreement.
Based on an estimated total acquisition price of $25,328,061 (see "The
Acquisition Agreement--The Acquisition--Determination of Acquisition Price"),
each Rightsholder (whether an EPU holder or an EAR holder) will be entitled to
receive in such distribution, per EPU or EAR, shares of Omnicom Common Stock
with a value (determined in accordance with the terms of the Acquisition
Agreement) equal to $0.178. The remaining shares of Omnicom Common Stock
received by Advertising will be used to fund the Liquidating Trust Escrow Fund,
which will be responsible for the Rightsholders' share of taxes and the expenses
of winding up the affairs of Holdings, as well as possible contingent
liabilities, and to fund the Rightsholders General Escrow Fund and the
Rightsholders Special Escrow Fund. Based upon current estimates of taxes and
expenses, if there were no claims for indemnification or other contingent
liabilities, each Rightsholder would be entitled to receive, upon the release of
such funds from such escrows, shares of Omnicom Common Stock with an aggregate
value (determined in accordance with the terms of the Acquisition Agreement)
equal to approximately $0.037, for a total per unit value of approximately
$0.215. Since the amounts held in such escrows are subject to claims in respect
of contingent liabilities, there can be no assurances that amounts held therein
will in fact be distributed to the Rightsholders.
Fractional Shares
If any of the foregoing distributions does not result in a Holdings
Stockholder or Rightsholder being entitled to a whole number of shares of
Omnicom Common Stock, the Holdings Stockholder or Rightsholder will receive a
cash payment in lieu of any entitlement to a fractional share of Omnicom Common
Stock from the proceeds of a sale on the NYSE by Holdings or Advertising (as the
case may be) of a sufficient number of shares of Omnicom Common Stock to settle
the aggregate amount of fractional share distribution entitlements of all
similarly situated Holdings Stockholders and Rightsholders. As a result, no
fractional shares of Omnicom Common Stock will be distributed under the Plan of
Liquidation.
Operation of the Liquidating Trust
Following the dissolution of Holdings and the completion of the liquidating
distributions described above, each share of Holdings Common Stock, regardless
of class, shall have an equal interest in the Liquidating Trust. After such
time, the Liquidating Trustees will, on behalf of the Holdings Stockholders, (i)
receive any additional liquidating distributions from Holdings, (ii) act as the
agent of the Holdings Stockholders in connection with the administration of the
Escrow Agreement and the Liquidating Trust Escrow Agreement, (iii) respond to
the assertion of any and all claims of indemnification by TBWA pursuant to the
terms of the Acquisition Agreement and the Escrow Agreement, (iv) pursue any
claims which Holdings may have against the Special Escrow Fund and (v) complete
the winding up of the affairs of Holdings and the payment of certain liabilities
not assumed by TBWA under the Acquisition Agreement out of the assets of the
Liquidating Trust.
As described above under "--Liquidating Distribution to Holdings
Stockholders", five percent of the shares of Omnicom Common Stock received by
Holdings as part of the acquisition price under the Acquisition Agreement
(exclusive of the Contributed Stock) will be deposited in the Liquidating Trust,
on behalf of the Holdings Stockholders, for the satisfaction of the following
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liabilities (collectively, "Trust Liabilities") of Holdings (in each case other
than the liabilities assumed by TBWA pursuant to the Acquisition Agreement): (i)
all claims and obligations, including all contingent, conditional or unmatured
contractual claims, known to Holdings or the Liquidating Trustees, (ii) any
claim which is the subject of a pending action, suit or proceeding against
Holdings and (iii) claims which, based on facts known to Holdings or the
Liquidating Trustees, are likely to arise or become known to Holdings or the
Liquidating Trustees within ten years. The obligation of Holdings to indemnify
TBWA and Advertising for losses arising out of retained liabilities will
constitute a Trust Liability. See "The Advertising Stock Sale Agreement". In
addition, Trust Liabilities will include the costs and expenses payable by
Holdings in respect of (i) the Escrow Agent's fees under the Escrow Agreement,
(ii) maintaining insurance to cover indemnification obligations of Holdings
under the Holdings Certificate and the Liquidating Trust Agreement to its
directors, officers and agents (including the Liquidating Trustees) and (iii)
certain legal and other professional fees in connection with the liquidation,
the establishment of the trust, final tax returns and other post-Closing
transactions and matters. As described more fully below under "--The Liquidating
Trust Escrow", the Liquidating Trustees shall be reimbursed from the Liquidating
Trust Escrow Fund for the Rightsholders' share of any such Trust Liabilities.
The Liquidating Trust will also receive from time to time, on behalf of the
Holdings Stockholders, distributions of Omnicom Common Stock from the
Stockholders General Escrow Fund and the Stockholders Special Escrow Fund
maintained pursuant to the Escrow Agreement. See "The Acquisition Agreement--The
Acquisition--The Escrow Agreement". Pursuant to the Liquidating Trust Agreement,
the Liquidating Trustees will promptly sell any shares of Omnicom Common Stock
received by them and retain the net cash proceeds as the property (the "Trust
Property") of the Liquidating Trust.
Pursuant to the Liquidating Trust Agreement, the Liquidating Trustees shall
invest and reinvest the Trust Property and shall maintain any income earned on
such Trust Property ("Trust Income") separately from the Trust Property. The
Trust Income will include any cash and other taxable dividends paid to the
Liquidating Trustees, on behalf of the Holdings Stockholders, in respect of
Omnicom Common Stock on deposit in the Stockholders General Escrow Fund and the
Stockholders Special Escrow Fund. See "The Acquisition Agreement--The
Acquisition--The Escrow Agreement". All Trust Income will be distributed by the
Liquidating Trustees at the end of each fiscal quarter to the former Holdings
Stockholders, pro rata in accordance with their interests.
The Liquidating Trustees shall distribute Trust Property at least once
annually to the former Holdings Stockholders, pro rata in accordance with their
interests, provided that no distribution shall be made without satisfying or
adequately providing for (i) a reserve for all remaining Trust Liabilities, (ii)
a reserve for Trustee expenses and (iii) a reserve for payments owing to missing
beneficiaries.
The termination of the Liquidating Trust will occur on the later of (i)
three years and six months from the date the Liquidating Trust is established or
upon payment to the former Holdings Stockholders of all of the Trust Property
and Trust Income, whichever is earlier, and (ii) the date of termination of the
Escrow Agreement, provided that the Liquidating Trust shall continue for a
reasonable period for the limited purpose of discharging any remaining Trust
Liabilities.
The Liquidating Trust Escrow
As described above under "The Acquisition Agreement--The
Acquisition--Payment of Obligations to Rightsholders" five percent of the shares
of Omnicom Common Stock received by Advertising as part of the acquisition price
under the Acquisition Agreement (including five percent of the Contributed
Stock) will be deposited in the separate Liquidating Trust Escrow Fund created
by the escrow agreement (the "Liquidating Trust Escrow Agreement") among
Holdings (or, after the creation and funding of the Liquidating Trust, the
Liquidating Trust), Advertising and David C. Wiener, as escrow agent (the
"Liquidating Trust Escrow Agent"), on behalf of the Rightsholders, for the
satisfaction of the Rightsholders' share of Trust Liabilities. The Liquidating
Trust Escrow Agent may also receive from time to time, on behalf of the
Rightsholders, distributions of Omnicom Common Stock from the Rightsholders
General Escrow Fund and the Rightsholders Special Escrow Fund maintained
pursuant to the Escrow Agreement. See "The Acquisition Agreement--The
Acquisition--The Escrow Agreement". Pursuant to the Liquidating Trust Escrow
Agreement, the Liquidating Trust Escrow Agent will promptly sell any shares of
Omnicom Common Stock received by it and retain the net cash proceeds in the
Liquidating Trust Escrow Fund.
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Pursuant to the Liquidating Trust Escrow Agreement, the Liquidating Trust
Escrow Agent shall invest and reinvest the funds on deposit in the Liquidating
Trust Escrow Fund (any income earned in respect of such funds, the "Liquidating
Trust Escrow Income"). The Liquidating Trust Escrow Income will include any cash
and other taxable dividends paid to the Liquidating Trust Escrow Agent, on
behalf of the Rightsholders, in respect of Omnicom Common Stock on deposit in
the Rightsholders General Escrow Fund and the Rightsholders Special Escrow Fund.
All Liquidating Trust Escrow Income will be distributed by the Liquidating Trust
Escrow Agent at the end of each fiscal quarter to the former Rightsholders, pro
rata in accordance with their interests.
The Liquidating Trust Escrow Agent will reimburse the Liquidating Trust
from the Liquidating Trust Escrow Fund, upon proper request made by the
Liquidating Trustees, for the Rightsholders' proportionate share of payments
made by the Liquidating Trust in respect of Trust Liabilities. Such
proportionate share shall be equal to (x) the total amount of the payment made
by the Liquidating Trustee multiplied by (y) a fraction, the numerator of which
equals the total amount of funds then on deposit in the Liquidating Trust Escrow
Fund and the denominator of which equals (1) the numerator plus (2) the amount
of Trust Property then on deposit in the Liquidating Trust.
Upon each distribution by the Liquidating Trustee of Trust Property to the
Stockholders pursuant to the Liquidating Trust Agreement, the Liquidating Trust
Escrow Agent shall distribute to the Rightsholders, pro rata in accordance with
their interests, the same percentage of the Liquidating Trust Escrow Fund as is
being distributed to the Holdings Stockholders from the Liquidating Trust.
The Liquidating Trust Escrow Agent will act as the agent of the
Rightsholders for purposes of the administration of the Liquidating Trust Escrow
Agreement. The Liquidating Trust Escrow Agent will also serve as a trustee of
the Liquidating Trust.
FEDERAL INCOME TAX CONSEQUENCES
OF THE SALES OF ASSETS
AND DISSOLUTION AND LIQUIDATION
The following discussion summarizes the U.S. income tax consequences
associated with the Transactions under the Internal Revenue Code of 1986, as
amended (the "Code"). The discussion summarizes the federal income tax
consequences that are material to the Holdings Stockholders and Rightsholders
(each, a "Holder") in general, but it does not describe all of the consequences
that might be relevant to a particular Holder in light of that Holder's own tax
situation. Because the following discussion does not describe all potentially
relevant tax considerations, each Holder should consult his or her own tax
advisor regarding the tax consequences of the Transactions in light of his or
her own tax situation. In particular, the following discussion may not be
complete or applicable in its entirety with respect to Holders who are not
individuals, who are dealers in securities, or who acquired their Holdings
Common Stock through employee stock option programs.
Corporate Tax
Holdings believes that although the asset sales by it and Advertising and
the Advertising Stock Sale are taxable transactions, they will not result in
significant federal income tax liability being incurred by Holdings. This
conclusion is based on a number of positions taken or to be taken by Holdings
which might be subject to IRS challenge. To the extent that the IRS were to
successfully challenge any of Holdings' positions, amounts held in the
Liquidating Trust and the Liquidating Trust Escrow Fund would be used to pay the
ensuing tax liability. Accordingly, no assurance can be given that any of the
portions held in the Liquidating Trust will be ultimately distributed to the
Holdings Stockholders or that funds held in the Liquidating Trust Escrow Fund
will be ultimately distributed to the Rightsholders. To the extent that funds
available from these sources were inadequate to satisfy amounts due to the IRS,
the IRS could seek payment from Holdings Stockholders to the extent of such
unsatisfied liability up to the amounts distributed to such Holdings
Stockholders.
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Holder Tax
The following summary applies only to Holders who are United States persons
for federal income tax purposes and except as specifically described below, does
not apply to Holders who are not U.S. persons.
Holders of Class A Common Stock and Mojo B Common Stock
For federal income tax purposes, holders of Class A Common Stock ("Class A
Stockholders") and Mojo B Common Stock ("Mojo B Stockholders") will recognize
gain or loss as a result of the Transactions equal to the difference between the
sum of (i) the fair market value of all of the Omnicom shares received (whether
distributed or placed in the Liquidating Trust or the Stockholders General or
Special Escrow Funds) plus (ii) the cash received in respect of any fractional
shares, and their adjusted basis in the Class A Common Stock or Mojo B Common
Stock. Class A Stockholders and Mojo B Stockholders who have held their shares
for over one year at the time of the transaction will be subject to tax at rates
up to the 28% maximum rate currently applicable to long-term capital gain. The
basis in the shares of Omnicom Common Stock received will be equal to their fair
market value on the Distribution Date and the holding period for the shares of
Omnicom Common Stock will commence on the date of the distribution. Provided
that the Liquidating Trust is classified as a trust for federal income tax
purposes (see discussion below), if amounts in the Liquidating Trust are
subsequently used to pay creditors (or payments are made to Omnicom out of the
Stockholders General or Special Escrow Funds), Class A Stockholders and Mojo B
Stockholders should be entitled to a capital loss in the year such payments are
made. If the amount of payments made to creditors that are allocable to a Class
A Stockholder or Mojo B Stockholder are in excess of $3,000 and the other
requirements of section 1341 of the Code are met, such shareholder should be
able to compute his or her federal income tax liability for the year such
payments are made under the provisions of section 1341 of the Code. Under
section 1341 of the Code, a shareholder's federal income tax liability would be
the lesser of the tax liabilities as computed under two alternative computation
methods. Under the first method, the shareholder would compute his or her tax
liability by taking a regular capital loss in the year that payments are made.
Under the second method, the shareholder would decrease his or her tax liability
in the year of payment by the amount of tax liability that was generated by the
prior inclusion. The tax return for the year of inclusion would not be reopened
under either computation method. No additional federal income tax consequences
will occur when amounts are distributed from the Liquidating Trust to a Class A
Stockholder or a Mojo B Stockholder.
With respect to a Class A Stockholder's or Mojo B Stockholder's shares of
Omnicom Common Stock that are placed in the Liquidating Trust or the
Stockholders General or Special Escrow Funds, in the event the shares are
disposed of by the Liquidating Trust or the Stockholders General or Special
Escrow Funds, any difference in the value of the shares of Omnicom Common Stock
between the date of distribution and the date disposed of by Liquidating Trust
or such Escrow Funds will be treated as long-term or short-term capital gain or
loss by such Holder, depending on the holding period. Such Holder's share of any
other income (including dividends paid on the Omnicom Common Stock), gain or
loss realized by the Liquidating Trust or the Stockholders General or Special
Escrow Funds will be recognized by such Holder (whether or not distributed) in
computing his or her federal income tax.
Holders of Class B Common Stock
Holders of Class B Common Stock (other than holders of Mojo B Common Stock)
("Class B Stockholders") will recognize compensation income on the date of
distribution of shares of Omnicom Common Stock pursuant to the Plan of
Liquidation, equal to the excess of the sum of (i) the then fair market value of
the shares of Omnicom Common Stock (including the value of any amount to be held
in the Liquidating Trust or the Stockholders General or Special Escrow Funds)
plus (ii) the cash received in respect of any fractional shares, over the sum of
(a) the amount they paid for their Class B Common Stock, and (b) the amount, if
any, of ordinary income which they have previously recognized in respect of
their Class B Common Stock. The Holder's holding period for his or her shares of
Omnicom Common Stock will commence on the date of distribution and the basis of
the shares of Omnicom Common Stock will be the fair market value on the date of
such distribution.
With respect to a Class B Stockholder's shares of Omnicom Common Stock that
are placed in the Liquidating Trust or the Stockholders General or Special
Escrow Funds, in the event the shares are disposed of by the Liquidating Trust
or such Escrow Funds, any difference in the value of the shares of Omnicom
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Common Stock between the date of distribution and the date disposed of by the
Liquidating Trust or such Escrow Funds will be treated as long-term or
short-term capital gain or loss by such Holder, depending on the holding period.
Such Holder's share of any other income (including dividends paid on the Omnicom
Common Stock), gains or losses realized by the Liquidating Trust or such Escrow
Funds will be recognized by such Holder in computing his or her federal income
taxes.
In addition, to the extent that any amount placed in the Liquidating Trust
or the Stockholders General or Special Escrow Funds is subsequently utilized to
discharge an obligation of Holdings, the affected Class B Stockholder should be
entitled to a federal income tax deduction, in the year of such expenditure,
equal to the amount of such expenditure previously included in the Class B
Stockholder's income. If the amount of the deduction exceeds $3,000, such
deduction may qualify for treatment under the provisions of Code section 1341,
previously described above. No additional federal income tax consequences will
occur when amounts are distributed from the Liquidating Trust to the Class B
Stockholder.
Tax on Holders of EPUs and EARs
Rightsholders will recognize compensation income equal to the sum of (i)
the fair market value of the shares of Omnicom Common Stock which they are
entitled to receive in the liquidation of Holdings, on the date such Omnicom
Common Stock is either distributed or made available to them, plus (ii) the cash
received in respect of any fractional shares. For this purpose, any Omnicom
Common Stock placed in the Liquidating Trust Escrow Fund or the Rightsholders
General or Special Escrow Funds on their behalf is treated as having been
distributed to them.
With respect to a Rightsholder's shares of Omnicom Common Stock that are
placed in the Liquidating Trust Escrow Fund or the Rightsholders General or
Special Escrow Funds, in the event the shares are disposed of while in the
Liquidating Trust Escrow Fund or the Rightsholders General or Special Escrow
Funds, any difference in the value of the Omnicom Common Stock between the date
of distribution and the date disposed of will be treated as long-term or
short-term capital gain or loss by the Rightsholder, depending on the holding
period. The Rightsholder's share of any other income (including dividends paid
on the Omnicom Common Stock), gains or losses realized by the Liquidating Trust
Escrow Fund or the Rightsholders General or Special Escrow Funds will be
recognized by the Rightsholder in computing his or her federal income tax.
In addition, to the extent that any amount placed in the Liquidating Trust
Escrow Fund or the Rightsholders General or Special Escrow Funds is subsequently
utilized to discharge an obligation of Holdings, the affected Rightsholder
should be entitled to a federal income tax deduction, in the year of such
expenditure, equal to the amount of such expenditure previously included in the
Rightsholder's income. If the amount of the deduction exceeds $3,000, such
deduction may qualify for treatment under the provisions of Code section 1341
previously discussed above. No additional federal income tax consequences will
occur when amounts are distributed from the Liquidating Trust Escrow Fund or the
Rightsholders General or Special Escrow Funds to the Rightsholder.
Certain Consequences to Non-U.S. Holders
A Holder who is not a U.S. person (a "Non-U.S. Holder") will generally not
be subject to United States federal income tax with respect to gain or ordinary
income recognized as a result of the transaction unless (i) the gain is
effectively connected with a trade or business of the Non-U.S Holder in the
United States (or, in the case of ordinary income, is from United States
sources; i.e., is payable as the result of services performed in the United
States) or (ii) in the case of a Non-U.S. Holder who is an individual and holds
Class A common stock or Mojo B Common Stock as a capital asset, such Holder is
present in the United States for 183 days or more in the taxable year of the
sale and certain other conditions are met. Assuming the Liquidating Trust and
Liquidating Trust Escrow Fund are each classified as a trust for federal income
tax purposes (see discussion below) dividends paid on the shares of Omnicom
Stock held in the Liquidating Trust and Liquidating Trust Escrow Fund and
dividends paid on Omnicom Common Stock held in the Rightsholders or Stockholders
General or Special Escrow Funds will be subject to withholding of United States
federal income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business of the Non-U.S. Holder in the United
States. Under the current United States- Australia income tax treaty, for
example, dividends are subject to withholding at a 15% rate. A Non-U.S. Holder
who wishes to claim the benefit of an applicable treaty rate may be required to
satisfy applicable certification and other requirements. Dividends that are
effectively connected with a trade or business in the United States are subject
to United States federal income tax on a net basis.
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Liquidating Trust and Liquidating Trust Escrow Fund
Holdings believes that the Liquidating Trust and the Liquidating Trust
Escrow Fund will each be treated as a grantor trust for federal income tax
purposes and not as an association taxable as a corporation. As such, items of
taxable income, deduction, gain and loss (including gain or loss on the sale of
shares of Omnicom Common Stock) would be passed through to the Holders and
reported by them on their tax return (whether or not distributed). However,
since the Liquidating Trust and the Liquidating Trust Escrow Fund will not meet
all of the IRS requirements to obtain a ruling as to grantor trust status, there
is a risk that the IRS could successfully assert that the Liquidating Trust or
the Liquidating Trust Escrow Fund should be taxed as a corporation. In that
event, the Liquidating Trust or the Liquidating Trust Escrow Fund would pay tax
on its income at the regular corporate rates of up to 35% and any distributions
to Holders would be taxed as dividends at ordinary income tax rates to the
extent of the earnings and profits of the Liquidating Trust or the Liquidating
Trust Escrow Fund.
Withholding Taxes
That portion of the Omnicom Common Stock (and any cash received in respect
of fractional shares) which is taxable to Holders as ordinary or compensation
income is subject to federal income tax withholding at the prescribed rate of
28%, as well as FICA and other applicable federal, state and local withholding.
Holdings expects that Holders will make arrangements with Holdings to satisfy
their tax obligations. A Holder who fails to satisfy this withholding
requirement could be subject to potential additional estimated tax payment
liability and to penalties if such liability is not satisfied. If any person
receiving shares of Omnicom Common Stock in respect of his employment with
Holdings does not pay the relevant taxes, the Liquidating Trust and the related
Liquidating Trust Escrow Fund would have liability for the amount of such tax.
THE TAX CONSEQUENCES OF THE SALES OF ASSETS, THE LIQUIDATION OF HOLDINGS
AND THE INCOME WITH RESPECT TO THE LIQUIDATING TRUST, LIQUIDATING TRUST ESCROW
FUND, AND ESCROW FUNDS MAY BE INFLUENCED BY THE IRS'S VIEWS OF FACTUAL
CIRCUMSTANCES SURROUNDING THE TRANSACTIONS PROVIDED FOR HEREIN. NO RULINGS OR
OPINIONS OF COUNSEL HAVE BEEN OBTAINED WITH RESPECT TO THESE MATTERS.
EACH HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE
APPLICABILITY AND EXTENT OF ANY RELEVANT STATE, LOCAL OR FOREIGN TAX LAWS.
41
<PAGE>
BUSINESS INFORMATION CONCERNING OMNICOM
(The information contained in this section is qualified in its entirety by
reference to documents incorporated by reference.)
Omnicom, through its wholly and partially owned companies, operates
advertising agencies which plan, create, produce and place advertising in
various media such as television, radio, newspaper and magazines; and offers
clients such additional services as marketing consultation, consumer market
research, design and production of merchandising and sales promotion programs
and materials, direct mail advertising, corporate identification, and public
relations. Omnicom offers these services to clients worldwide on a local,
national, pan-regional or global basis. Operations cover the major regions of
North America, the United Kingdom, Continental Europe, the Middle East, Latin
America, the Far East and Australia. In 1994 and 1993, 54% and 52%,
respectively, of Omnicom's billings came from its non-U.S. operations.
According to the unaudited industry-wide figures published in the trade
journal, Advertising Age, in 1994 Omnicom was ranked as the third largest
advertising agency group worldwide.
Omnicom operates three separate, independent agency networks: the BBDO
Worldwide Network, the DDB Needham Worldwide Network and the TBWA International
Network. Omnicom also operates independent agencies, Altschiller & Company and
Goodby, Silverstein & Partners, and certain marketing service and specialty
advertising companies through Diversified Agency Services.
BBDO Worldwide, DDB Needham Worldwide and TBWA International, by themselves
and through their respective subsidiaries and affiliates, independently operate
advertising agency networks worldwide. Their primary business is to create
marketing communications for their clients' goods and services across the total
spectrum of advertising and promotion media. Each of the agency networks has its
own clients and competes with each other in the same markets.
The BBDO Worldwide, DDB Needham Worldwide and TBWA International agencies
typically assign to each client a group of advertising specialists which may
include account managers, copywriters, art directors and research, media and
production personnel. The account manager works with the client to establish an
overall advertising strategy for the client based on an analysis of the client's
products or services and its market. The group then creates and arranges for the
production of the advertising and/or promotion and purchases time, space or
access in the relevant media in accordance with the client's budget.
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<PAGE>
SELECTED FINANCIAL DATA OF OMNICOM
The following table summarizes certain selected consolidated financial data
of Omnicom and its subsidiaries and is qualified in its entirety by the more
detailed financial information and notes thereto incorporated by reference into
this Prospectus/Information Statement.
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Share Amounts)
-----------------------------------------------------------------------------
Three Months Year Ended December 31
Ended --------------------------------------------------------------
March 31, 1995 1994 1993 1992 1991 1990
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Commissions and fees .......................... $ 459,882 $1,756,205 $1,516,475 $1,385,161 $1,236,158 $1,178,233
Income before change
in accounting principles ................... 24,142 108,134 85,345 65,498 57,052 52,009
Net income .................................... 24,142 80,125 85,345 69,298 57,052 52,009
Earnings per common
share before change in
accounting principles:
Primary ................................... 0.68 3.15 2.79 2.31 2.08 2.01
Fully diluted ............................. 0.68 3.07 2.62 2.20 2.01 1.94
Cumulative effect of
change in accounting
principles:
Primary ................................... -- (0.81) -- 0.14 -- --
Fully diluted ............................. -- (0.81) -- 0.11 -- --
Earnings per common share after
change in accounting principles:
Primary ................................... 0.68 2.34 2.79 2.45 2.08 2.01
Fully diluted ............................. 0.68 2.34 2.62 2.31 2.01 1.94
Dividends declared per common
share ...................................... 0.31 1.24 1.24 1.21 1.10 1.07
At end of period:
Total assets ................................ 2,961,570 2,852,204 2,289,863 1,951,950 1,885,894 1,748,529
Long-term obligations:
Long-term debt ............................ 403,882 187,338 278,312 235,129 245,189 278,960
Deferred compensation and
other liabilities ..................... 76,577 95,973 56,933 51,919 31,355 25,365
</TABLE>
43
<PAGE>
BUSINESS INFORMATION CONCERNING HOLDINGS
General
The principal line of business of Holdings and its subsidiaries includes
planning and creating advertising campaigns for clients, purchasing various
media spots (television, radio, newspapers and magazines), and providing
marketing consultation, market research and production services. In 1994,
Holdings was the 16th largest advertising agency in the U.S. and 27th largest in
the world according to statistics published in Advertising Age, a trade
publication. Holdings operates major offices in Venice, California, London, New
York and Toronto, and a regional network of offices in, Atlanta, Calgary,
Chicago, Dallas, San Francisco, Washington, D.C. and Jacksonville. The principal
office of Chiat/Day is located at 180 Maiden Lane, New York, New York 10038.
Sales and Marketing
Holdings believes that it has a reputation as an industry leader in terms
of the creativity and effectiveness of its campaigns. Holdings believes that its
reputation and the "Chiat/ Day" name are important generators of business.
Holdings has organized management teams to explore and pursue clients in
the major industry groups that it does not currently service. Holdings maintains
constant contact with industry sources for new business leads and presents five
to eight extensive business pitches per office per year.
Customers
Holdings serves a diversified and well-known client base in many
industries, including airlines, automobile, banking, cellular communications,
consumer electronics, entertainment, financial services, food products,
insurance, footwear, personal computers and soft drinks. Eight of Holdings' ten
largest clients representing 57% of 1994 gross income have been with Holdings
for more than five years.
Since 1988, Nissan Motor Company has been Holdings' largest client. In
1992, Nissan awarded its Infiniti account to Holdings without requiring
competitive bids. Nissan and Infiniti accounted for 48% of Holdings' gross
income in 1993 and 55% of Holdings' gross income in 1994. Holdings has no other
client which accounts for 10% or more of its gross income.
Like most advertising agencies, Holdings experiences a certain amount of
client turnover. Agreements between Holdings and its clients are generally
terminable by either Holdings or the client on 90 days notice. Turnover is
primarily generated by a change in the management of the client, an effort by
Holdings to pursue a client in the same category as an existing client, a client
merger or a change in the client's financial or strategic direction.
Competition
Agencies typically pitch new clients by presenting an ad campaign in
competition against other firms. The basis for the selection includes: relevance
of the campaign to the product strategy, creativity, market insights, the
agency's ability to provide the appropriate media exposure, past success and
personal chemistry. Holdings believes that agencies are rarely selected on the
basis of price. Typically, agencies are precluded from representing more than
one client in an industry for reasons of potential conflicts.
Services
Holdings' principal line of business includes planning and creating
advertising campaigns for clients; purchasing various media placements in local
television, network, cable, radio, newspapers, magazines and outdoor; and
providing marketing, market research and production services.
Holdings' four major offices (New York, Venice, Toronto and London) are
full service operations with a total workforce of approximately 600, committed
to Account Management, Account Planning, Creative, Media Planning and Buying,
and Production. The offices that form the regional network with a total
workforce of approximately 150 support the localized needs of Holdings' national
clients.
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<PAGE>
Pricing and Billing
Holdings generates most of its revenue from fees and commissions for
production and placement in various media of agency generated advertising
campaigns. Most of Holdings' revenue is based on a combination of commissions
and fees with seven of the ten largest accounts on this system. This pricing
method provides a fixed minimum fee augmented by commissions based on the
client's media billings. This pricing method protects the agency from large
variations in its clients' media budgets.
Some clients are billed on a "cost plus mark-up" fee structure. Cost plus
mark-up billing entails billing the client a fixed monthly fee for the staffing
dedicated to the account plus an amount to cover overhead.
In addition, Holdings is sometimes paid a bonus by clients based on
predetermined performance criteria.
Billing and Accounting Practices
Revenue is recognized in the month in which the advertisement is run.
"Advance billings" in the current liability section of the balance sheet
represents costs and commissions which have been approved by and billed to
clients but for which related vendor invoices have not been received and income
has not been earned. "Expenditures billable to clients" in the current asset
portion of the balance sheet represents unbilled receivables. Both "Advance
billings" and "Expenditures billable to clients" are primarily the result of
timing differences between the receipt of invoices (media and production) and
the client billing cycle.
For media placement, Holdings obtains written approval of an estimate (the
"Estimate") from its clients before commitments are made to media vendors.
Clients are billed based on the approved Estimate.
Production of advertising spots follows a similar pattern, except that in
this case Holdings bills the client as costs are incurred. On average,
production costs charged to clients account for about 10% of all billing
activity. Spot (local television), newspaper, magazine and radio advertising
account for about 65% of billings. Network advertising represents the remaining
25% of billings.
Seasonality
Historically, Holdings' business has been seasonal, with increased billings
generated in the third and fourth quarters of each fiscal year. The seasonality
generally reflects the media placement patterns of Holdings' clients and is
similar to that experienced by other firms in the industry.
Personnel
On April 30, 1995, Holdings employed approximately 750 persons. In
addition, turnover at the senior management level has been very low. All of the
eight senior executives of Holdings have been with Holdings for at least eight
years, with an average tenure of over 13 years.
Since most employees are assigned to one specific account, Holdings can
respond quickly to account losses or acquisitions by hiring or reducing staff
accordingly.
None of Holdings' employees are represented by unions.
Legal Proceedings
Holdings is not involved in any material pending legal proceedings not
covered by insurance or by adequate indemnification, which, if decided adversely
to Holdings' interest, would have a material adverse effect on the financial
position of Holdings.
Properties
All of Holdings' offices are located in leased premises. Holding's
principal offices are in New York City and Venice. Holdings also leases offices
in Calgary, Chicago, Dallas, London, Toronto, San Francisco, Washington, D.C.
and Jacksonville.
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<PAGE>
SELECTED FINANCIAL DATA OF HOLDINGS
The following table summarizes certain selected consolidated financial data
of Holdings and is qualified in its entirety by the more detailed financial
information and notes thereto appearing elsewhere in this Prospectus/Information
Statement. The financial data as of and for each of the five years ended October
31, 1994 is derived from the financial statements audited by Coopers & Lybrand
LLP, independent public accountants. The financial data for the six-month period
ended April 30, 1995, are derived from unaudited financial statements and, in
the opinion of Holdings, reflect all adjustments, consisting only of normal
non-recurring adjustments, necessary for a fair statement of results of
operations for such periods. Operating results for the six months ended April
30, 1995, are not necessarily indicative of the results that may be achieved for
the entire year ending October 31, 1995. See "Financial Statements", the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Holdings".
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Share Amounts)
----------------------------------------------------------------------------------
Six Months Year Ended December 31
Ended ------------------------------------------------------------------
April 30, 1995 1994 1993 1992 1991 1990
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
For the years ended October 31,
Fee and commission
income ................................... $ 45,364 $ 89,277 $ 100,267 $ 128,722 $ 115,470 $ 131,457
Operating expenses .......................... 37,586 78,117 91,300 118,120 120,369 147,375
Restructuring expenses ...................... -- -- 25,848 -- -- --
Income (loss) before income
tax provision ............................ 6,335 7,573 (20,690) 4,186 (5,656) (16,642)
Net income (loss) ........................... 4,748 5,971 (21,545) 3,407 (6,089) (17,389)
Earnings per share:
Net income (loss):
Primary ................................. 0.09 0.11 (0.39) 0.06 (0.10) (0.25)
Primary (including
EPUs and EARs) ......................... 0.04 0.05 (0.39) 0.04 (0.10) (0.25)
Total assets ................................ 121,334 96,077 74,871 158,261 150,701 165,771
Long-term obligations:
Long-term debt ............................ 10,881 10,448 20,697 71,423 70,398 92,598
Restructuring reserve liability ........... 7,518 10,009 13,421 -- -- --
Other liabilities ......................... 2,937 2,791 2,012 20,201 25,995 7,019
</TABLE>
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HOLDINGS
Results of Operations
Fiscal year 1993 compared to fiscal year 1992 and fiscal year 1994 compared to
fiscal year 1993.
Fee and commission income decreased in fiscal years ended October 31, 1993
and 1994 by 22% and 11%, respectively, compared to the prior fiscal years. The
decrease in fiscal year 1993 was mainly attributable to the loss of the American
Express and Nutrasweet accounts and the sale of Holdings' Australian subsidiary
in February 1993. The fiscal year 1994 decrease was mainly attributable to loss
of the Reebok account.
Salaries and employee benefit expenses were reduced by 19% in fiscal year
1993 and 8% in fiscal year 1994, respectively, as compared to the prior fiscal
years. Due to the reduction in fee and commission income in fiscal years 1993
and 1994, staff reductions were made to reduce costs. Selling, general and
administrative expenses decreased in fiscal year 1993 by 14% from fiscal year
1992 due to the disposal of Holdings' Australian subsidiary in February 1993. In
fiscal year 1994, Holdings established a "virtual office" in its New York and
Venice offices by eliminating fixed office locations for personnel. Holdings and
Advertising employees carry portable phones and computers and are encouraged to
work where they feel most productive. Based on the implementation of the virtual
office, selling, general and administrative expenses were reduced in fiscal year
1994 by 29% compared to fiscal year 1993. This reduction was primarily due to
decreases in real estate and depreciation expense by 41% and 47%, respectively,
as a result of the restructuring charge recorded in 1993 described in the next
paragraph.
A one-time restructuring charge of $25,848,000 was recorded in fiscal year
1993. Effective November 1, 1993 Holdings entered into a new real estate
operating lease in New York that will enable it to significantly reduce its
future rental expense through a reduction in total amount of space leased.
Holdings remains as the primary lessee on its old New York lease through
December 31, 1997. It has currently sublet approximately 85% of the space
through the lease term and is actively seeking to sublet the remaining space.
$14,802,000 of the charge relates to the future cash rental obligations, net of
probable sublease income, and $3,252,000 relates to the writeoff of fixed assets
and leasehold improvements.
In fiscal 1993 Holdings entered into agreements to assign its lease,
effective January 1, 1994, for the 320 Hampton Drive facility to an unrelated
third party in order to consolidate operations into one facility at 340 Main
Street. All fixed assets and leasehold improvements related to such facility
were written off in 1993. Alterations to the 340 Main Street property were made
in order to facilitate the consolidation into one facility. $5,122,000 of the
restructuring charge related to the write-off of leasehold improvements and
fixed assets at both facilities as a result of the consolidation and $940,000
related to cash obligations incurred in connection with the lease assignment and
consolidation of space. The remaining balance of the restructuring charge of
$1,732,000 represents a reserve for future cash rental obligations in excess of
anticipated probable sublease income for other property leased in California.
In 1994 earnings increased by approximately $4,500,000 due to reductions in
rental and depreciation expense as a result of the restructuring reserve taken
in 1993. Cash flows decreased in 1994 primarily due to $5,800,000 of
expenditures incurred in connection with the alterations made to the 340 Main
Street facility. Future earnings and cash flows will increase by approximately
$4,500,000 and $2,000,000 per annum, respectively, due to reduced rental and
depreciation expense.
In October 1994, Venice Operating Corp. ("VOC"), a company owned by the
majority stockholder and certain members of the Board of Directors of Holdings,
sold its office facilities in Venice, California to an unrelated third party.
Effective October 14, 1994 the Holdings lease with VOC was terminated and it
entered into a new twenty year lease having six consecutive five-year renewal
options with the new owner of the building. Rent expense will be reduced by
approximately $1,000,000 per annum as a result of such new lease.
Holdings was assigned a $3,000,000 promissory note from VOC that it
received in connection with the sale of the building in satisfaction of the
return of the Holdings' security deposit and accrued interest thereon due from
VOC. As a result of the proposed transaction with Omnicom, the new owner of the
building and obligor of the note, ADS (CA) QRS, 11-34, has indicated that they
47
<PAGE>
will pay the principal in full prior to December 31, 1995. VOC is presently an
inactive company and Holdings has had no business transactions with VOC
subsequent to the sale of the building.
On February 16,1993, (effective as of January 1, 1993), Holdings completed
the transfer of the stock of this subsidiary to Foote Cone & Belding ("FCB") for
no consideration. Concurrent with the transfer of shares to FCB, Holdings
exercised its option to acquire $10,350,000 of bank debt owed by such subsidiary
for $700 and agreed to accept from FCB, in full satisfaction of such debt,
$1,380,000 plus future contingent payments up to a maximum of $3,450,000. To
date, Holdings has received $1,093,000 from FCB in contingent payments. Holdings
recorded a gain of $3,504,000 on the disposition primarily as a result of the
recognition of the accumulated translation adjustment related to such operation.
FCB already had a presence in Australia and felt that the combination of the
operations could provide future value. The disposition was structured to reflect
the fact that the level of debt rendered the equity worthless. Accordingly, no
consideration was paid for the stock. Due to the uncertainty of the viability of
the operation, payments to Holdings were contingent upon future revenue
performance and the utilization of certain tax benefits by FCB. All contingent
payments by FCB are recorded when received. While the disposition reduced
overall revenues of Holdings, it increased Holdings' consolidated profitability
due to the elimination of the net operating losses the subsidiary was generating
as a result of poor operating performance and high interest costs due to its
large debt position. The reduction in consolidated debt improved Holdings'
overall financial position and cash flows.
The 73% decrease in other operating expenses in fiscal year 1993 compared
to fiscal year 1992 was due largely to the impact of a $3,200,000 charge in
fiscal year 1992 to reflect the settlement of certain litigation. An additional
90% reduction in other operating expenses was realized in fiscal year 1994
compared to fiscal year 1993 primarily due to $653,000 of revenue performance
payments received in connection with the sale of Holdings' Australian subsidiary
discussed above and due to increased deferred compensation expenses in fiscal
year 1993 of approximately $1,000,000.
Interest expense was reduced by 41% in fiscal year 1993 versus fiscal year
1992 due to reduced levels of debt. A 1% increase in interest expense in fiscal
1994 versus fiscal 1993 was due to an increase in dividends issued to the profit
sharing plan in 1994.
The income tax provision for fiscal year 1993 decreased 64% compared to
fiscal year 1992 due largely to the use in fiscal year 1993 of net operating
loss carry forwards previously generated. While the income tax provision
increased 87% in fiscal year 1994 compared to fiscal year 1993, the income tax
provision was less than what would have been provided under the statutory rate
due to the use of net operating loss carry forwards and a foreign tax credit
generated in fiscal year 1994. FASB 109 was adopted effective October 1, 1993
creating a deferred tax asset of $18,717,000. No benefit was recorded on the
financial statements, but the effect is described in the footnotes.
First half 1995 compared to first half 1994.
For the six month ended April 30, 1995, revenues increased 6% compared to
the corresponding period of the prior year as a result of new clients in
California and New York. At the same time, salary expense increased by 20% due
to salary increases effective May 1, 1994, the full effect of new hires in the
Toronto office and incremental staffing for new business wins occurring in 1995.
Selling, general and administrative expense decreased by 16% due to decreased
rent expense related to lower lease costs in New York and California as a result
of new leases entered into for both locations. Due to increased borrowings,
interest expense increased by 21% while interest income increased by 44%
resulting in a net interest expense increase of 15%. Income tax expense
increased as a result of an increase in the expected effective income tax rate
in 1995.
Liquidity and Capital Resources
Holdings' principal source of operating capital has been from operations,
Senior Debt of $20,000,000 under the Amended and Restated Credit Agreement and
Senior Subordinated Debt of $11,000,000 under the 13.25% Senior Subordinated
Notes. The Senior Debt is due and payable on December 10, 1995 and the Senior
Subordinated Debt became payable and was paid on August 1, 1995. Under the Bank
Credit Agreement, the Senior Debt was scheduled to mature in May 1995. However,
pursuant to the assignment to Omnicom of the Senior Debt in January 1995 under
48
<PAGE>
the Amended and Restated Credit Agreement, Omnicom agreed to extend the maturity
until December 10, 1995. In the event the Transactions are not consummated,
Holdings would be required to refinance its entire debt structure by December
10, 1995.
In late 1994 and January 1995, Holdings was engaged in discussions with
potential lenders regarding the refinancing of the Bank Credit Agreement and $11
million of Holdings' 13.25% Senior Subordinated Notes which matured and were
paid in full on August 1, 1995. The terms proposed by prospective institutional
lenders included substantial penalties for early repayment and the equivalent of
an equity participation in Holdings in the event that it were sold while such
financing was outstanding. During the period Holdings was considering whether to
accept such terms of refinancing, discussions with Omnicom were renewed and
began to assume the characteristics of negotiations in January of 1995. Holdings
realized that proceeding with the proposed refinancing would create significant
obstacles to consummating any acquisition transaction. Instead, as described
above, Omnicom agreed to assume the liabilities of the banks under the Bank
Credit Agreement and extended the maturity until December 10, 1995.
Based upon the discussions held with prospective lending institutions in
late 1994 and early 1995, management believes that the refinancing of Holdings'
outstanding debt obligations and/or additional equity financing would be
obtainable if necessary, although no assurances can be given. If the Acquisition
is not consummated, Holdings will resume discussions with potential
institutional lenders and/or equity investors. If such financing were obtained,
given Holdings' historical increases in cash and cash equivalents and its
ability to manage its negative working capital position, management believes
that Holdings would continue as a viable going concern.
Working capital decreased in fiscal year 1994 by 15.7% versus fiscal year
1993. As compared to April 30, 1994, working capital at April 30, 1995 increased
by 126.5% primarilydue to long term debt becoming current.
Holdings' working capital deficit increased to $64.9 million at October 31,
1994 from $56.1 million at October 31, 1993 primarily due to capital
expenditures of $5.8 million in 1994 to implement the real estate restructuring.
Capital expenditures of $999,000 were made in fiscal year 1993 and
$5,615,000 in fiscal year 1994. These expenditures included, among other things,
leasehold improvements and upgraded telephone and computer systems.
Holdings believes that its cash flows and funds available under existing
debt facilities will be adequate to meet its cash requirements through the
contemplated Closing Date of the Acquisition, but it is possible that additional
borrowings from Omnicom may be required.
DESCRIPTION OF OMNICOM CAPITAL STOCK
Each share of Omnicom Common Stock entitles the holder thereof to one vote
on all matters submitted to a vote of shareholders. All shares of Omnicom Common
Stock have equal rights and are entitled to such dividends as may be declared by
the Board of Directors out of funds legally available therefor and to share
ratably upon liquidation in the assets available for distribution to
stockholders. Omnicom is not aware of any restrictions on its present or future
ability to pay dividends. However, in connection with certain borrowing
facilities entered into by Omnicom and its subsidiaries, Omnicom is subject to
certain restrictions on current ratio, ratio of total consolidated indebtedness
to total consolidated capitalization, ratio of net cash flow to consolidated
indebtedness, and limitation on investments in and loans to affiliates and
unconsolidated subsidiaries. The Omnicom Common Stock is not subject to call or
assessment, has no preemptive conversion or cumulative voting rights and is not
subject to redemption. Omnicom's shareholders elect a classified board of
directors, and may not remove a director except by an affirmative two-thirds
vote of all outstanding shares. A two-thirds vote is also required for Omnicom's
shareholders to amend Omnicom's by-laws or certain provisions of its charter
documents, and to change the number of directors comprising the full board.
49
<PAGE>
Omnicom may issue Omnicom Preferred Stock in series having whatever rights
and preferences the Board of Directors may determine. One or more series of
Omnicom Preferred Stock may be made convertible into Omnicom Common Stock at
rates determined by the Board of Directors, and Omnicom Preferred Stock may be
given priority over the Omnicom Common Stock in payment of dividends, rights on
liquidation, voting and other rights. Omnicom has no current plans to issue any
Omnicom Preferred Stock. Omnicom Preferred Stock may be issued from time to time
upon authorization of the Omnicom Board of Directors without action of the
shareholders.
Omnicom currently has outstanding $143,750,000 of 4.5%/6.25% Step-Up
Convertible Subordinated Debentures with a scheduled maturity in 2000, which are
convertible into Omnicom Common Stock at a conversion price of $54.88, subject
to adjustment in certain events.
Chemical Bank, 450 West 33rd Street, New York, New York 10001 is the
transfer agent and the registrar of the Omnicom Common Stock.
DESCRIPTION OF HOLDINGS CAPITAL STOCK
Holdings is a Delaware corporation incorporated on May 2, 1988. Holdings is
the sole stockholder of Advertising, a Delaware corporation incorporated on
March 15, 1985.
Holdings Common Stock
Holdings has two classes of Common Stock: Class A Common Stock, par value
$0.01 per share and Class B Common Stock, par value $0.01 per share.
Class A Common Stock: There are 75,000,000 shares of Class A Common Stock
authorized and there were 13,527,269 shares outstanding at August 1, 1995. The
holders of Class A Common Stock are entitled to receive dividends when and as
declared by the Holdings Board of Directors, but only after full cumulative
dividends on the Holdings Preferred Stock have been paid or declared in full and
sums set aside for the payment thereof. Class A Common Stock and Class B Common
Stock rank equal with respect to the payment of dividends. Pursuant to the
Holdings Certificate, holders of Class A Common Stock, excluding certain shares
originally issued to Morgan Capital Corporation, have additional voting rights
with respect to (i) certain transactions with affiliates, (ii) the creation of
certain employee benefit plans, (iii) changes to the Holdings Certificate or
By-laws which adversely affect the Class A Common Stock, (iv) certain sales or
issuances of stock, and (v) certain business combinations. In the event of
certain dilutive transactions other than in connection with a merger,
consolidation, reorganization, or any public offering of stock of Holdings or in
consideration of the acquisition of stock or assets of another entity, holders
of Class A Common Stock are entitled to receive additional shares to prevent
dilution. At August 1, 1995, there were 19 record holders of Class A Common
Stock. See "The Plan of Liquidation" herein for a description of the rights of
holders of Class A Common Stock in the event of a liquidation.
Class B Common Stock: There are 200,000,000 shares of Class B Common Stock
authorized and there were 38,513,160 shares outstanding at August 1, 1995. The
holders of Class B Common Stock are entitled to receive dividends when and as
declared by the Board of Directors, but only after full cumulative dividends on
the Holdings Preferred Stock have been paid or declared in full and sums set
aside for the payment thereof. Class A Common Stock and Class B Common Stock
rank equal with respect to the payment of dividends. Class B Common Stock has
the same voting rights as Class A Common Stock, except that certain shares of
Class A Common Stock have additional voting rights in some situations as
discussed above. At August 1, 1995, there were approximately 28 record holders
of Class B Common Stock. See "The Plan of Liquidation" herein for a description
of the rights of holders of Class B Common Stock in the event of a liquidation.
Shares of Class B Common Stock which have been issued pursuant to the 1988
Chiat/Day Holdings, Inc. Restricted Stock Purchase Plan (the "Holdings Stock
Purchase Plan") are subject to the restrictions contained therein. Any sale,
transfer or disposition of the shares must comply with the provisions of the
Holdings Stock Purchase Plan and of the related Stockholders' Agreements. (See
Note 5 to the Consolidated Financial Statements.)
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<PAGE>
The following table reflects the beneficial ownership of directors,
executive officers and owners of more than 5% of the outstanding shares of each
of the Class A Common Stock, the Class B Common Stock (without taking into
account the outstanding EARs and EPUs), and all Holdings Common Stock, in each
case on a fully diluted basis at the close of business on August 1, 1995:
<TABLE>
<CAPTION>
Shares of Percent
Shares of Class A Shares of Class Holdings of Holdings
Name and Address Common Stock Percent of B Common Percent Common Common
of Beneficial Owner Owned Class Stock Owned(1) of Class Stock Stock
- --------------- ------------- -------- ------------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jay Chiat 6,794,533 50% 18,547,970 46% 25,342,503 47%
c/o Chiat/Day inc. Advertising
180 Maiden Lane
New York, NY 10038
Leland Clow 0 * 3,641,020 9% 3,641,020 7%
c/o Chiat/Day inc. Advertising
340 Main Street
Venice, CA 90291
Adelaide Horton 100,000 * 0 * 100,000 *
c/o Chiat/Day inc. Advertising
180 Maiden Lane
New York, NY 10038
Robert Kuperman 50,000 * 969,015 2% 1,019,015 2%
c/o Chiat/Day inc. Advertising
340 Main Street
Venice, CA 90291
Ira Matathia 0 * 375,000 * 375,000 *
c/o Chiat/Day inc. Advertising
180 Maiden Lane
New York, NY 10038
Tom Patty 100,000 * 1,282,045 3% 1,382,045 3%
c/o Chiat/Day inc. Advertising
340 Main Street
Venice, CA 90291
David C. Wiener 125,000 * 2,876,060 7% 3,001,060 6%
440 Sylvan Avenue
Englewood Cliffs
New Jersey, 07632
Robert Wolf 200,000 1% 3,376,060 8% 3,576,060 7%
c/o Chiat/Day inc. Advertising
340 Main Street
Venice, CA 90291
Mac & Co (2) 5,142,846 38% 382,500 * 5,525,346 11%
c/o Harvey Rabinowitz
Mellon Securities Trust Co.
120 Broadway,
New York, NY 10271
Directors and Officers as a Group 7,419,533 54.85% 33,159,475 86.10% 40,579,008 77.98%
</TABLE>
- --------------
* represents holdings of less than 1%
(1) Jay Chiat also holds 5,396,715 EPUs and 26,945,903 EARs; Leland Clow also
holds 566,360 EPUs and 3,280,420 EARs; Adelaide Horton also holds 700,000
EPUs and 196,825 EARs; Robert Kuperman also holds 1,169,240 EPUs and
656,084 EARs; Ira Matathia also holds 1,125,000 EPUs and 131,217 EARs; Tom
Patty also holds 1,132,725 EPUs and 984,126 EARs; David C. Wiener also
holds 176,970 EPUs and 1,312,168 EARs; Robert Wolf also holds 1,176,970
EPUs and 1,968,252 EARs.
(2) Chesterfield Investments is the beneficial owner.
51
<PAGE>
Following the Acquisition and the dissolution and liquidation of Holdings
described herein there will be no Class A Common Stock or Class B Common Stock
outstanding and none of the current directors and officers of Holdings will own
in excess of 1% of Omnicom Common Stock.
No dividends have been declared or paid on the Holdings Class A Common
Stock or Class B Common Stock in the current fiscal year, or in any of the
periods presented in "Selected Financial Data of Holdings". Pursuant to the
Amended and Restated Credit Agreement, Advertising is prohibited from paying
dividends other than dividends paid in shares.
There is no established trading market for Holdings Class A Common Stock or
Class B Common Stock.
Holdings Preferred Stock
There are 200,000 shares of Holdings Preferred Stock authorized. There were
140,817.7393 shares outstanding at April 30, 1995, all of which were owned by
the Profit Sharing Plan. All such shares were reacquired by Holdings on July 10,
1995 pursuant to the terms of the Profit Sharing Plan Purchase Agreement, for an
amount in cash of $14,081,773.93 (or $100 per share).
Holdings Preferred Stock provides for cumulative dividends payable in
cash, or at Holdings' option, in shares of Holdings Preferred Stock (valued at
$100 per share) or a combination of cash and shares of Holdings Preferred Stock
at a rate equal to 9% per annum of the liquidation preference of all shares of
Holdings Preferred Stock outstanding, if such amount is paid entirely in cash,
or at a rate of 10% per annum of the liquidation preference if such amount is
paid entirely in additional shares of Holdings Preferred Stock, or at a blended
rate based upon the weighted average of (i) the number of shares of Holdings
Preferred Stock in respect of which dividends are paid in cash multiplied by 9%,
and (ii) the number of shares in respect of which dividends are paid in
additional shares of Holdings Preferred Stock multiplied by 10%. All dividends
on shares of Holdings Preferred Stock are payable, if, when and as declared by
the Board of Directors, annually in arrears on August 1, of each year. Dividends
in respect of shares of Holdings Preferred Stock had been declared annually
since issuance in July of each year and had been paid by the issuance of
additional shares of Holdings Preferred Stock. Any dividends in arrears on the
Holdings Preferred Stock accrue dividends at the rate of 9% per annum. The
holders of Holdings Preferred Stock are not entitled to vote on any corporate
matters, except as required by law. In the event of liquidation, the holders of
Holdings Preferred Stock are entitled to receive the amount of $100 in cash for
each outstanding share of Holdings Preferred Stock plus all declared and unpaid
dividends before any distribution to the holders of Class A Common Stock or
Class B Common Stock. If the assets available are insufficient for such a
payment, the holders of Holdings Preferred Stock shall share ratably in any
distribution. Subject to the prior payment of certain senior indebtedness of
Advertising, the Holdings Preferred Stock may be redeemed at Holdings' option on
and after July 31, 1996 at a price of $100 per share plus accrued but unpaid
dividends subject to certain restrictions provided in the Holdings Certificate.
Subject to the prior payment of certain senior indebtedness of Advertising, the
Holdings Preferred Stock may be redeemed at the holder's option on and after
July 31, 1996 at a price of $100 per share plus accrued but unpaid dividends
subject to certain restrictions provided in the Holdings Certificate.
Vote Required
The presence of the holders of a majority of the voting power of all shares
of Class A Common Stock and Class B Common Stock entitled to vote outstanding on
the record date is necessary to constitute a quorum at the Special Meeting.
Under the DGCL and the Holdings Certificate the affirmative vote of the holders
of the majority of the outstanding shares of Class A Common Stock and Class B
Common Stock voting together as a class, are required to approve each of the
sales pursuant to the Acquisition Agreement and Advertising Stock Sale
Agreement, the Plan of Liquidation and the Amendment to the Holdings
Certificate. Abstentions will have the effect of negative votes. Directors,
officers and affiliates of Holdings who hold in the aggregate more than a
majority of the outstanding Class A Common Stock and Class B Common Stock in the
aggregate have indicated their intention to vote in favor of each of the
Holdings Vote Matters. See "The Transactions--Interests of Certain Persons in
the Transactions." Accordingly, if such persons vote in favor of these the
Transactions, they may be approved even if all of the other Holdings
Stockholders vote against these proposals.
None of the Holdings Vote Matters shall become effective unless all of the
proposals are adopted by the requisite vote of the Holdings Stockholders.
52
<PAGE>
Rights of Dissenting Holdings Stockholders
It is intended that the transactions described herein, including the sale
of the assets and the distribution to the Holdings Stockholders in liquidation
of Holdings, will not give rise to dissenters' rights in favor of Holdings
Stockholders under Delaware law.
Equity Appreciation Rights
Pursuant to the EAR Plan, Holdings has authorized 54,084,848 EARs each of
which is equivalent to one share of Class B Common Stock and has the same
priority as Class B Common Stock in the event of a liquidation. In the absence
of liquidation, the EARs are valued at their net book value, which was $0 at
April 30, 1995. At the close of business on August 1, 1995, there were
36,939,112 EARs outstanding. At the Closing Date, all of the outstanding EARs
will be vested.
Equity Participation Units
Pursuant to the EPU Plan, Holdings has authorized 50,000,000 EPUs, each of
which is equivalent to one share of Class B Common Stock and has the same
priority as Class B Common Stock in the event of a liquidation. In the absence
of liquidation, the EPUs are valued at their net book value, which was $0 at
April 30, 1995. At August 1, 1995 there were 22,198,890 EPUs outstanding. At the
Closing Date all of the EPUs will be vested.
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Acquisition and the subsequent dissolution of
Holdings and distribution of shares of Omnicom Common Stock to Holdings
Stockholders and Rightsholders, the stockholders of Holdings, a Delaware
corporation, will become shareholders of Omnicom, a New York corporation, and
their rights as such will be governed by New York law, as well as the Omnicom
Certificate of Incorporation (the "Omnicom Certificate") and By-laws (the
"Omnicom By-laws") as amended from time to time in accordance with New York law.
While it is not practical to describe all changes in the rights of Holdings
stockholders that will result from the application of New York law in lieu of
Delaware law and the differences between the Omnicom Certificate and the Omnicom
By-laws and the Holdings Certificate and the Holdings By-laws (the "Holdings
By-laws"), the following is a summary of material differences.
References to the "NYBCL" are to the New York Business Corporation Law,
while references to the "DGCL" are to the Delaware General Corporation Law.
Special Meetings of Stockholders
Under Delaware law, a special meeting of stockholders may be called only by
the board of directors or by such person as may be authorized by the certificate
of incorporation or by-laws. The Holdings By-laws provide that a special meeting
of stockholders may be called by the Board of Directors, the Chairman of the
Board or the President and shall be called by the Board upon the written request
of the holders of record of a majority of the outstanding shares entitled to
vote at the meeting requested to be called.
Under New York law, a special meeting of shareholders may be called by the
board of directors and by such person or persons as may be authorized to do so
in the certificate of incorporation or by-laws. In addition, if an annual
shareholder meeting has not been held for a certain period of time and a
sufficient number of directors were not elected to conduct the business of the
corporation, the board shall call a special meeting for the election of
directors. If the board fails to do so, or sufficient directors are not elected
within a certain period, holders of 10% of the shares entitled to vote in an
election of directors may call a special meeting for such an election. The
Omnicom By-laws provide that a special meeting of shareholders may be called,
for any purpose or purposes, by the Board of Directors or by the President, or
by the Secretary upon the request of a majority of the Board of Directors.
53
<PAGE>
Removal of Directors
Under Delaware law, unless otherwise provided in the certificate of
incorporation or the by-laws, shareholders may remove any director, with or
without cause, by the affirmative vote of the holders of a majority of the
shares then entitled to vote at an election of directors. The Holdings By-laws
provide that directors may be removed with or without cause by vote of the
stockholders.
Under New York law, (i) shareholders may remove any director for cause, and
the certificate or provision of a by-law adopted by the shareholders may give
the board such right; (ii) if the certificate or the by-laws so provide,
shareholders may remove directors without cause; and (iii) an action to remove a
director for cause may be brought by the attorney-general or by the holders of
ten percent of the outstanding shares, whether or not entitled to vote. Neither
the Omnicom Certificate nor the Omnicom By-Laws permit the removal of directors
other than for cause.
Vacancies On The Board
Under Delaware law, unless otherwise provided in the certificate of
incorporation or the by-laws, the board of directors may fill any vacancy on the
board including vacancies resulting from an increase in the number of directors.
Under the Holdings By-laws, vacancies on the Board for any reason (including
vacancies resulting from an increase in the number of directors) except the
removal of directors by stockholders (which may only be filled by vote of the
stockholders) may be filled by vote of a majority of the directors then in
office. A director elected to fill a vacancy shall be elected to hold office for
the unexpired term of his predecessor.
Under New York law, newly created directorships resulting from an increase
in the number of directors and vacancies occurring in the board for any reason
except the removal of directors without cause may be filled by vote of the
board. However, the certificate of incorporation or by-laws may provide that
such newly created directorships or vacancies are to be filled by vote of the
shareholders. Unless the certificate of incorporation or the specific provision
of a by-law adopted by the shareholders provide that the board may fill
vacancies occurring in the board by reason of the removal of directors without
cause, such vacancies may be filled only by vote of the shareholders. A director
elected to fill a vacancy, unless elected by the shareholders, will hold office
until the next meeting of shareholders at which the election of directors is in
the regular order of business and until his or her successor has been elected
and qualified. The Omnicom By-laws provide that any vacancy in the Omnicom Board
may be filled by a majority vote of the remaining directors or by the
shareholders.
Classification of the Board of Directors
Holdings' Board of Directors is not classified into classes.
Omnicom's Certificate of Incorporation provides that directors are to be
classified into three classes, which are to hold office in staggered three-year
terms.
Books and Records; Inspection
Under Delaware law, any person who is a shareholder of record has the right
to examine, for any purpose reasonably relating to his or her interest as a
shareholder, the minutes of a corporation and the right to receive upon request
certain financial statements of the corporation.
Under New York law, only shareholders of record for at least six months and
any person or the authorized agent of any person or persons holding at least
five percent of any class of the outstanding shares have the right to examine
the minutes of a corporation and the right to receive upon request certain
financial statements of the corporation. Under the federal securities laws,
shareholders of Omnicom receive financial information substantially more
extensive than that required under New York law.
Amendments of the Certificate of Incorporation
Under Delaware law, an amendment to the certificate of incorporation
proposed by the board of directors requires an affirmative vote of a majority of
the outstanding stock entitled to vote thereon, and a majority of the
outstanding stock of each class entitled to vote as a class thereon. Whether or
not entitled by the charter, the holders of the outstanding shares of a class
are entitled to vote as a class on a charter amendment if the amendment would
54
<PAGE>
increase or decrease the aggregate number of authorized shares of such class or
adversely affect the powers, preferences or special rights of such class. In
addition, the Holdings Certificate specifically requires the approval of the
holders of a majority of the shares of Class A Common Stock (excluding those
shares originally issued to Morgan Capital Corporation) voting separately for
any amendment to the Holdings Certificate which adversely affects their rights.
Under New York law, an amendment or change of the certificate of
incorporation may be authorized by vote of the Board, followed by vote of the
holders of a majority of all outstanding shares entitled to vote thereon.
Certain categories of amendments which adversely affect the rights of any
holders of shares of a class or series of stock require the affirmative vote of
the holders of a majority of all outstanding shares of such class or series,
voting separately. The Omnicom Certificate requires the affirmative vote of 66
2/3% of the voting power of all outstanding shares of voting stock of Omnicom in
order to amend or repeal the provisions of the Omnicom Certificate setting the
number of directors constituting the entire Board of Directors and dividing the
directors into classes, and absolving directors from personal liability pursuant
to Section 719 of the NYBCL.
Amendments to By-Laws
Under Delaware law, the by-laws of a corporation generally may be amended
or repealed by the affirmative vote of the holders of a majority of the shares
entitled to vote thereon. As permitted by the DGCL, the Holdings By-laws provide
that the Holdings By-laws may be made, altered or repealed by the Holdings
Board. Any By-law adopted by the Holdings Board may be amended or repealed by
the stockholders entitled to vote thereon. In addition, the Holdings Certificate
specifically requires the approval of the holders of a majority of the shares of
Class A Common Stock (excluding those shares originally issued to Morgan Capital
Corporation) voting separately for any amendment to the Holdings By-laws which
adversely affects their rights.
Under New York law, except as otherwise provided in the certificate of
incorporation, by-laws may be amended, repealed or adopted by the holders of
shares entitled to vote in the election of any director. When so provided in the
certificate of incorporation or a by-law adopted by the shareholders, by-laws
may also be amended, repealed or adopted by the board by such vote as may be
therein specified, which may be greater than the vote otherwise prescribed by
law, but any by-law adopted by the board may be amended or repealed by the
shareholders entitled to vote thereon. Under the terms of the Omnicom
Certificate and Omnicom By-laws, Omnicom By-laws may be amended, repealed or
adopted only by the affirmative vote of at least 66 2/3% of the total voting
power of all outstanding shares of voting stock of Omnicom.
Dividends and Distributions
Delaware law permits the payment of dividends on capital stock, subject to
any restrictions contained in the certificate of incorporation, out of a
corporation's surplus (the excess of net assets over capital) or, in case there
is no surplus, out of net profits for the current and/or preceding fiscal year.
If the capital of the corporation is diminished to an amount less than the
aggregate amount of capital represented by the outstanding stock having a
preference on the distribution of assets, then dividends may not be declared and
paid out of such net profits until the deficiency in the amount of capital
represented by the shares having a preference on the distribution of assets
shall have been repaired. The Holdings Certificate provides that unless full
cumulative dividends on the Holdings Preferred Stock have been paid or declared
in full and sums set aside for their payment, no dividends may be paid or
declared on the Class A Common Stock or Class B Common Stock. The Amended and
Restated Credit Agreement prohibits the payment of dividends other than
dividends paid in shares.
Under New York law, dividends may be declared or paid and other
distributions may be made out of surplus only, so that the net assets of the
corporation remaining after such declaration, payment or distribution must at
least equal the amount of its stated capital. When any dividend is paid or any
other distribution is made from sources other than earned surplus, a written
notice must accompany such payment or distribution as provided by the NYBCL. A
corporation may declare and pay dividends or make other distributions except
when currently the corporation is insolvent or would thereby be made insolvent,
or when the declaration, payment or distribution would be contrary to any
restrictions contained in the corporation's certificate of incorporation.
55
<PAGE>
State Takeover Legislation
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date such person became an interested
stockholder, unless (i) prior to such date, the business combination or the
transaction which resulted in the stockholder becoming an interested stockholder
is approved by the board of directors of the corporation, (ii) upon consummation
of the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the outstanding
voting stock of the corporation outstanding at the time the transaction
commenced, or (iii) on or after such date the business combination is approved
by the board of directors of the corporation and by the affirmative vote, not by
written consent, of at least 66 2/3% of the voting stock which is not owned by
the interested stockholder. A "business combination" includes mergers,
consolidations, asset transfers (including any sale, lease, exchange, mortgage,
pledge or other disposition of assets) and other transactions resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who (i) owns 15% or more of the outstanding voting stock of the
corporation or (ii) is an affiliate or associate of a corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the past
three years.
The NYBCL prohibits any business combination (defined to include a variety
of transactions, including mergers, consolidations, sales or dispositions of
assets, issuances of stock, liquidations, reclassifications and the receipt of
certain benefits from the corporation, including loans or guarantees) with,
involving or proposed by any interested shareholder (defined generally as any
person who, (i) directly or indirectly, beneficially owns 20% or more of the
outstanding voting stock of a resident domestic New York corporation or (ii) is
an affiliate or associate of such resident domestic corporation and at any time
within the past five years was a beneficial owner of 20% or more of such stock)
for a period of five years after the date on which the interested shareholder
became such. After such five-year period a business combination between a
resident domestic New York corporation and such interested shareholder is
prohibited unless either certain "fair price" provisions are complied with or
the business combination is approved by a majority of the outstanding voting
stock not beneficially owned by such interested shareholder or its affiliates or
associates. The NYBCL exempts from its prohibitions any business combination
with an interested shareholder if such business combination, or the purchase of
stock by the interested shareholder that caused such shareholder to become such,
is approved by the board of directors of the resident domestic New York
corporation prior to the date on which the interested shareholder becomes such.
Section 203 of the DGCL does not apply to Holdings, as Holdings is not a
publicly held corporation as defined by the DGCL. Under the NYBCL, corporations
may opt to not be governed by the statute; Omnicom has not so elected.
Business Combinations
Generally, under the DGCL, the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote on the matter is required to
approve mergers, consolidations, and any sales, leases or exchanges of all or
substantially all of the assets of a corporation. The Holdings Certificate
requires in addition the approval of the holders of a majority of the shares of
Class A Common Stock (excluding the shares originally issued to Morgan Capital
Corporation) voting separately as a class for any such transactions. The
Holdings Certificate further provides that this requirement shall not prevent a
merger, consolidation or asset sale if the consideration received by Holdings,
its subsidiaries and holders of shares of Class A Common Stock consists solely
of cash or freely tradeable registered securities or a combination thereof.
Under the NYBCL, the affirmative vote of the holders of two-thirds of all
outstanding shares of stock of a New York corporation entitled to vote thereon
is required to approve mergers and consolidations, and for sales, leases,
exchanges or other dispositions of all or substantially all the assets of a
corporation, if not made in the usual or regular course of the business actually
conducted by such corporation.
Rights of Dissenting Shareholders
Delaware law grants appraisal rights to any stockholder opposing a merger
or consolidation (except that it restricts the appraisal rights of shareholders
of the merging domestic corporation which is to be the surviving corporation by
eliminating appraisal rights for such shareholders if the merger did not require
for its approval the vote of the holders of the surviving corporation).
56
<PAGE>
Accordingly, a dissenting shareholder is entitled to receive in cash the fair
value of his shares as determined by the Delaware Court of Chancery in the event
the merger or consolidation is consummated.
Shareholders of a New York corporation have the right to dissent not only
in the context of a merger or consolidation, but also in the event of certain
amendments or changes to the certificate of incorporation adversely affecting
their shares, certain sales, exchanges or other dispositions of all or
substantially all of the corporation's assets and certain share exchanges.
Indemnification of Directors, Officers and Employees
Section 145 of the DGCL generally provides that a corporation may, and in
certain circumstances, must, indemnify any person who is or was threatened with
any action, suit or proceeding by reason of the fact that he or she is or was a
director, officer, employee or agent of such corporation for expenses, judgments
or settlements actually and reasonably incurred by such person in connection
with suits and other legal action or proceedings if such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful.
The determination of whether a director, officer, employee or agent has met the
applicable standard of conduct is made (i) by a majority vote of a quorum of
directors not party to the action, suit or proceeding, or (ii) by an independent
legal counsel in a written opinion if a quorum of disinterested directors is
unobtainable or if the disinterested directors so direct or (iii) by the
shareholders. In the case of shareholder derivative suits, the corporation may
indemnify any person who is or was threatened with any action, suit or
proceeding by reason of the fact that he or she is or was a director, officer,
employee or agent if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which the action was brought determined upon application that, in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper. The DGCL also
permits a corporation to adopt procedures for advancing expenses to directors,
officers and others without the need for a case-by-case determination of
eligibility, so long as in the case of officers and directors they undertake to
repay the amounts advanced if it is ultimately determined that the officer or
director was not entitled to be indemnified. The aforementioned provisions
relating to indemnification and advancement of expenses are not exclusive and a
corporation may provide additional rights to those seeking indemnification or
advancement of expenses. The Holdings Certificate provides for indemnification
of directors, officers, employees and agents to the fullest extent authorized
under the DGCL. The Holdings Certificate also authorizes the advancement of
expenses relating to actions for which such persons may be indemnified.
Under Section 722 of the NYBCL, a corporation may indemnify any person
made, or threatened to be made, a party to any action or proceeding, except for
shareholder derivative suits, by reason of the fact that he or she was a
director or officer of the corporation, provided such director or officer acted
in good faith for a purpose which he or she reasonably believed to be in the
best interests of the corporation and, in criminal proceedings, in addition, had
no reasonable cause to believe his or her conduct was unlawful. In the case of
shareholder derivative suits, the corporation may indemnify any person by reason
of the fact that he or she was a director or officer of the corporation if he or
she acted in good faith for a purpose which he or she reasonably believed to be
in the best interests of the corporation, except that no indemnification may be
made in respect of (i) a threatened action, or a pending action which is settled
or otherwise disposed of, or (ii) any claim, issue or matter as to which such
person has been adjudged to be liable to the corporation, unless and only to the
extent that the court in which the action was brought, or, if no action was
brought, any court of competent jurisdiction, determines upon application that,
in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or by-laws, or, when
authorized by (i) such certificate of incorporation or by-laws, (ii) a
resolution of shareholders, (iii) a resolution of directors, or (iv) an
57
<PAGE>
agreement providing for such indemnification, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his or
her acts were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
or she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled.
Any person who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, any indemnification under the NYBCL pursuant to
the above paragraphs may be made only if authorized in the specific case and
after a finding that the director or officer met the requisite standard of
conduct (i) by the disinterested directors if a quorum is available, or (ii) in
the event a quorum of disinterested directors is not available or so directs by
either (A) the board upon the written opinion of independent legal counsel, or
(B) by the shareholders.
The Omnicom By-laws provide that Omnicom shall provide indemnification to
its directors and officers in respect of claims, actions, suits or proceedings
based upon, arising from, relating to or by reason of the fact that any such
director or officer serves or served in such capacity with Omnicom or at the
request of Omnicom in any capacity with any other enterprise, and permits
Omnicom to indemnify others and to advance expenses to the fullest extent
permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Omnicom or
Holdings pursuant to the foregoing provisions, Omnicom and Holdings have been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Limitation of Personal Liability of Directors
Section 102 (b) (7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision that would eliminate a director's
monetary liability for breaches of his fiduciary duty in a lawsuit by or on
behalf of the corporation or in an action by stockholders of the corporation,
provided that such provision may not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. The Holdings Certificate contains such a provision
providing for the limitation of liability of directors for monetary damages for
breach of fiduciary duty as a director to the fullest extent permitted by the
DGCL.
Section 402(b) of the NYBCL provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of directors to the corporation or its shareholders for damages for
any breach of duty in such capacity. However, no such provision can eliminate or
limit (i) the liability of any director if a judgment or other final
adjudication adverse to such director establishes that such director's acts or
omissions were in bad faith, or involved intentional misconduct or a knowing
violation of law, or that the director personally gained in fact a financial
profit or other advantage to which such director was not legally entitled or
that the director's acts violated certain provisions of the NYBCL or (ii) the
liability of any director for any act or omission prior to the adoption of such
a provision in the certificate of incorporation.
The Omnicom Certificate provides that no director shall be personally
liable to Omnicom or any of its shareholders for damages for any breach of duty
as a director, except for liability resulting from a judgment or other final
adjudication adverse to the director (i) for acts or omissions in bad faith or
which involve intentional misconduct or a knowing violation of the law, (ii) for
any transaction from which the director derived a financial profit or other
advantage to which the director was not legally entitled, or (iii) under Section
719 of the NYBCL.
LEGAL MATTERS
The validity of the shares of Omnicom Common Stock to be issued in
connection with the Acquisition will be passed on by Davis & Gilbert, 1740
Broadway, New York, New York 10019, counsel to Omnicom.
58
<PAGE>
EXPERTS
The consolidated financial statements and schedules of Omnicom and its
subsidiaries incorporated by reference in this Prospectus/Information Statement
and the Registration Statement of which this Prospectus/Information Statement is
a part, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated balance sheets as of October 31, 1994 and 1993, and the
consolidated statements of operations, stockholders deficit, and cash flows for
each of the three years in the period ended October 31, 1994 of Holdings
contained in this Prospectus/Information Statement and the Registration
Statement of which this Prospectus/Information Statement is a part have been
audited by Coopers & Lybrand LLP, independent certified public accountants, as
indicated in their report, which includes an explanatory paragraph concerning
Holding's ability to continue as a going concern, and are included herein in
reliance upon the authority of that firm as experts in accounting and auditing.
59
<PAGE>
INDEX TO HOLDINGS FINANCIAL STATEMENTS
Page
Report of Independent Accountants .................................... F-1
Consolidated Balance Sheets as of October 31, 1994 and 1993 (audited) F-2
Consolidated Statements of Operations for the years ended
October 31, 1994, 1993 and 1992 (audited) ......................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended October 31, 1994, 1993 and 1992 (audited) ..... F-4
Consolidated Statements of Cash Flows for the years ended
October 31, 1994, 1993 and 1992 (audited) ......................... F-5
Notes to Consolidated Financial Statements (audited) ................. F-6
Consolidated Condensed Balance Sheets as of April 30, 1995
and 1994 (unaudited) ............................................... F-16
Consolidated Condensed Statements of Operations for the six
months ended April 30, 1995 and 1994 (unaudited) ................... F-18
Consolidated Condensed Statements of Cash Flows for the six months
ended April 30, 1995 and 1994 (unaudited) .......................... F-19
Notes to Consolidated Condensed Financial Statements (unaudited) ..... F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Chiat/Day Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Chiat/Day
Holdings, Inc. and Subsidiaries as of October 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended October 31, 1994. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Chiat/Day
Holdings, Inc. and Subsidiaries as of October 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1994 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1,
the Company's debt under its Senior Note and Senior Subordinated Note totaling
$18,750,000 is due in 1995, which combined with its working capital and
stockholders' deficits at October 31, 1994, raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans as to this
matter are discussed in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Coopers & Lybrand LLP
Sherman Oaks, California
April 7, 1995, except for Note 10
as to which the date is
June 7, 1995
F-1
<PAGE>
<TABLE>
<CAPTION>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 1994 and 1993
ASSETS 1994 1993
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................. $ 5,831,000 $ 3,393,000
Receivables:
Client accounts receivable .............................................. 57,468,000 46,324,000
Expenditures billable to clients ........................................ 16,746,000 10,704,000
Notes and other receivables ............................................. 375,000 861,000
Income taxes receivable ................................................. 894,000 774,000
Notes receivable from employees ......................................... 1,158,000 852,000
Less--allowance for doubtful accounts ................................... (4,007,000) (2,218,000)
------------- -------------
72,634,000 57,297,000
Prepaid expenses and other ................................................ 736,000 1,292,000
------------- -------------
Total current assets .............................................. 79,201,000 61,982,000
------------- -------------
Fixed assets, at cost:
Furniture and fixtures .................................................... 3,211,000 1,134,000
Office equipment .......................................................... 4,760,000 4,913,000
Leasehold improvements .................................................... 9,227,000 6,578,000
Construction in progress .................................................. -- 250,000
------------- -------------
17,198,000 12,875,000
Less--accumulated depreciation and amortization ........................... (5,999,000) (5,375,000)
------------- -------------
11,199,000 7,500,000
------------- -------------
Other assets:
Notes receivable .......................................................... 3,201,000 281,000
Other ..................................................................... 2,476,000 5,108,000
------------- -------------
5,677,000 5,389,000
------------- -------------
$ 96,077,000 $ 74,871,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt ......................................... $ 18,750,000 $ 64,000
Accounts payable and advanced billings .................................... 112,094,000 96,018,000
Other accrued liabilities ................................................. 12,139,000 13,397,000
Bank overdraft ............................................................ -- 8,625,000
Income tax payable ........................................................ 1,180,000 15,000
------------- -------------
Total current liabilities ......................................... 144,163,000 118,119,000
------------- -------------
Long-term debt, net of current portion ....................................... 10,448,000 20,697,000
Restructuring reserve liabilities ............................................ 10,009,000 13,421,000
Other non-current liabilities ................................................ 2,791,000 2,012,000
Redeemable preferred stock, cumulative, $.01 par value;
200,000 shares authorized; issued--140,718 in 1994 and 121,218 in 1993;
liquidation value of $14,071,700 at October 31, 1994 ...................... 13,769,000 11,668,000
Class B common stock subject to repurchase obligations; $.01 par value;
200,000,000 shares authorized; outstanding--39,993,465 in 1994
and 40,818,465 in 1993 (see Note 5) ....................................... 7,332,000 7,332,000
Stockholders' equity (deficit):
Class A common stock, $.01 par value; 75,000,000 shares authorized;
issued--16,749,344 in 1994 and 1993 ..................................... 167,000 167,000
Additional paid-in capital ................................................ 20,567,000 20,567,000
Foreign currency translation adjustment ................................... (373,000) (496,000)
Accumulated deficit ....................................................... (108,522,000) (114,342,000)
------------- -------------
(88,161,000) (94,104,000)
Less--treasury stock at cost; 3,222,075 Class A common shares
in 1994 and 1993 .......................................................... (4,274,000) (4,274,000)
------------- -------------
Total stockholders' equity (deficit) .............................. (94,435,000) (98,378,000)
------------- -------------
$ 96,077,000 $ 74,871,000
============= =============
See notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended October 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Fee and commission income ..................................... $ 89,277,000 $100,267,000 $128,722,000
Costs and expenses:
Salaries and employee benefits ............................. 50,976,000 55,458,000 68,824,000
Selling, general and administrative ........................ 27,000,000 37,921,000 44,074,000
Restructuring costs ........................................ -- 25,848,000 --
Gain on sale of foreign subsidiary ......................... -- (3,504,000) --
Other, net ................................................. 141,000 1,425,000 5,222,000
------------- ------------- -------------
78,117,000 117,148,000 118,120,000
Operating profit (loss) ............................ 11,160,000 (16,881,000) 10,602,000
Interest income (expense):
Interest expense ........................................... (4,678,000) (4,612,000) (7,814,000)
Interest income ............................................ 1,091,000 803,000 1,398,000
------------- ------------- -------------
(3,587,000) (3,809,000) (6,416,000)
Income (loss) before income tax provision and
extraordinary item ......................................... 7,573,000 (20,690,000) 4,186,000
Income tax provision .......................................... 1,602,000 855,000 2,361,000
------------- ------------- -------------
Income (loss) before extraordinary item .................... 5,971,000 (21,545,000) 1,825,000
Extraordinary item:
Utilization of loss carryforwards .......................... -- -- 1,582,000
------------- ------------- -------------
Net income (loss) .......................................... $ 5,971,000 ($ 21,545,000) $ 3,407,000
============= ============= =============
Earnings per share:
Net income (loss):
Primary ................................................... 0.11 (0.39) 0.06
Primary (including EPUs and EARs) ......................... 0.05 (0.39) 0.04
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended October 31, 1994, 1993 and 1992
Number Foreign
Of Shares Common Additional Currency
Common Stock Paid-In Treasury Translation
Stock Class A Capital Stock Adjustment
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1991
as previously reported ....................... 16,823,176 $ 168,000 $ 141,000 ($4,274,000) ($ 200,000)
Adjustment for accretion of preferred stock ..... -- -- -- -- --
---------- ----------- ----------- ---------- ----------
Balance October 31, 1991 as restated ............ 16,823,176 168,000 141,000 (4,274,000) (200,000)
Foreign currency translation
adjustment .................................... 3,966,000
Accretion of preferred stock ....................
Net income for the year ended October 31, 1992 ..
---------- ----------- ----------- ---------- ----------
Balance, October 31, 1992 ....................... 16,823,176 168,000 141,000 (4,274,000) 3,766,000
Repurchase of Common Stock - Class A ............ (73,832)
Retirement of Common Stock - Class A ............ (1,000) 1,000
Conversion of Junior Subordinated Notes ......... 20,425,000
Foreign currency translation adjustment ......... (4,262,000)
Accretion of preferred stock ....................
Net (loss) for the year ended October 31, 1993 ..
---------- ----------- ----------- ---------- ----------
Balance, October 31, 1993 ....................... 16,749,344 167,000 20,567,000 (4,274,000) (496,000)
Foreign currency translation adjustment ......... 123,000
Accretion of preferred stock ....................
Net income for the year ended October 31, 1994 ..
---------- ----------- ----------- ---------- ----------
Balance, October 31, 1994 ....................... 16,749,344 $ 167,000 $20,567,000 ($4,274,000) ($ 373,000)
========== =========== =========== ========== ==========
</TABLE>
Accumulated
Deficit Total
------------ ------------
Balance, October 31, 1991
as previously reported ...................... ($ 95,449,000) ($ 99,614,000)
Adjustment for accretion of preferred stock .... (453,000) (453,000)
------------ ------------
Balance October 31, 1991 as restated ........... (95,902,000) (100,067,000)
Foreign currency translation
adjustment ................................... 3,966,000
Accretion of preferred stock ................... (151,000) (151,000)
Net income for the year ended October 31, 1992.. 3,407,000 3,407,000
------------ ------------
Balance, October 31, 1992 ...................... (92,646,000) (92,845,000)
Repurchase of Common Stock - Class A ...........
Retirement of Common Stock - Class A ...........
Conversion of Junior Subordinated Notes ........ 20,425,000
Foreign currency translation adjustment ........ (4,262,000)
Accretion of preferred stock ................... (151,000) (151,000)
Net (loss) for the year ended October 31, 1993 . (21,545,000) (21,545,000)
------------ ------------
Balance, October 31, 1993 ...................... (114,342,000) (98,378,000)
Foreign currency translation adjustment ........ 123,000
Accretion of preferred stock ................... (151,000) (151,000)
Net income for the year ended October 31, 1994 . 5,971,000 5,971,000
------------ ------------
Balance, October 31, 1994 ...................... ($108,522,000) ($ 92,435,000)
============ ============
See notes to consolidated financial statements.
F-4
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................... $ 5,971,000 ($21,545,000) $ 3,407,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ........................................ 2,831,000 4,773,000 6,974,000
Gain on disposition of foreign subsidiary ............................ -- (3,504,000) --
Gain on sale of assets ............................................... -- -- (743,000)
Provision for losses on receivables .................................. 1,789,000 2,057,000 160,000
Amortization of discount on long-term debt ........................... 10,000 593,000 800,000
Increase in interest payable ......................................... 891,000 418,000 2,531,000
Contribution of preferred stock to profit sharing plan ............... 575,000 450,000 900,000
Preferred stock dividends issued to profit sharing plan .............. 1,375,000 1,127,000 929,000
Restructuring provision .............................................. -- 24,582,000 --
Change in assets and liabilities:
(Decrease) in cash from disposition of foreign subsidiary .......... -- (9,242,000) --
(Increase) decrease in receivables ................................. (17,126,000) 11,135,000 (32,999,000)
Decrease (increase) in prepaid expenses and other .................. 556,000 (176,000) 18,000
Increase (decrease) in accounts payable and
advanced billings ............................................... 16,076,000 (8,459,000) 23,741,000
(Decrease) increase in other accrued liabilities ................... (1,408,000) (3,916,000) 364,000
Increase (decrease) in income taxes payable ........................ 1,165,000 (545,000) (874,000)
(Decrease) in deferred income taxes payable ........................ -- (25,000) (1,777,000)
(Decrease) in other noncurrent liabilities ......................... (2,633,000) (683,000) (8,093,000)
------------ ------------ ------------
Total adjustments .............................................. 4,101,000 18,585,000 (8,069,000)
------------ ------------ ------------
Net cash provided (used) by operating activities ............... 10,072,000 (2,960,000) (4,662,000)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of foreign subsidiary ........................ -- 1,112,000 --
Purchases of fixed assets .............................................. (5,615,000) (999,000) (833,000)
Retirements of fixed assets ............................................ -- 117,000 1,644,000
(Increase) decrease notes receivables, other assets..................... (2,920,000) 1,588,000 1,367,000
Decrease (increase) in other assets .................................... 1,718,000 (65,000) 3,193,000
------------ ------------ ------------
Net cash (used) provided by investing activities ............... (6,817,000) 1,753,000 5,371,000
------------ ------------ ------------
Cash flows from financing activities:
(Decrease) increase in bank overdraft .................................. (8,625,000) 8,625,000 --
Debt borrowings ........................................................ 44,250,000 50,000,000 16,000,000
Debt repayments ........................................................ (36,565,000) (66,057,000) (24,027,000)
------------ ------------ ------------
Net cash (used) in financing activities ......................... (940,000) (7,432,000) (8,027,000)
------------ ------------ ------------
Effect of exchange rate changes on cash ................................... 123,000 354,000 3,966,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ...................... 2,438,000 (8,285,000) (3,352,000)
Cash and cash equivalents, beginning of year .............................. 3,393,000 11,678,000 15,030,000
------------ ------------ ------------
Cash and cash equivalents, end of year .................................... $ 5,831,000 $ 3,393,000 $ 11,678,000
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ............................................................. $ 2,475,000 $ 2,507,000 $ 3,452,000
============ ============ ============
Income taxes ......................................................... $ 279,000 $ 1,820,000 $ 1,341,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies:
Line Of Business:
Chiat/Day Holdings, Inc. (the "Company") is a holding company that
directly or indirectly owns 100% of the common stock of companies (including
Chiat/Day inc. Advertising ["Advertising"] and Venice Holdings Pty. Limited
["Mojo"]) that collectively are known as "Chiat/Day" (see Notes 2 and 8). The
Company's principal line of business includes planning and creating advertising
campaigns for clients, placing ads with various media (including television,
radio, newspaper and magazines), and providing marketing consultation, market
research and production services. Chiat/Day also provides public relations and
direct marketing services. The Company's clients operate in a broad range of
product industries throughout the world. Credit is extended to clients based on
an evaluation of each client's financial condition, and generally collateral is
not required. Credit losses, if any, have been generally provided for in the
financial statements and have been consistently within management's
expectations.
Basis Of Presentation:
The Company's consolidated financial statements have been presented on the
basis that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As discussed in Note 5, the Company's Senior Note and Senior
Subordinated Notes are due in 1995.
In February 1995 the Company reached an agreement in principal to sell the
assets and assign the liabilities of its businesses (see Note 10). If the sale
does not occur, the Company will have to pursue alternative financing
arrangements to meet its current debt obligations.
Based upon discussions held with prospective lending institutions in late
1994 and early 1995, management believes that the refinancing of the Company's
outstanding debt obligations and/or additional equity financing would be
obtainable if necessary, although no assurances can be given. If such financing
were obtained, given the Company's historical increases in cash and cash
equivalents and its ability to manage its negative working capital position,
management believes that the Company would continue as a viable going concern.
Principles Of Consolidation:
The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Fees, Commissions and Costs:
The principal sources of advertising revenues are commissions and fees for
the production and placement of advertisements in television, radio and print
media. Revenue earned from television and radio media is recognized on the date
of broadcast. Revenue earned from advertising production is recognized as costs
are incurred. Generally, commission revenue earned from print media is
recognized on the space closing date (the date upon which the advertiser has
made a binding commitment to the publication to run an advertisement) of the
related publications.
Generally, revenue is billed and earned in accordance with contractual
provisions. For the Company's contract with its major client, Nissan Motor
Corporation ("Nissan"), commissions are billable on a sliding scale subject to a
maximum annual amount for 1994 and 1993 only. As of October 31, 1994 and 1993
under both contracts, the Company has recognized as revenue commissions earned
of 78% of the maximum allowable for the contract periods April 1, 1994 through
March 31, 1995 and April 1, 1993 through March 31, 1994.
Nissan accounted for 41%, 39% and 38% of total revenue in 1994, 1993 and
1992, respectively. Infiniti, a division of Nissan, accounted for 14% and 10% of
total revenues in 1994 and 1993, respectively.
Revenues from other sources, including public relations and direct
marketing, are primarily derived from fees for services rendered. Fee revenue
earned from these sources is recognized as services are rendered. Salaries and
other agency costs are generally expensed as incurred.
F-6
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary Of Significant Accounting Policies, Continued:
Fixed Assets:
Depreciation and amortization are provided over the estimated useful lives
of the assets using primarily the straight-line method for financial reporting
purposes and accelerated depreciation methods for tax reporting purposes.
Estimated useful lives of these assets are as follows:
Furniture and fixtures .......................... 5-10 years
Office equipment ................................ 5-10 years
Leasehold improvements .......................... Lease term
Gains and losses on sales and retirements are reflected in Other income
(expense). Improvements which increase the useful lives of fixed assets are
capitalized. Maintenance, repairs and minor replacements are expensed as
incurred.
Foreign Currency Translation:
The Company translates the financial statements of its foreign
subsidiaries in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 52. Assets and liabilities reported in the
consolidated balance sheets have been translated at the current rates of
exchange as of October 31, 1994 and 1993. Revenues and expenses reported in the
consolidated statements of operations have been translated using the average
exchange rates during 1994, 1993 and 1992. Resulting translation adjustments
have been excluded from the consolidated statements of operations and are
reported in a separate component of stockholders' equity (deficit).
Gains and losses resulting from foreign currency transactions are charged
to other income (expense) as incurred and were not material in 1994, 1993 or
1992.
Earnings Per Share:
Primary earnings per share is based upon weighted average number of shares
outstanding during each year. Primary earnings per share (including EPUs and
EARs) is provided for informational purposes only and does not intend to
represent the EPUs or EARs as common stock equivalents pursuant to the
provisions of APB No. 15. The number of shares used in the computations were as
follows:
1994 1993 1992
---- ---- ----
Primary 54,188,042 55,534,115 58,115,335
Primary (including EPUs and EARs) 114,536,044 55,534,115 83,443,980
For the purposes of computing earnings per share (including EPUs and EARs)
for the fiscal year ended October 31, 1993 the EPUs and EARs were not reflected
in the computation as their inclusion would have been anti-dilutive.
Income Taxes:
Effective November 1, 1993, the Company adopted the provisions of SFAS No.
109 which requires recognition of deferred tax assets and liabilities for
temporary differences and net operating loss (NOL) and tax credit carryforwards.
Under SFAS No. 109, deferred income taxes are established based on enacted tax
rates expected to be in effect when temporary differences are scheduled to
reverse and NOL and tax credit carryforwards are expected to be utilized. The
principle temporary differences relate to restructuring costs and employee
bonuses. Adoption of SFAS No. 109 did not have a material impact on the
Company's financial position or results of operations.
For years ended 1993 and 1992 the Company accounted for income taxes under
the requirements of APB Opinion No. 11.
Cash Flows:
The Company places its temporary cash investments in short-term financial
instruments and money market funds, which generally mature within 90 days. The
Company limits the amount of credit exposure to any one issuer.
For purposes of reporting cash flows, the Company considers amounts due
from banks (including certificates of deposit and repurchase agreements) and
commercial paper with maturities at date of purchase of three months or less to
be cash equivalents.
During 1993, the Company issued 37,463,981 Equity Appreciation Rights (see
Note 6) upon conversion of $20,425,000 of its Junior Notes (see Note 5).
F-7
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary Of Significant Accounting Policies, Continued:
Restatement:
In connection with the proposed acquisition by Omnicom (Note 10) the
accompanying financial statements have been restated in accordance with SEC
Regulation S-X. Accordingly, redeemable preferred stock (Note 5) is no longer
presented as part of stockholders' equity and its initial carrying value is
being increased to its redemption value by periodic accretions against
accumulated deficit.
Reclassifications
Certain reclassifications have been made to the 1993 and1992 reported
amounts to conform them to the current presentation.
2. Foreign Operations:
The Company's foreign divisions and subsidiaries are primarily engaged in
providing advertising and related services. On February 16, 1993 (effective
January 1, 1993), the Company completed the transfer of the stock of its foreign
subsidiary to FCB International, Inc. ("FCB") (see Note 8). The financial
results for 1993 and 1992 of this subsidiary are summarized in Note 8.
Combined condensed financial information for foreign divisions and
subsidiaries is as follows:
1994 1993 1992
----------- ----------- -----------
Total assets ............... $16,589,000 $12,926,000 $70,391,000
Total liabilities .......... 12,959,000 11,378,000 71,700,000
Fee and commission income .. 13,674,000 13,643,000 35,613,000
3. Income Taxes:
Income (loss) before income tax provision (benefit) and provision
(benefit) for taxes for the years ended October 31, 1994, 1993 and 1992
consisted of the following:
1994 1993 1992
------------- ----------- -----------
Income (loss) before income
tax provision:
Domestic .............. $4,460,000 ($23,576,000) $3,518,000
International ......... 3,113,000 2,886,000 668,000
---------- ----------- ----------
Totals ............ $7,573,000 ($20,690,000) $4,186,000
========== =========== ==========
Current Deferred Total
---------- ----------- ---------
Provision for taxes:
October 31, 1994:
Federal $ 35,000 -- $ 35,000
State and local 152,000 -- 152,000
Foreign 1,415,000 -- 1,415,000
----------- ----------- ----------
$ 1,602,000 -- $1,602,000
=========== =========== ==========
October 31, 1993:
Federal $ 542,000 -- $ 542,000
State and local 277,000 -- 277,000
Foreign 36,000 -- 36,000
---------- ----------- ----------
$ 855,000 -- $ 855,000
========== =========== ==========
October 31, 1992:
Federal $1,698,000 $ 25,000 $1,723,000
State and local 927,000 (333,000) 594,000
Foreign 44,000 -- 44,000
---------- ----------- -----------
$2,669,000 ($ 308,000) $2,361,000
========== ============ ===========
F-8
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Income Taxes, Continued:
The Company's effective income tax rate varied from the statutory federal
income tax rate as a result of the following factors:
1994 1993 1992
---- ---- ----
Statutory federal income tax rate ... 35.0% (34.0)% 34.0%
State and local taxes, net of
federal benefit .................. 1.3 0.9 9.4
Foreign taxes ....................... 18.7 0.2 1.0
Net operating loss .................. (4.8) -- --
Tax credits ......................... (11.0) -- --
Reversal of temporary differences ... (26.3) -- --
Preferred stock dividends ........... 6.4 1.9 7.6
Alternative minimum tax ............. 0.4 2.6 3.4
Unrealized benefit of net operating
loss ............................. -- 32.0 --
Extraordinary credit ................ -- -- (38.0)
Other ............................... 1.4 0.5 1.2
---- ---- ----
Effective rate 21.1% 4.1% 18.6%
==== ==== ====
The major components of the net deferred tax asset as of October 31, 1994
are as follows:
Deferred tax assets:
Accrued reserves ................................ $ 8,743,000
Deferred compensation ........................... 5,835,000
Tax loss/tax credit carryforwards ............... 1,219,000
Fixed assets and depreciation ................... 441,000
Rent ............................................ 329,000
Other ........................................... 2,150,000
------------
Total deferred tax assets ................... 18,717,000
Valuation allowance ............................. (18,717,000)
------------
Net deferred tax asset ...................... --
============
A full valuation allowance has been established at both November 1, 1993,
the date of adoption of SFAS No. 109 and October 31, 1994 as it is more likely
than not the deferred tax asset will not be realized. The change in the
valuation allowance of approximately $5.7 million in fiscal 1994 represents the
reduction in the deferred tax asset due to reversal of temporary differences in
the determination of the Company's current provision.
As of October 31, 1994, for income tax purposes, the Company had state and
foreign net operating loss carryforwards of approximately $3.1 million and $2.1
million, respectively, which will expire during the years 1995-2000. Also, the
Company had $344,000 of AMT credits which can be carried forward indefinitely.
U.S. tax rules impose limitations on the use of net operating losses and tax
credits following certain changes in ownership (See Note 10).
4. Related-Party Transactions:
In October 1991, the Company moved into new office facilities in Venice,
California which it leases from Venice Operating Corporation ("VOC"), a company
owned by the majority stockholder and certain members of the Board of Directors
of the Company. In October 1994, VOC sold its office facilities to an unrelated
third party. Effective October 17, 1994 the lease with VOC was terminated and
the Company entered into a new twenty year lease with six consecutive five-year
renewal options. The Company was assigned a $3,000,000 promissory note by VOC in
satisfaction of the return of the Company's security deposit and accrued
interest thereon due from VOC. The note bears interest at 10% per annum and all
interest payments are current. The note is secured by a right of offset against
F-9
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Related-Party Transactions, Continued
future lease payments. The principal will be paid to the Company when it
achieves certain financial targets or the property is sold, but no later than
October 17, 2014. The obligor of the promissory note is the new owner of the
Venice office facility, ADS(CA) QRS 11-34, Inc., a California corporation that
is managed by W.P. Carey & Co. in New York. W.P. Carey & Co. is a publicly
traded Real Estate Investment Trust. In 1994, 1993 and 1992 the Company paid
$2,474,000, $2,056,000 and $2,018,000, respectively, in rent to VOC.
The Company also has consulting, employment, non-compete and loan
agreements with certain members of the Board of Directors and officers.
5. Long-Term Debt, Redeemable Preferred Stock and Common
Stock Subject to Repurchase Obligations:
Long-term debt as of October 31, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Senior Note payable to banks.
Interest rates averaged 8.1% in 1994 and 7.5% in 1993 .................... $ 7,750,000 --
Senior Subordinated Notes due in 1995; various rates;
interest payable semiannually in arrears ................................. 11,000,000 11,000,000
8.17% Junior Subordinated Installment Note (less unamortized discount of
$304,000 and $305,000 at October 31, 1994 and 1993, respectively); due
July 31, 2005; interest compounded semiannually at an effective interest
rate of 8.65%; payment of interest and principal subject to certain
restrictions contained in the Senior Bank
Note and Senior Subordinated Notes ....................................... 5,249,000 5,247,000
13.25% Junior Subordinated Note; maturing July 31, 2005
(less unamortized discount of $90,000 and $98,000 at October 31, 1994 and
1993, respectively); interest compounded annually at an effective interest
rate of 8.45%; payment of interest and principal subject to certain
restrictions contained in the Senior Bank Note
and Senior Subordinated Notes ............................................ 1,400,000 1,391,000
Other notes payable, payments due in 1994; interest at 11.25% ............... -- 64,000
Accrued interest on Junior and Senior Subordinated Notes .................... 3,799,000 3,059,000
------------ ------------
29,198,000 20,761,000
Less--current portion ....................................................... (18,750,000) (64,000)
------------ ------------
$ 10,448,000 $ 20,697,000
============ ============
</TABLE>
Aggregate annual maturities of long-term obligations including accrued
interest on Junior and Senior Subordinated Notes are as follows:
Year Ending
October 31,
-----------
1995 ............................... $18,750,000
1996 ............................... --
1997 ............................... --
1998 ............................... --
1999 ............................... --
Thereafter ......................... $10,448,000
-----------
$29,198,000
===========
F-10
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long-Term Debt, Redeemable Preferred Stock and Common
Stock Subject to Repurchase Obligations, Continued:
On September 17, 1992 and June 30, 1993, Advertising amended and restated
its Credit Agreement for the Senior Bank Note wherein the banks originally
agreed to make loans up to an aggregate principal amount of $42,000,000, of
which an aggregate principal amount of $20,000,000 was available and outstanding
on September 17, 1992. In addition to amending certain terms of the Senior Bank
Note, the banks provided an additional $6,000,000 revolving credit facility. The
revolving credit facility was guaranteed by certain key executives and
stockholders of the Company. The 1993 amendment further modified the Credit
Agreement to extend the commitment reduction dates and change the financial
covenants. $4,200,000 of the revolving credit facility and the associated
guarantees expired on October 31, 1993. At October 31, 1994 and 1993, $7,750,000
and $16,000,000, respectively, of the Senior Bank Note was available; $7,750,000
was outstanding at October 31, 1994 and no borrowings were outstanding at
October 31, 1993. In addition, no amounts were outstanding under the revolving
credit facility as of October 31, 1994 and 1993.
In January 1995, the Senior Bank Note was assigned to Omnicom (see Note
10). As a result of this assignment, the available commitment was increased to
$20,000,000, and the term was extended to December 10, 1995. Interest is payable
monthly at prime plus 2%. Loans made under the Senior Bank Note are due and
payable on December 10, 1995. The Senior Bank Note is secured by substantially
all assets of Advertising and Holdings' common equity investment in Advertising.
The remaining $1,800,000 revolving credit facility and associated guarantees
expired in May 1995.
In 1992, certain terms of the Senior Subordinated Notes due in 1995
("Senior Notes") were amended. For $5 million of such Notes, the cash interest
rate was capped at 14.25% effective August 1, 1991. Interest that increases by
one quarter percent every six months from August 1, 1991 until the Senior Notes
have been registered under the Securities Act of 1993 will be capitalized and
paid on redemption, but no later than August 1995. The interest rate on $6
million of the Senior Notes has been fixed at 13.25% effective August 1, 1991.
In October 1993, the maturity dates of the Junior Subordinated Notes
("Junior Notes") were extended from July 31, 1995 to July 31, 2005 and
participants in the Junior Notes were offered the ability to exchange their
participation in the Junior Notes for participation in a new Equity Appreciation
Rights Plan (see Note 6). As a result of acceptances of this proposal, the
outstanding principal and accrued interest in the Junior Notes was reduced by
$20,425,000 at October 31, 1993 and resulted in an increase to paid-in-capital.
Borrowing arrangements contain restrictive covenants which require, among
other things, the maintenance of minimum cash flow and working capital
requirements, and certain limitations on capital expenditures and the payment of
dividends.
At October 31, 1994, the Company was not in compliance with its financial
covenants; however, the Company obtained waivers for all events of
noncompliance. The Company is currently in compliance with all financial
covenants.
Redeemable Preferred Stock:
The Preferred Stock has no voting rights and does not participate in
Common Stock dividends. The Preferred Stock is entitled to cumulative dividends
equal to 9% of the liquidation preference of shares held by the Plan if such
amount is paid in cash, or 10% of the liquidation preference if such amount is
paid in shares of Preferred Stock, or any combination thereof. In addition, the
trustees of the Plan have the right to compel the redemption of Preferred Stock
held by the Plan in an aggregate amount not to exceed $500,000 per year. In the
event the Preferred Stock is not redeemed within 180 days from the date
surrendered, then such surrendered shares shall be entitled to dividends at the
rate of 14% per annum. In 1994, 1993 and 1992, stock dividends equal to 13,750,
11,272 and 9,290 shares of Preferred Stock, respectively, were issued to the
Plan.
In the event of liquidation or sale of substantially all of the assets of
the Company, holders of the Preferred Stock will be entitled to receive, before
any distribution to holders of Common Stock, $100 per share plus any accrued but
unpaid dividends. The Preferred Stock may be redeemed, subject to applicable
law, at the end of eight years at the option of the Company or the holders of
such Preferred Stock, provided that the Senior Bank Note and Senior Subordinated
F-11
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long-Term Debt, Redeemable Preferred Stock and Common
Stock Subject to Repurchase Obligations, Continued:
Notes have been paid in full, and, at any time at the option of the holder, to
the extent the shares sought to be redeemed are allocated for the benefit of a
Plan participant who is entitled to a distribution of his account balance in
such Plan. The purchase price for redemption would be equal to the liquidation
preference plus any unpaid dividends. The sale of such Preferred Stock to third
parties will be subject to the right of first refusal by the Company.
Class B Common Stock Subject to Repurchase Obligations:
Restricted Stock Plan: In August 1988, the Board of Directors of the
Company approved a restricted stock purchase plan for which 100,000,000 shares
of Class B Common Stock were reserved. These shares are offered for sale to
certain key employees and others selected by the Board of Directors at a
purchase price to be determined from time to time by the Company. The shares of
stock purchased under the plan vest over a five-year period of employment
beginning from the date of purchase. The plan provides that upon termination of
employment, vested shares may be sold back to or purchased by the Company at
book value at date of sale. Non-vested shares may be sold back to or purchased
by the Company at the lower of the original purchase price or book value at date
of sale. At October 31, 1994, 59,809,695 shares remain unissued.
Mojo Class B Common Stock: Pursuant to a Stock Purchase Agreement entered
into in April 1989, the holders of 7,538,160 shares of Class B Common Stock
(approximately one-third of which are held by current officers and directors of
the Company) had the right to require the Company to purchase such shares at the
fair market value thereof. Although none of the holders exercised such right
prior to its expiration, pursuant to the Stock Purchase Agreement the Company
could be deemed to have exercised in January 1995 a right to acquire such shares
at fair market value as of October 31, 1994 (as determined by an independent
appraiser). Any obligation of the Company to repurchase the shares is
subordinated to the payment in full of the Company's obligations under the
Senior Subordinated Notes (provided that if payment is deferred due to
subordination, interest will accrue on the repurchase price at the prime rate
until paid). Accordingly, the Company is not currently obligated to repurchase
such shares due to the subordination provisions. In addition, the terms of the
Senior Bank Note prohibit the repurchase of Common Stock by the Company.
Although no appraisal has been obtained for the purpose of any such repurchase,
management of the Company believes that the value of the relevant Class B Common
Stock at October 31, 1994 should approximate the value being paid with respect
to Class B Common Stock in the Omnicom transactions. (See Note 10.)
With the consent of the lenders under the Senior Bank Note, 765,000
shares of Mojo Class B Common Stock were repurchased by the Company for
approximately $348,000 and was recorded as a reduction of paid- in capital.
Equity Participation Plan:
Under an equity participation plan approved by the Board of Directors of
the Company in August 1988, the Company may grant up to 50,000,000 equity
participation units to eligible participants. All full-time employees of the
Company are eligible to be selected as participants in the equity participation
plan. Each equity participation unit is equivalent in value to one share of
Class B Common Stock and is treated in the same manner as Class B Common Stock
with respect to its priority in the event of a liquidation.
Equity participation units awarded under the plan vest over a five-year
period of employment beginning from the date of award. Participants are
entitled, upon the redemption of equity participation units, to receive payment
in cash determined by multiplying the number of vested equity participation
units by the increase, if any, between the book value per unit (as defined in
the plan) as of the date of grant (which is determined to be zero when the book
value is negative) and the book value per unit as of the valuation date
immediately preceding the date of redemption. As of October 31, 1994, there were
26,591,110 equity participation units available for award. In conjunction with
the transaction described in Note 8, 2,970,000 equity participation units were
relinquished to the Company.
F-12
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Long-Term Debt, Redeemable Preferred Stock and Common
Stock Subject to Repurchase Obligations, Continued:
Equity Appreciation Rights Plan:
Under an equity appreciation rights plan approved by the Board of
Directors of the Company in October 1993, the Company may grant up to 54,084,848
equity appreciation rights to eligible participants. Only Junior Note
participants (as defined in the plan) are eligible to be awarded equity
appreciation rights under the plan. Each equity appreciation right is equivalent
in value to one share of Class B Common Stock and is treated in the same manner
as Class B Common Stock with respect to its priority in the event of a
liquidation.
Equity appreciation rights awarded under the plan are 41.27% vested in
each participant on the date of award except for certain participants that are
100% vested on the date of award. Participants not 100% vested at the date of
award become fully vested 21 months from October 31, 1993 based upon conditions
stated in the plan. Upon redemption of the equity appreciation rights,
participants are entitled to receive payment in cash determined by multiplying
the number of equity appreciation rights by the increase, if any, between the
book value per unit (as defined in the plan and determined to be zero when the
book value is negative) as of October 31, 1993 and the book value per unit as of
the valuation date immediately preceding the date of redemption. As of October
31, 1994, there were 36,939,112 equity appreciation rights outstanding.
6. Stockholders' Equity:
Common Stock:
The Class A and Class B Common Stock are alike in all respects except that
the Class A Common Stock has certain registration and preferential rights,
including the right to receive additional shares, and to approve certain
transactions. Holders of Class A Common Stock also are entitled to receive, in
consideration for and upon payment of an amount equal to the par value thereof,
additional shares of Class A Common Stock in the event that additional shares of
Class B Common Stock or equity participation units are issued or granted in
connection with dilutive transactions as defined in the Company's restated
certificate of incorporation, Class B Common Stock is also subject to certain
repurchase obligations (see Note 5). In addition, the Chiat/Day Profit Sharing
and 401(k) Plan (the "Plan") (see Note 7) is entitled to receive, for no
consideration, additional Class B Common Stock in the event of certain issuances
of Common Stock to the majority stockholder. At October 31, 1994, 13,434
additional shares of Class A Common Stock are entitled to be received by current
Class A stockholders due to anti-dilution provisions.
In addition, during 1993, the Company repurchased 73,832 shares of Class A
Common Stock from non-management investors for $0.01 per share. These
repurchases were pursuant to the Management Stock Purchase Agreement entered
into in July 1989. This agreement provides for the repurchase of Class A Common
Stock, originally purchased by non-management investors, in the event EPUs held
by management are forfeited or redeemed under the equity participation plan. The
repurchase price under the agreement is the greater of par value ($0.01) or the
increase in both value per share from the date of issuance to the date such EPUs
are forfeited or redeemed.
7. Employee Benefit Plans:
Effective November 1, 1990, the Chiat/Day inc. Advertising Employees'
Profit Sharing and Pre-Tax Savings Investment Plan (the "401(k) Plan") was
merged into the Chiat/Day Holdings, Inc. Employee Profit Sharing Plan (the
"Profit Sharing Plan"), formerly known as the Chiat/Day inc. Advertising
Employee Stock Ownership Plan ("ESOP"), to form the Chiat/Day Profit Sharing and
401(k) Plan (the "Plan"), a defined contribution plan.
The Company contributed cash of $250,000 in 1994 and preferred stock with
a liquidation value of $275,000 for the fiscal year ended October 31, 1994. In
February 1994 and 1993 the Company made stock contributions of $781,000 related
to its 1993 obligation. The Company contributed cash of $315,000 and preferred
F-13
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Employee Benefit Plans, Continued:
stock with a liquidation value of $450,000 for the obligation related to the
fiscal year ended October 31, 1992. The Company has certain future fixed minimum
contributions of $525,000, in stock and cash, to the Plan for fiscal years
ending October 31, 1995 to October 31, 2000.
8. Disposition Of Foreign Subsidiary:
On February 16, 1993 (effective January 1, 1993), the Company completed
the transfer of the stock of its foreign subsidiary to FCB for no consideration.
Concurrent with the transfer of shares to FCB, the Company exercised its option
to acquire $10,350,000 of debt owed to the bank by the foreign subsidiary for
$700 and agreed to accept from FCB, in full satisfaction of such debt,
$1,380,000 plus future contingent payments up to a maximum of $3,450,000. In
1994, the Company received $653,000 from FCB in contingent payments. 2,970,000
Equity Participation Units were relinquished in accordance with the provisions
of the plan.
The contingent payments are based upon the revenue performance of the
foreign subsidiary under FCB's ownership and upon the ability of FCB to utilize
Australian tax loss carryforwards, all as specified in the debt restructuring
deed between the Company and FCB. Under the debt restructuring deed, all
contingent revenue and tax loss carryforward payments are scheduled to be made
by February 26, 1996. All contingent payments made by FCB are recorded as income
by the Company when received.
The Company recorded a gain of $3,504,000 in fiscal 1993 on the
disposition of the foreign subsidiary primarily as a result of the recognition
of the accumulated translation adjustment related to such operation.
The financial results as of and for the two months ended December 31, 1992
and the year ended October 31, 1992 are summarized as follows:
1993 1992
------------ ------------
Fee and commission income .................. $ 3,069,000 $ 22,708,000
Operating (loss) profit .................... (933,000) 1,983,000
Other nonoperating income (expense) ........ 296,000 (1,971,000)
Net loss ................................... (637,000) (12,000)
Current assets ............................. 17,951,000 22,211,000
Total assets ............................... 53,341,000 58,418,000
Current liabilities ........................ 19,268,000 23,880,000
Long-term debt ............................. 31,656,000 32,578,000
Total liabilities .......................... 51,585,000 57,198,000
Total stockholders' equity ................. 1,756,000 1,220,000
9. Commitments And Contingencies:
Litigation:
The Company is involved in legal actions arising in the normal course of
business. After taking into consideration legal counsel's evaluation of such
actions, management is of the opinion that their outcome will not have a
material effect on the Company's consolidated financial position or results of
operations.
F-14
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Commitments And Contingencies, Continued:
On October 26, 1992 and November 20, 1992, the Company settled two
lawsuits which were filed in 1990 related to real estate matters. The aggregate
cost of such settlements was $6,246,000. In 1992, the Company recognized an
incremental charge of $3,200,000 related to these lawsuits. Adequate provision
for the balance of the settlements was made in prior years.
Leases:
A one-time restructuring charge of $25,848,000 was recorded in fiscal 1993
relating to costs associated with certain real estate operating leases.
Effective November 1, 1993 the Company entered into a new real estate operating
lease in New York that will enable it to significantly reduce its future rental
expense through a reduction in total amount of space leased. The Company remains
as the primary lessee on its old New York lease through December 31, 1997. It
has currently sublet approximately 85% of the space through the lease term and
is actively seeking to sublet the remaining space. $14,802,000 of the charge
relates to the future cash rental obligations, net of probable anticipated
sublease income, and $3,252,000 relates to the write-off of fixed assets and
leasehold improvements.
In fiscal 1993 the Company entered into agreements to assign its lease,
effective January 1, 1994, for the 320 Hampton Drive facility to an unrelated
third party in order to consolidate operations into one facility at 340 Main
Street. All fixed assets and leasehold improvements related to such facility
were written off in 1993. Alterations to the 340 Main Street property were made
in order to facilitate the consolidation into one facility. $5,122,000 of the
restructuring charge related to the write-off of leasehold improvements and
fixed assets at both facilities as a result of the consolidation and $940,000
related to cash obligations incurred in connection with the lease assignment and
moving and related costs incurred in connection with the consolidation into one
location. The remaining balance of the restructuring charge of $1,732,000
represents a reserve for future cash rental obligations in excess of anticipated
probable sublease income for other property leased in California.
The Company leases facilities and equipment under various operating lease
agreements expiring at various dates through the year 2015. Certain leases
require payment of expenses under escalation clauses. The aggregate future
minimum base rents under terms of noncancellable operating leases, reduced by
rent to be received from existing noncancellable subleases, are as follows:
Years ending October 31, Gross rent Sublease Income Total
- ------------------------ ---------- --------------- -----
1995 ........................ $ 7,523,000 $ 1,646,000 $ 5,877,000
1996 ........................ 6,798,000 1,698,000 5,100,000
1997 ........................ 7,230,000 1,573,000 5,657,000
1998 ........................ 4,405,000 258,000 4,147,000
1999 ........................ 3,825,000 -- 3,825,000
1999 and thereafter ......... 44,173,000 -- 44,173,000
----------- ----------- -----------
$73,954,000 $ 5,175,000 $68,779,000
Rental expense for leases was $5,580,000, $9,422,000 and $9,140,000
(excluding rental expense related to the Company's foreign subsidiary disposed
of in 1993) for the years ended October 31, 1994, 1993 and 1992, respectively.
10. Subsequent Event:
On May 11, 1995, the Company signed an agreement whereby TBWA
International Inc., a wholly-owned subsidiary of Omnicom Group Inc. ("Omnicom"),
will acquire the assets of the Company's businesses and assume substantially all
of its liabilities in exchange for Omnicom common stock. The sale is conditional
on the registration of the Omnicom common stock on Form S-4, clearance by the
appropriate governmental agencies, approval by a majority of the Company's
stockholders and certain other conditions. The sale is anticipated to close by
August 1995.
F-15
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
April 30, April 30,
1995 1994
------------- -------------
Current assets:
Cash and cash equivalents ............... $ 40,335,000 $ 27,005,000
Receivables:
Client accounts receivable .............. 50,533,000 42,081,000
Expenditures billable to clients ........ 14,314,000 9,765,000
Income tax receivable ................... -- --
Notes and other receivables ............. 449,000 422,000
Notes receivable from employees ......... 1,454,000 1,165,000
Less: allowance for doubtful accounts ... (3,386,000) (2,857,000)
------------- -------------
63,364,000 50,576,000
Prepaid expenses and other ................. 1,485,000 1,696,000
------------- -------------
Total current assets .............. 105,184,000 79,277,000
------------- -------------
Fixed assets, at cost:
Furniture and fixtures .................. 3,276,000 1,232,000
Office equipment ........................ 5,011,000 3,923,000
Leasehold improvements .................. 9,246,000 6,595,000
Construction in progress ................ -- 3,988,000
------------- -------------
17,533,000 15,738,000
Less: accumulated depreciation
and amortization ..................... (6,912,000) (4,969,000)
------------- -------------
10,621,000 10,769,000
------------- -------------
Other assets:
Notes receivable ......................... 166,000 166,000
Other .................................... 5,363,000 4,912,000
------------- -------------
5,529,000 5,078,000
------------- -------------
$ 121,334,000 $ 95,124,000
============= =============
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
F-16
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
April 30, April 30,
1995 1994
------------- -------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt ................................................... $ 30,992,000 $ 6,314,000
Accounts payable and advanced billings .............................................. 122,084,000 111,194,000
Other accrued liabilities ........................................................... 13,493,000 10,296,000
------------- -------------
Total current liabilities .................................................... 166,569,000 127,804,000
------------- -------------
Long-term debt, net of current portion ................................................ 10,881,000 26,891,000
Restructuring reserve liability ....................................................... 7,518,000 11,671,000
Other non-current liabilities ......................................................... 2,937,000 2,588,000
Redeemable preferred stock, cumulative, $.01 par value;
200,000 shares authorized; issued--140,818 in 1995 and
121,218 in 1994; liquidation value of $14,081,800 in 1995 ........................ 13,854,000 12,340,000
Class B common stock subject to repurchase obligations,
$.01 par value; 200,000,000 shares authorized;
outstanding--39,993,465 in 1994 and 40,818,465 in 1993 (see Note 5) .............. 7,332,000 7,332,000
Stockholders' equity (deficit):
Class A common stock, $.01 par value; 75,000,000 shares
authorized; issued--16,749,344 in 1995
and 1994 ........................................................................ 167,000 167,000
Additional paid-in capital ....................................................... 20,567,000 20,567,000
Foreign currency translation adjustment .......................................... (368,000) (480,000)
Accumulated deficit .............................................................. (103,849,000) (109,482,000)
------------- -------------
(83,483,000) (89,228,000)
Less: treasury stock at cost; 3,222,075 Class A Common
shares in 1995 and 1994 ....................................................... (4,274,000) (4,274,000)
------------- -------------
Total stockholders' equity (deficit) .................................... (87,757,000) (93,502,000)
------------- -------------
$ 121,334,000 $ 95,124,000
============= =============
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
F-17
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Six months ended April 30,
-----------------------------
1995 1994
------------ ------------
Fee and commission income .................... $ 45,364,000 $ 42,926,000
Costs and expenses:
Salaries and employee benefits ............ 25,852,000 21,512,000
Selling, general and administrative ....... 11,734,000 13,893,000
------------ ------------
37,586,000 35,405,000
Operating profit .......................... 7,778,000 7,521,000
Interest income (expense):
Interest expense .......................... (1,953,000) (1,613,000)
Interest income ........................... 510,000 354,000
------------ ------------
(1,443,000) (1,259,000)
------------ ------------
Income before income tax provision .... 6,335,000 6,262,000
Income tax provision ......................... (1,587,000) (1,325,000)
------------ ------------
Net income ............................ $ 4,748,000 $ 4,937,000
============ ============
Earnings per share:
Net income (loss):
Primary ............................... .09 .09
Primary (including EPUs and EARs) ..... .04 .04
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
F-18
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended April 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Increase in Cash and Cash Equivalents:
Cash flows from operating activities:
Net income ............................................ $ 4,748,000 $ 4,937,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................... 1,485,000 1,093,000
Provision for losses on receivables ................... -- 639,000
Amortization of discount on long-term debt ............ 5,000 4,000
(Decrease) increase in interest payable ............... (98,000) 441,000
Decrease in income tax receivable ..................... 894,000 --
Preferred stock dividends issued to profit sharing plan 10,000 20,000
Change in assets and liabilities
Decrease in receivables ............................. 8,376,000 6,085,000
(Increase) in prepaid expenses and other ............ (749,000) (405,000)
Increase in accounts payable and advanced billings .. 9,992,000 6,551,000
(Decrease) increase in income tax payable ........... (652,000) 164,000
Increase (decrease) in other accrued liabilities .... 1,346,000 (2,709,000)
(Decrease) in other noncurrent liabilities .......... (2,344,000) (1,174,000)
------------ ------------
Total adjustments ................................... 18,265,000 10,709,000
------------ ------------
Net cash provided by operating activities ........... 23,013,000 15,646,000
------------ ------------
Cash flows from investing activities:
Purchases of fixed assets, net of retirements ....... (380,000) (3,923,000)
Decrease in notes receivable ........................ -- 115,000
(Increase) in other assets .......................... (381,000) (243,000)
------------ ------------
Net cash used in investing activities ............. (761,000) (4,051,000)
------------ ------------
Cash flows from financing activities:
Debt borrowings ..................................... 12,250,000 12,000,000
------------ ------------
Net cash provided by financing activities ......... 12,250,000 12,000,000
Effect of exchange rate changes on cash ............... 2,000 17,000
------------ ------------
Net increase in cash and cash equivalents ............. 34,504,000 23,612,000
Cash and cash equivalents at beginning of period ...... 5,831,000 3,393,000
------------ ------------
Cash and cash equivalents at end of period ............ $ 40,335,000 $ 27,005,000
============ ============
Supplemental disclosures:
Interest ............................................ $ 1,510,000 $ 1,154,900
============ ============
Income taxes ........................................ $ 1,175,545 $ 229,500
============ ============
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
F-19
<PAGE>
CHIAT/DAY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The consolidated condensed interim financial statements included herein
have been prepared by Holdings, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although Holdings believes that
the disclosures are adequate to make the information presented not misleading.
2) These statements reflect all adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the information contained therein. It is suggested that these
consolidated condensed financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in Holdings' latest
fiscal report.
3) Results of operations for the interim periods are not necessarily
indicative of annual results.
4) Primary earnings per share is based upon the weighted average number of
shares outstanding during each year. Primary earnings per share (including EPUs
and EARs) is provided for informational purposes only and does not intend to
represent the EPUs or EARs as common stock equivalents pursuant to the
provisions of APB No. 15. The number of shares used in the computations were as
follows:
Six months ended April 30,
1995 1994
---- ----
Primary 53,520,734 54,345,734
Primary (including EPUs and EARs) 112,558,776 116,423,605
F-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant's Certificate of Incorporation contains a provision limiting
the liability of directors (except for approving statutorily prohibited
dividends, share repurchases or redemptions, distributions of assets on
dissolution or loans to directors) to acts or omissions in bad faith, involving
intentional misconduct or a knowing violation of the law, or resulting in
personal gain to which the director was not legally entitled. The Registrant's
By-Laws provide that an officer or director will be indemnified against any
costs or liabilities, including attorneys fees and amounts paid in settlement
with the consent of the registrant in connection with any claim, action or
proceeding to the fullest extent permitted by the New York Business Corporation
Law.
Section 722(a) of the New York Business Corporation Law provides that a
corporation may indemnify any officer or director, made or threatened to be
made, a party to an action other than one by or in the right of the corporation,
including an action by or in the right of any other corporation or other
enterprise, which any director or officer of the corporation served in any
capacity at the request of the corporation, because he was a director or officer
of the corporation, or served such other corporation or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees actually and necessarily incurred as a
result of such action, or any appeal therein, if such director or officer acted,
in good faith, for a purpose which he reasonably believed to be in, or in the
case of service for any other corporation or other enterprise, not opposed to,
the best interests of the corporation and, in criminal actions, in addition, had
no reasonable cause to believe that his conduct was unlawful.
Section 722(c) of the New York Business Corporation Law provides that a
corporation may indemnify any officer or director made, or threatened to be
made, a party to an action by or in the right of the corporation by reason of
the fact that he is or was a director of the corporation, or is or was serving
at the request of the corporation as a director of officer of any other
corporation of any type or kind, or other enterprise, against amounts paid in
settlement and reasonable expenses, including attorneys' fees actually and
necessarily incurred by him in connection with the defense or settlement of such
action, or in connection with an appeal therein, if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in, or,
in the case of service for another corporation or other enterprise, not opposed
to, the best interests of the corporation. The corporation may not, however,
indemnify any officer or director pursuant to Section 722(c) in respect of (1) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
court in which the action was brought or, if no action was brought, any court of
competent jurisdiction, determines in its discretion, that the person is fairly
and reasonably entitled to indemnity for such portion of the settlement and
expenses as the court deems proper.
Section 723 of the New York Business Corporation Law provides that an
officer or director who has been successful on the merits or otherwise in the
defense of a civil or criminal action of the character set forth in Section 722
is entitled to indemnification as permitted in such section. Section 724 of the
New York Business Corporation Law permits a court to award the indemnification
required by Section 722.
The Registrant has entered into agreements with its directors to indemnify
them for liabilities or costs arising out of any alleged or actual breach of
duty, neglect, errors or omissions while serving as a director. The Registrant
also maintains and pays premiums for directors' and officers' liability
insurance policies.
Item 21. Exhibits and Financial Statement Schedules.
(a) See Exhibit Index
(b) See the financial statement schedules included in Omnicom's Annual
Report on Form 10-K incorporated in this Prospectus/Information Statement
included in this Registration Statement.
II-1
<PAGE>
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c) under
the Securities Act, the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(c) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 under the Securities Act, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such requests, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of the responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 Registration Statement No. 33-60167 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on July 24, 1995.
OMNICOM GROUP INC.
Registrant
By: /s/ BRUCE CRAWFORD
----------------------
Bruce Crawford
President and Chief
Executive Officer
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ BRUCE CRAWFORD
---------------------------------------------------- President and Chief July 24, 1995
(Bruce Crawford) Executive Officer and Director
/S/ FRED J. MEYER
---------------------------------------------------- Chief Financial Officer July 24, 1995
(Fred J. Meyer) and Director
/S/ DALE A. ADAMS
---------------------------------------------------- Controller (Principal July 24, 1995
(Dale A. Adams) Accounting Officer)
---------------------------------------------------- Director
(Bernard Brochand)
/S/ LEONARD S. COLEMAN, JR.*
---------------------------------------------------- Director July 24, 1995
(Leonard S. Coleman, Jr.)
/S/ ROBERT J. CALLANDER* Director July 24, 1995
----------------------------------------------------
(Robert J. Callander)
/S/ JAMES A. CANNON*
---------------------------------------------------- Director July 24, 1995
(James A. Cannon)
/S/ PETER I. JONES*
---------------------------------------------------- Director July 24, 1995
(Peter I. Jones)
/S/ JOHN R. PURCELL*
---------------------------------------------------- Director July 24, 1995
(John R. Purcell)
/S/ KEITH L. REINHARD*
---------------------------------------------------- Director July 24, 1995
(Keith L. Reinhard)
/S/ ALLEN ROSENSHINE*
---------------------------------------------------- Director July 24, 1995
(Allen Rosenshine)
/S/ GARY L. ROUBOS*
---------------------------------------------------- Director July 24, 1995
(Gary L. Roubos)
---------------------------------------------------- Director
(Quentin I. Smith, Jr.)
/S/ ROBIN B. SMITH*
---------------------------------------------------- Director July 24, 1995
(Robin B. Smith)
/S/ JOHN D. WREN*
---------------------------------------------------- Director July 24, 1995
(John D. Wren)
/S/ WILLIAM G. TRAGOS*
---------------------------------------------------- Director July 24, 1995
(William G. Tragos)
/S/ EGON P.S. ZEHNDER*
---------------------------------------------------- Director July 24, 1995
(Egon P.S. Zehnder)
</TABLE>
- ----------------------
* By Barry J. Wagner, as Attorney-in-Fact
II-4
LIQUIDATING TRUST ESCROW AGREEMENT
LIQUIDATING TRUST ESCROW AGREEMENT, dated ____________, 1995 (the "Escrow
Agreement"), among CHIAT/DAY INC. ADVERTISING, a Delaware corporation
("Advertising"); CHIAT/DAY HOLDINGS, INC., a Delaware corporation ("Holdings");
and David C. Wiener, as Escrow Agent (the "Escrow Agent").
INTRODUCTION
A. Advertising, Holdings, TBWA International Inc. (the "Purchaser") and
Omnicom Group Inc., a New York corporation ("Omnicom") are parties to a certain
Asset Purchase Agreement dated May 11, 1995 (the "Purchase Agreement"), pursuant
to which the Purchaser acquired the assets and liabilities and the ongoing
businesses of Advertising and Holdings. Pursuant to the Purchase Agreement,
Holdings, Advertising and the Purchaser have entered into an escrow agreement of
even date herewith (the "Omnicom Indemnification Escrow Agreement") to secure
the Purchaser against certain Losses (as more fully set forth in the Purchase
Agreement). There will be created pursuant to the Omnicom Indemnification Escrow
Agreement a "General Escrow Fund" which will consist of two separate and
segregated sub-accounts, the "Stockholders General Escrow Fund" and the
"Rightsholders General Escrow Fund", and a "Special Escrow Fund" which will
consist of two separate and segregated sub-accounts, the "Stockholders Special
Escrow Fund" and the "Rightsholders Special Escrow Fund". The Stockholders
General Escrow Fund and the Stockholders Special Escrow Fund will contain
deposits designated for such account made by or on behalf of the Stockholders.
The Rightsholders General Escrow Fund and the Rightsholders Special Escrow Fund
will contain deposits designated for such account made by or on behalf of the
Rightsholders (as defined below). Terms defined in the Purchase Agreement that
are not otherwise defined herein are used herein with the meanings ascribed to
them therein.
B. The Purchase Agreement provides that Holdings will liquidate and
dissolve and that, in the course of its expeditious and orderly winding up
process, Holdings shall cause to be created a liquidating trust (hereinafter,
the "Liquidating Trust" and the trustee or trustees thereof, the "Liquidating
Trustee") to act as the representative for Holdings and the Stockholders.
C. There will also be created, pursuant to this Escrow Agreement, a
"Liquidating Trust Escrow Fund" which shall be available solely to fund and
secure obligations of holders of EARs and EPUs (collectively, the
"Rightsholders") to reimburse the Liquidating Trust for payments made by it in
respect of contingent or other liabilities of Holdings and Advertising, all in
accordance with this Escrow Agreement. The Liquidating Trust Escrow Fund will
contain deposits designated for such fund made by or on behalf of the
Rightsholders pursuant to Section 2.7 of
<PAGE>
the Purchase Agreement. The Liquidating Trust Escrow Fund is expressly not
intended to fund or secure the indemnification obligations of Holdings to the
Purchaser or any other Indemnified Party described in Section 11.2 of the
Purchase Agreement and none of Omnicom, the Purchaser or any other Indemnified
Party shall have any recourse to the Liquidating Trust Escrow Fund or the
Liquidating Trust Escrow Income (as defined below) for any purpose whatsoever.
D. The Purchase Agreement provides that Advertising shall distribute to the
Rightsholders pro rata in accordance with their interests, the shares of Omnicom
Common Stock, par value $.50 per share ("Omnicom Stock"), received by it
pursuant to the Purchase Agreement, less the shares of Omnicom Stock to be
transferred by Advertising to the General Escrow Fund and the Special Escrow
Fund (pursuant to the Omnicom Indemnification Escrow Agreement) and the
Liquidating Trust Escrow Fund created hereby on behalf of such Rightsholders.
Advertising and the Rightsholders have designated the Escrow Agent (such
designation by Advertising, for itself and on behalf of the Rightsholders, being
made by its execution of this Agreement), as their collective agent in
connection with the administration of this Escrow Agreement, including without
limitation to amend, cancel or extend, or waive the terms of this Escrow
Agreement; to respond to the assertion of any and all claims for indemnification
from the Liquidating Trust Escrow Fund by the Liquidating Trust pursuant to the
terms of this Escrow Agreement and the provisions of the Purchase Agreement, if
any, pertaining thereto; and to receive on their behalf the distributions, if
any, that would otherwise be due to them upon the distribution of all or a
portion of the Liquidating Trust Escrow Fund and Liquidating Trust Escrow Income
as herein provided.
E. References herein to Holdings as to a time following the creation and
funding of the Liquidating Trust shall be deemed to refer to the Liquidating
Trust and/or the Liquidating Trustee, as the context so requires.
Accordingly, the parties hereby agree as follows:
I. ESCROW AGENT; ESCROW FUND
1.1. Escrow Agent. Holdings, on behalf of itself and the Stockholders, and
Advertising, on behalf of itself and the Rightsholders, hereby appoint
_________________ as, and ________________ hereby accepts such appointment and
agrees to perform the duties of, Escrow Agent under this Escrow Agreement.
1.2. Escrow Fund. The Escrow Agent shall establish and maintain the
Liquidating Trust Escrow Fund. The Liquidating Trust Escrow Fund shall be held
by the Escrow Agent and shall be dealt with by the Escrow Agent in accordance
with the terms and conditions of this Escrow Agreement. This Escrow Agreement
shall terminate at such time as the entirety of the Liquidating Trust
2
<PAGE>
Escrow Fund shall have been distributed by the Escrow Agent in accordance with
the terms of this Escrow Agreement.
1.3. Deposits Into Liquidating Trust Escrow Fund; Sale of Omnicom Stock;
Rightsholders List. (a) Advertising shall deposit (or cause to be deposited) on
the Distribution Date (as defined in the Purchase Agreement) into the
Liquidating Trust Escrow Fund on behalf of the Rightsholders, certificates
registered in the name of the Liquidating Trust Escrow Agent representing
_______ shares of Omnicom Stock, together with stock powers duly executed in
blank in respect of such certificates.
(b) The Escrow Agent is hereby authorized and directed, as soon as is
commercially practicable after deposit of any Omnicom Stock into the Liquidating
Trust Escrow Fund, whether such deposit is made pursuant to this Section 1.3 or
pursuant to distributions of Omnicom Stock to the Escrow Agent, on behalf of the
Rightsholders, pursuant to the Omnicom Indemnification Escrow Agreement or
otherwise, to sell such Omnicom Stock and to retain the cash proceeds of such
sale, net of reasonable and customary brokers fees and other costs and expenses
of such sale, in the Liquidating Trust Escrow Fund for application in accordance
with this Escrow Agreement. The Escrow Agent is hereby authorized and directed
to liquidate any other type of property received for deposit in the Liquidating
Trust Escrow Fund in such manner as it deems appropriate and to retain the cash
proceeds of such sale, net of reasonable costs and expenses of such sale, in the
Liquidating Trust Escrow Fund for application in accordance with this Escrow
Agreement.
(c) Holdings and Advertising shall provide, and the Escrow Agent, in its
capacity as agent for the Rightsholders and for purposes of effecting
distributions hereunder, shall maintain, a list of Rightsholders reflecting the
pro rata interest of each such Rightsholder in the Liquidating Trust Escrow Fund
and the Liquidating Trust Escrow Income.
1.4. Liquidating Trust Escrow Income. Subject to the further provisions of
this Escrow Agreement, the Escrow Agent shall from time to time invest and
reinvest part or all cash amounts on deposit in the Liquidating Trust Escrow
Fund, and all earnings on such investments, in one or more Permitted Investments
(the earnings on such investments, the "Liquidating Trust Escrow Income") and
the Escrow Agent shall distribute any such Liquidating Trust Escrow Income to
the Rightsholders at the end of each fiscal quarter to the Rightsholders pro
rata in accordance with their respective interests. The Liquidating Trust Escrow
Income shall include any cash and other taxable dividends paid to the Escrow
Agent, on behalf of the Rightsholders, in respect of Omnicom Stock on deposit in
the Rightsholders General Escrow Fund or the Rightsholders Special Escrow Fund.
3
<PAGE>
1.5. Permitted Investments. "Permitted Investments" means: (i) obligations
of, or obligations which are guaranteed by, the United States of America, (ii)
obligations issued or guaranteed by any instrumentality or agency of the United
States of America or the District of Columbia and (iii) banker's acceptances of,
or certificates of deposit or prime commercial paper issued by, time deposits or
a money market account with, any commercial bank having undivided capital and
surplus aggregating at least $100,000,000, in each case which have a maturity of
90 days or less.
II. DISTRIBUTIONS FROM LIQUIDATING TRUST ESCROW FUND
2.1. Distributions Upon Liquidating Trust Distribution. The Liquidating
Trustee shall give three business days prior notice to the Escrow Agent of the
making of any distribution of the corpus of the trust ("Trust Property") to the
Stockholders under Section 3.2 of the Liquidating Trust Agreement dated as of
_________, 1995, between Holdings and the Liquidating Trustee (the "Liquidating
Trust Agreement"), and shall indicate the pro rata portion of the Trust Property
being so distributed. As soon as practicable after receipt of such notice, the
Escrow Agent shall distribute to the Rightsholders from funds on deposit in the
Liquidating Trust Escrow Fund, pro rata in accordance with their interests, the
same percentage of the Liquidating Trust Escrow Fund as is being distributed to
the Stockholders from the Liquidating Trust.
2.2. Distributions Upon Liquidating Trustee Request. three business days
prior to the making of any payment in respect of contingent or other liabilities
under the Liquidating Trust Agreement, the Liquidating Trustee shall deliver a
request (a "Liquidating Trustee Request") to the Escrow Agent specifying the
total amount of the payment to be made under the Liquidating Trust Agreement
(and setting forth the calculations described below), requesting reimbursement
for a specified portion of such payment from the Liquidating Trust Escrow Fund
and certifying that such liability has become due and payable. The amount of
funds so requested shall be equal to (x) the total amount of the payment to be
made under the Liquidating Trust Agreement multiplied by (y) a fraction, the
numerator of which equals the total amount of funds then on deposit in the
Liquidating Trust Escrow Fund (before making the requested payment) and the
denominator of which equals (1) the numerator plus (2) the amount of Trust
Property then on deposit (before making the required payment). The Escrow Agent
shall provide the Liquidating Trustee with any information requested by it for
the purposes of making the foregoing calculation. The Escrow Agent shall
promptly distribute to the Liquidating Trustee from the Liquidating Trust Escrow
Fund the funds requested in any such validly made Liquidating Trustee Request;
provided that if insufficient funds remain in the Liquidating Trust Escrow Fund
to satisfy such request, the Escrow Agent shall distribute all such remaining
funds to the Liquidating Trustee and the Liquidating Trustee
4
<PAGE>
Request shall be deemed to be satisfied in full by such distribution.
2.3. Distribution Upon Liquidating Trust Final Distribution. Upon the final
distribution by the Liquidating Trustee of Trust Property to the Stockholders
pursuant to the Liquidating Trust Agreement (whether upon termination of the
Liquidating Trust or otherwise), the Escrow Agent shall distribute to the
Rightsholders, pro rata in accordance with their interests, all funds then
remaining on deposit in the Liquidating Trust Escrow Fund and the Liquidating
Trust Escrow Income.
2.4. No Transfer of Escrowed Funds. While any funds remain on deposit in
the Liquidating Trust Escrow Fund, no Rightsholder will transfer, sell, pledge,
create a security interest in or otherwise dispose of their rights to any
distributions with respect to the Liquidating Trust Escrow Funds or the
Liquidating Trust Escrow Income, except by will, the laws of intestacy or by
other operation of law.
2.5. No Certificates. The rights of Rightsholders in to and under the
Liquidating Trust Escrow Fund and the Liquidating Trust Escrow Income shall not
be represented by any form of certificate or instrument.
2.6. Limitation to Liquidating Trust Escrow Fund; No Recourse. If the
amount of any claim made pursuant to a Liquidating Trustee Request exceeds the
value at such time of the Liquidating Trust Escrow Fund then such claim shall be
deemed to be satisfied on the release by the Escrow Agent to the Liquidating
Trustee of all funds then remaining in the Liquidating Trust Escrow Fund.
Anything contained in this Escrow Agreement to the contrary notwithstanding,
none of the Liquidating Trustee, the Liquidating Trust and the Stockholders
shall have any recourse for the payment of any losses or claims of any kind
whatsoever against the Rightsholders or their respective affiliates, nor shall
any of such persons be personally liable for any such amounts, it being
expressly understood that the sole remedy of the Liquidating Trustee, the
Liquidating Trust and the Stockholders for losses or claims shall be against the
Liquidating Trust Escrow Fund in accordance with this Escrow Agreement.
III. SECURITY INTEREST.
(a) Advertising on behalf of itself and the Rightsholders hereby grants to
Holdings on behalf of itself and the Stockholders a first priority perfected
security interest in the Liquidating Trust Escrow Fund to secure the performance
of the contingent obligations and indemnification obligations of the
Rightsholders under this Escrow Agreement. The Escrow Agreement shall constitute
a security agreement under applicable law.
5
<PAGE>
(b) The parties agree that this security interest shall attach as of the
execution of this Escrow Agreement. The parties agree that, for the purpose of
perfecting the Holdings' security interest in the above designated Liquidating
Trust Escrow Fund held by the Escrow Agent pursuant to this Escrow Agreement,
Holdings designates the Escrow Agent to acquire and maintain possession of the
Liquidating Trust Escrow Fund and act as bailee for the Holdings with notice of
the Holdings' security interest in said property under the Uniform Commercial
Code and that possession of the Liquidating Trust Escrow Fund by the Escrow
Agent acknowledges that it holds the Liquidating Trust Escrow Fund for Holdings
for purposes of perfecting the security interest. Advertising and the
Rightsholders, and the Escrow Agent shall take all other actions requested by
Holdings to maintain the perfection and priority of the security interest in the
Liquidating Trust Escrow Fund; provided that the Escrow Agent does not make any
representation or warranty with regard to the creation or perfection, hereunder
or otherwise, of any such security interest, and shall have no responsibility at
any time to ascertain whether or not any security interest exists.
(c) Holdings shall release the security interest herein granted and the
security interest shall be terminated to the extent of any disbursement of the
Liquidating Trust Escrow Fund hereunder by the Escrow Agent in accordance with
the terms of this Escrow Agreement. Upon final disbursement of the Liquidating
Trust Escrow Fund to the Liquidating Trustee, the Liquidating Trustee shall do
all acts and things reasonably necessary to release and extinguish such security
interest. Advertising on behalf of itself and the Rightsholders, and Holdings on
behalf of itself and the Stockholders, hereby specifically agree that the grant
of this security interest pursuant to this Article III shall not in any way
modify the procedures the parties hereto must follow with respect to the release
of funds from the Liquidating Trust Escrow Fund.
IV. ESCROW AGENT'S DUTIES AND FEES
4.1. Duties Limited. The Escrow Agent undertakes to perform only such
duties as are expressly set forth herein. The Escrow Agent shall not be bound
by, or have any responsibility with respect to, any other agreement between any
of the parties (other than an agreement to which the Escrow Agent is a party).
The Escrow Agent shall have no duty or responsibility with regard to any loss or
resulting from the investment, reinvestment, sale or liquidation of the
Liquidating Trust Escrow Fund or Liquidating Trust Escrow Income in accordance
with the terms of this Agreement. The Escrow Agent need not maintain insurance
with respect to the Liquidating Trust Escrow Fund or Liquidating Trust Escrow
Income.
4.2. Reliance. The Escrow Agent, acting (or refraining from acting) in
good faith, shall not be liable for any mistake of fact or error of judgment
by it or for any acts or omissions
6
<PAGE>
by it of any kind unless caused by gross negligence or willful misconduct, and
the Escrow Agent may rely, and shall be protected in acting or refraining from
acting, upon any written notice, instruction or request furnished to it
hereunder and believed by it to be genuine and to have been signed or presented
by the proper party or parties; provided that, as set forth below, modification
of this Escrow Agreement shall be signed by all of the parties hereto. The
Escrow Agent is hereby authorized to comply with any judicial order or legal
process which stays, enjoins, directs or otherwise affects the transfer or
delivery of any part of the Liquidating Trust Escrow Fund or Liquidating Trust
Escrow Income or any party hereto and shall incur no liability for any delay or
loss which may occur as a result of such compliance.
4.3. Good Faith. Advertising on behalf of itself and the Rightsholders, and
Holdings on behalf of itself and the Stockholders, hereby agree to indemnify the
Escrow Agent for, and to hold it harmless against, any loss, liability, expense
(including reasonable attorneys' fees and expenses), third party claim and
demand, incurred by it without gross negligence or bad faith on its part,
arising out of or in connection with its entering into this Escrow Agreement and
the carrying out of its duties hereunder. The Escrow Agent may consult with
counsel of its own choice, and shall have full and complete authorization and
protection for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel. The foregoing indemnification shall
survive the resignation of the Escrow Agent or the termination of this Escrow
Agreement.
4.4. Successor Escrow Agents. The Escrow Agent may resign and be discharged
from its duties or obligations hereunder at any time by giving 30 days' notice
in writing of such resignation to Holdings and Advertising. Holdings and
Advertising, together, shall have the right to terminate the appointment of the
Escrow Agent hereunder by giving to it notice in writing of such termination
specifying the date upon which such termination shall take effect. In either
such event, Holdings and Advertising hereby agree to promptly appoint a
successor escrow agent; if Holdings and Advertising are unable to appoint a
successor Escrow Agent within 25 days after the Escrow Agent's notice of
resignation, the Escrow Agent may petition a court of competent jurisdiction to
appoint a successor. The parties hereto agree that, upon demand of such
successor escrow agent, all property in the Liquidating Trust Escrow Fund and
the Liquidating Trust Escrow Income shall be turned over and delivered to such
successor escrow agent, which thereupon shall become bound by all of the
provisions hereof.
4.5. Fees and Expenses. The parties agree to pay on an equal basis to the
Escrow Agent reasonable compensation for the services to be rendered by it
hereunder and to pay to or reimburse the Escrow Agent for all reasonable
expenses, disbursements and advances (including reasonable attorneys' fees)
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incurred or made by it in connection with the carrying out of its duties
hereunder. Advertising on behalf of itself and the Rightsholders, and Holdings
on behalf of itself and the Stockholders, agree that the Escrow Agent may deduct
any unpaid fees from the Liquidating Trust Escrow Fund and the Liquidating Trust
Escrow Income prior to the Escrow Agent's distributing any assets in connection
with the termination of the Liquidating Trust Escrow Fund. As security for such
fees and expenses of the Escrow Agent and any and all such losses, liabilities,
expenses and claims incurred by the Escrow Agent in connection with its
acceptance of appointment hereunder, and with performance of the agreements
herein contained, the Escrow Agent is hereby given a lien upon all assets held
by the Escrow Agent hereunder, which lien shall be prior to all other liens upon
or claims against such assets.
4.6. Taxes. To the extent required by applicable law, the Escrow Agent
agrees to file tax returns on behalf of the Liquidating Trust Escrow Fund, and
pay taxes on the Liquidating Trust Escrow Income, on the basis that the
Liquidating Trust Escrow Fund is a trust that is not a grantor trust. Any such
taxes shall be paid out of the Liquidating Trust Escrow Fund and the Liquidating
Trust Escrow Income. The Escrow Agent shall also file and deliver all
appropriate information returns with respect to the Liquidating Trust Escrow
Income and the payment of such taxes. The Escrow Agent shall make no
disbursement from Liquidating Trust Escrow Fund that would cause the balance of
the Liquidating Trust Escrow Fund to be less than the aggregate taxes due or to
become due on the Liquidating Trust Escrow Income.
V. WAIVERS
This Escrow Agreement may be amended, superseded or canceled, and any of
the terms or conditions hereof may be waived, only by a written instrument
executed by the parties hereto or, in the case of a waiver, by the party waiving
compliance (or his agent). The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such party at a later time to enforce the same. No waiver of any nature,
whether by conduct or otherwise in any one or more instances, of any provision
hereof, shall be deemed to be, or construed as, a further or continuing waiver
of any such provision or of another provision hereof.
VI. NOTICES
Any notice or other communication required or which may be given hereunder
(including without limitation the delivery of funds to any Person out of the
Liquidating Trust Escrow Fund) shall be in writing and either delivered
personally or mailed by certified or registered mail, postage prepaid, or sent
by facsimile transmission, and shall be deemed given when so delivered
personally, mailed or sent by facsimile, as follows:
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If to Advertising or Holdings, to Holdings at:
Chiat/Day Holdings, Inc.
180 Maiden Lane
New York, New York 10038
Attention: Chief Financial Officer
Fax No.: (212-804-1200)
(or following the dissolution of
Holdings to the Liquidating
Trustee at such address as
Holdings shall provide to the
Escrow Agent)
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: James Cotter, Esq.
Fax No.: 212-455-2502
If to the Escrow Agent, to
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Any party may change the persons and addresses to which notices, payments,
instructions or other communications are to be sent to such party by giving
written notice of any such change in the manner provided herein for giving
notice. Notices sent by facsimile transmission shall be confirmed in writing by
registered or certified mail, return receipt requested.
VII. GOVERNING LAW
This Escrow Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to agreements made and to be
performed entirely within such State.
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VIII. NO ASSIGNMENT
This Escrow Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of Holdings, Advertising and the Escrow Agent, but,
except for as otherwise provided or permitted in this Escrow Agreement, no
delegation of any obligations provided for herein may be made by any party
hereto without the express written consent of the other parties hereto, except
for the provisions of Section 4.4 hereof respecting successor escrow agents.
IX. SECTION HEADINGS
The section headings contained in this Escrow Agreement are inserted for
convenience of reference only, and shall not affect the meaning or
interpretation of this Escrow Agreement.
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WITNESS the execution of this Escrow Agreement as of the date first above
written.
CHIAT/DAY HOLDINGS, INC.
By: ________________________
CHIAT/DAY INC. ADVERTISING
By: ________________________
[Escrow Agent]
By: ________________________
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Exhibit 5.1
July 18, 1995
Omnicom Group Inc.
437 Madison Avenue
New York, NY 10022
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
In our capacity as counsel to Omnicom Group Inc., a New York corporation
(the "Company"), we have been asked to render this opinion in connection with
Registration Statement No. 33-60167 on Form S-4 (the "Registration Statement")
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, covering an aggregate of up to 600,000
shares of common stock, $0.50 par value, of the Company (the "Shares") to be
issued in connection with the acquisition by the Company, through its indirectly
wholly-owned subsidiary TBWA International Inc., of the assets and businesses of
Chiat/Day Holdings, Inc. and Chiat/Day inc. Advertising.
In that connection, we have examined the Certificate of Incorporation and
the By-Laws, both as amended, of the Company, the Registration Statement,
corporate proceedings relating to the issuance of the Shares, and such other
instruments and documents as we deemed relevant under the circumstances.
In making the aforesaid examination, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies furnished to
us as original or photostatic copies. We have also assumed that the corporate
records furnished to us by the Company include all corporate proceedings taken
by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that when
issued in accordance with the Acquisition Agreement, the Shares will have been
legally issued and be fully paid and non-assessable shares of common stock,
$0.50 par value, of the Company.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the Prospectus/Information Statement forming part of
the Registration Statement.
Very truly yours,
DAVIS & GILBERT
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 20,
1994 included in Omnicom Group Inc.'s Form 10-K for the year ended December 31,
1994 and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
New York, New York
July 20, 1995
Exhibit 23.2
Consent of Independent Accountants
We consent to the inclusion in this Prospectus/Information Statement and
the Registration Statement of which this Prospectus/Information Statement is a
part on Form S-4 (File No. 33-60167) of our report, which includes an
explanatory paragraph concerning the Company's ability to continue as a going
concern dated April 7, 1995, except for Note 10 as to which the date is June 7,
1995, on our audit of the consolidated financial statements of Chiat/Day
Holdings, Inc. We also consent to the reference to our firm under the caption
"Experts".
Coopers & Lybrand L.L.P.
Sherman Oaks, California
July 24, 1995
